Risk Management and Capital Investment Decisions of Commercial Banks: Evidence from Nigeria
Vol.6 Issue 2
This study investigated the relationship between risk management and capital investment decisions of quoted commercial banks in Nigeria. Panel data were sourced from the Nigeria Stock Exchange for a period that spans 2009 to 2018. Capital investment was modelled as the function of Risk diversification, Basel compliance, risk transfer, credit securitization and risk retention and risk evaluation. Multiple regressions were formulated to ascertain the relationship between risk management and capital investment decision of commercial banks. Panel Unit root test was utilised to establish the stationarity of the data. Panel co-integration and granger causality test analyse the data. The panel unit root test proved presence of unit root at first difference and concluded that the variables were integrated in the order of 1(I). The study found that, there is a significant relationship between risk management and capital investment decision, of the quoted commercial banks. The panel co-integrations show the presence of long run relationship between the endogenous variables and the exogenous variables while the granger causality test found uni-directional causality among the variables. From the findings, the study concludes that risk management have significant relationship with capital investment decisions of the commercial banks. We recommend Bank management should ensure risk diversification among investments to reduce the risk associate with different investment strategies. There should be strict compliance to Basle risk specifications such as risk to total risk assets, risk to total capital and that management of the commercial banks should formulate risk management strategies that can cushion the effect of retained risk in commercial bank investment decisions.
