An examination of risk management policy integration on loan performance in banking: a case study of First City Monument Bank
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Background of the Study
Risk management is fundamental to maintaining the quality of a bank’s loan portfolio. First City Monument Bank (FCMB) has integrated innovative risk management policies—combining traditional credit analysis with predictive analytics and real-time monitoring—to enhance loan performance and reduce default rates (Okechukwu, 2023). By integrating new risk assessment tools with established procedures, FCMB aims to identify high-risk loans earlier and adjust lending strategies accordingly. This integration allows for more dynamic and responsive decision-making, which is critical in mitigating the risks associated with economic fluctuations and borrower behavior (Adeniyi, 2024).
Empirical research demonstrates that banks with well-integrated risk management policies tend to exhibit lower non-performing loan ratios and improved asset quality (Chinwe, 2023). However, challenges such as integrating modern analytical tools with legacy systems and ensuring consistent policy application across various branches may compromise these benefits. This study seeks to examine the effect of risk management policy integration on loan performance at FCMB by analyzing loan data, default ratios, and qualitative insights from risk management professionals. The objective is to identify the key factors that drive improved loan performance and to recommend strategies for further optimizing risk management integration.
Statement of the Problem
Despite the integration of advanced risk management policies, FCMB continues to experience challenges in achieving optimal loan performance. A key problem is the difficulty in harmonizing new predictive analytics tools with legacy credit evaluation systems, which can result in delays in risk identification and inconsistent lending decisions (Emeka, 2023). Additionally, discrepancies in policy implementation across different branches may lead to variations in loan quality. Economic volatility and unexpected borrower behavior further complicate the risk management process, sometimes resulting in higher default rates than anticipated. These challenges underscore a gap between the potential benefits of integrated risk management and its practical outcomes. This study aims to assess whether the current integration of risk management policies effectively improves loan performance and to identify operational hurdles that limit its success.
Objectives of the Study
• To examine the impact of risk management policy integration on loan performance at FCMB.
• To identify operational challenges in integrating new risk management tools with legacy systems.
• To recommend strategies for optimizing policy integration to reduce loan defaults.
Research Questions
• How does risk management policy integration affect loan performance at FCMB?
• What operational challenges hinder effective risk assessment?
• How can risk management integration be optimized to improve loan quality?
Research Hypotheses
• H1: Integrated risk management policies significantly improve loan performance.
• H2: Integration challenges negatively impact the effectiveness of risk management.
• H3: Enhanced staff training and system integration improve loan outcomes.
Scope and Limitations of the Study
This study focuses on FCMB’s loan performance data and risk management practices over the past three years, using internal reports and interviews with risk managers. Limitations include economic fluctuations and potential integration challenges with legacy systems.
Definitions of Terms
• Risk Management Policy Integration: The process of combining new risk assessment tools with traditional credit evaluation methods.
• Loan Performance: The quality and repayment behavior of a bank’s loan portfolio.
• Non-Performing Loans: Loans that are in default or close to default.
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