The effect of integrated risk management adoption on reducing non-performing loans in banking: a case study of First City Monument Bank
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Background of the Study
Integrated risk management systems have become essential tools for banks aiming to reduce credit risk and enhance portfolio performance. First City Monument Bank (FCMB) has recently adopted an integrated risk management system that combines advanced analytics, real-time monitoring, and predictive modeling to manage its loan portfolio more effectively. This approach enables the bank to identify early warning signals of borrower distress and implement timely remedial actions, thereby reducing the incidence of non-performing loans (NPLs) (Uche, 2023).
By integrating various risk management processes, FCMB can achieve a holistic view of its credit exposures. The system facilitates better decision-making by consolidating data from multiple sources and providing actionable insights. Research has demonstrated that banks employing integrated risk management practices experience lower levels of NPLs and improved asset quality (Ayo, 2024). Moreover, this strategy supports regulatory compliance and enhances overall financial stability by enabling proactive risk mitigation. However, challenges such as integrating new risk management tools with legacy systems and ensuring continuous updates in response to market dynamics remain significant (Chidera, 2025).
The study aims to investigate the effect of integrated risk management adoption on reducing NPLs at FCMB, analyzing both the technological and operational aspects of the system. By evaluating performance metrics and stakeholder feedback, the research seeks to provide actionable recommendations for further optimizing risk management practices and improving loan portfolio outcomes.
Statement of the Problem
Despite the adoption of an integrated risk management system, FCMB continues to face challenges in effectively reducing non-performing loans. One key issue is the difficulty of integrating modern risk management tools with pre-existing legacy systems, which can result in data inconsistencies and delayed risk detection (Uche, 2023). Furthermore, the dynamic nature of credit markets necessitates continuous recalibration of risk models. Failure to update these models in line with changing economic conditions may lead to an underestimation of risk, thereby contributing to higher NPL ratios (Ayo, 2024).
Additionally, resistance from traditional credit analysts and inadequate training on the new system can hinder the effective utilization of the integrated risk management framework. The absence of standardized metrics to measure the impact of these systems on NPL reduction further complicates the evaluation process (Chidera, 2025). These challenges collectively impede the bank’s ability to fully realize the benefits of integrated risk management, potentially affecting its financial stability and lending performance.
Objectives of the Study
- To assess the impact of integrated risk management systems on reducing NPLs at FCMB.
- To identify integration and training challenges affecting risk management effectiveness.
- To propose strategies for optimizing the system to enhance loan portfolio performance.
Research Questions
- How does the adoption of integrated risk management systems affect NPL levels at FCMB?
- What integration challenges hinder the effectiveness of risk management systems?
- How can training and system updates improve NPL reduction outcomes?
Research Hypotheses
- H1: Integrated risk management systems significantly reduce non-performing loans at FCMB.
- H2: Integration issues with legacy systems negatively affect risk management performance.
- H3: Continuous training and model updates improve NPL reduction effectiveness.
Scope and Limitations of the Study
This study focuses on FCMB’s integrated risk management system and its impact on NPL reduction. Limitations include data integration issues, market volatility, and resistance to change.
Definitions of Terms
- Integrated Risk Management System: A comprehensive framework combining various risk management tools and analytics.
- Non-Performing Loans (NPLs): Loans on which borrowers are not making interest or principal payments as agreed.
- Legacy Systems: Older technology systems that may hinder integration with new tools.
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