An Appraisal of Risk Management Process Integration on Reducing Non-Performing Loans in Banking: A Case Study of First City Monument Bank
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Background of the Study
Effective risk management is central to maintaining a healthy loan portfolio in banking. First City Monument Bank (FCMB) has adopted an integrated risk management process that leverages advanced analytics, real-time monitoring, and predictive modeling to assess credit risk. This holistic system enables FCMB to identify early warning signals of borrower distress, allowing for proactive intervention to reduce the incidence of non-performing loans (NPLs). By combining traditional credit assessment with modern data-driven approaches, FCMB aims to enhance credit quality and improve asset quality. Integrated risk management supports regulatory compliance and contributes to overall financial stability by ensuring that risk exposures are managed effectively.
Statement of the Problem
Despite the adoption of an integrated risk management process, FCMB continues to struggle with a persistent level of non-performing loans. Challenges arise from difficulties in seamlessly integrating new risk management tools with existing legacy systems, which can lead to delays in identifying credit risks. Additionally, the dynamic nature of credit markets necessitates constant updates to risk models; any lag in these updates may result in inaccurate risk assessments. Resistance among traditional credit analysts to adopt new methodologies further complicates the effective utilization of integrated risk systems. These issues underscore the need for a thorough evaluation of FCMB’s risk management integration to determine its effectiveness in reducing NPLs and to develop strategies for addressing existing challenges.
Objectives of the Study
- To appraise the impact of integrated risk management on reducing NPLs at FCMB.
- To identify integration and training challenges affecting the risk management process.
- To recommend strategies for optimizing risk management to improve credit quality.
Research Questions
- How does integrated risk management affect non-performing loans at FCMB?
- What integration challenges exist between new risk management tools and legacy systems?
- How can training and process updates improve credit quality?
Research Hypotheses
- H1: Integrated risk management significantly reduces non-performing loans at FCMB.
- H2: Integration issues with legacy systems adversely affect risk management effectiveness.
- H3: Continuous staff training enhances the performance of integrated risk management systems.
Scope and Limitations of the Study
This study focuses on FCMB’s integrated risk management processes and their impact on NPLs. Limitations include data integration challenges and market volatility.
Definitions of Terms
- Integrated Risk Management: A holistic approach to managing credit risk using various analytical tools.
- Non-Performing Loans (NPLs): Loans in which borrowers are failing to meet their repayment obligations.
- Predictive Modeling: The use of statistical techniques to forecast future events.
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