An examination of integrated risk management practices 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 (IRM) practices are essential for maintaining financial stability and ensuring sustainable lending practices. First City Monument Bank (FCMB) has adopted a comprehensive IRM framework to address the persistent challenge of non-performing loans (NPLs). By integrating risk assessment, monitoring, and mitigation strategies across all operational levels, FCMB aims to identify early warning signs of credit deterioration and take proactive measures to prevent loan defaults (Okoye, 2023). The IRM approach involves the use of real-time data analytics, predictive modeling, and cross-departmental coordination to monitor credit exposures and adjust lending policies accordingly. This holistic framework is designed to not only reduce NPLs but also to enhance overall portfolio quality, thereby improving profitability and investor confidence.
FCMB’s adoption of IRM practices represents a strategic shift from traditional risk management, where isolated measures were often insufficient to address complex credit risks. The integrated framework enables the bank to streamline communication between risk management units, lending departments, and senior management. Enhanced transparency and accountability within the lending process have resulted in more informed decision-making and timely intervention strategies. Furthermore, regulatory pressures and market volatility have underscored the need for robust risk management practices. Emerging research suggests that banks employing integrated risk management practices report lower incidences of NPLs and improved financial performance (Adebayo, 2024). However, challenges remain in aligning legacy systems with new risk management technologies and ensuring consistent implementation across all branches. FCMB’s case offers a critical lens through which the effectiveness of integrated risk management practices can be evaluated, with the ultimate goal of reducing non-performing loans and strengthening financial resilience (Chinwe, 2023).
Statement of the Problem
Despite the implementation of integrated risk management practices, FCMB continues to grapple with a high level of non-performing loans. The bank’s current IRM framework, while advanced, faces issues such as data fragmentation, delays in risk signal detection, and inconsistent application across various lending units (Ibrahim, 2024). In some instances, the predictive models used for credit risk assessment have not fully captured emerging market risks, leading to delayed corrective actions. Additionally, challenges in staff training and legacy system integration have contributed to gaps in risk monitoring, thereby allowing potentially high-risk loans to deteriorate into NPLs. The disconnect between theoretical risk management frameworks and practical, on-ground execution is a critical concern. Without addressing these operational shortcomings, FCMB risks continued financial strain and diminished investor confidence. This study aims to investigate the effectiveness of the integrated risk management practices at FCMB in reducing NPLs, identify the operational barriers to effective implementation, and propose strategic interventions that can enhance risk detection and mitigation efforts (Uzo, 2023).
Objectives of the Study
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To evaluate the impact of integrated risk management practices on reducing non-performing loans at FCMB.
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To identify challenges in the implementation of IRM across different lending units.
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To recommend strategies for improving risk detection and intervention processes.
Research Questions
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How effective are integrated risk management practices in reducing non-performing loans at FCMB?
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What operational challenges impede the successful implementation of IRM?
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What strategies can enhance the effectiveness of IRM in mitigating credit risk?
Research Hypotheses
H₀: Integrated risk management practices do not significantly reduce non-performing loans at FCMB.
H₁: Integrated risk management practices significantly reduce non-performing loans at FCMB.
H₀: Implementation challenges do not significantly affect the efficiency of IRM.
H₁: Implementation challenges significantly hinder the efficiency of IRM.
H₀: Strategic improvements in IRM will not lead to lower NPL levels.
H₁: Strategic improvements in IRM will significantly reduce non-performing loans.
Scope and Limitations of the Study
This study focuses on FCMB’s integrated risk management practices and their effect on non-performing loans. Data will be sourced from internal risk reports, loan performance records, and interviews with risk management personnel. Limitations include restricted access to proprietary risk models and external economic influences on loan performance.
Definitions of Terms
• Integrated Risk Management (IRM): A holistic approach that consolidates risk assessment, monitoring, and mitigation processes.
• Non-Performing Loans (NPLs): Loans on which the borrower is not making scheduled payments.
• Credit Risk: The potential for financial loss due to a borrower’s failure to repay a loan.
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