1.1 Background of the Study
Risk Management is the identification assessment and prioritization of risks. It is the effect of uncertainty on objectives, whether positive or negative followed by coordinated and economic of application of resources to monitor and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities (Okeh, 2006). The survival of every commercial bank depends on its ability to manage its risks and loans or advance portfolio effectively. However in the recent past, commercial banks in Nigeria witnessed rising non-performing credit portfolios and these significantly contributed to the financial distress in the banking sector. Financial organization need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credit or transaction. This is so because the survival and ability of financial institution to compete depend on their ability to profitability and manage credit risk.
This is the reasons why lending is based on the two fundamental products of banking: money and information. Banks obtain these products from customers themselves by offering customer valuable services. They package money and information about their borrowers together with valuable banking services to create loan agreements and sell the loan agreements back to their customers (Hempel and Simonson, 2007). As such, risk rating system in financial institution contains both objective and subjective elements. Objective aspect are based on financial statements and application of certain financial ratio that reflect liquidity, leverage and earnings. Despite the requirement that risk be quantified, risk rating systems always have a subjective dimension that attempts to capture intangibles such as the quality of management, the borrower’s status within the industry, and the quality of financial reporting. These subjective items may result in inconsistencies. It is in this regard that many financial institutions have faced difficulties over the years arising from their inability to effectively manage credit risk. As such the major cause of serious banking problems continues to be directly related to tax credit standard for borrowers and counter parties, poor portfolio risk management, or lack of attention lead to a deterioration in the credit standard of a bank’s counter parties. Hence, the need to investigate the subject matter of this research becomes imperative.
1.2 Statement of the Problem
Commercial banks in the recent past witness rising non-performing credit portfolios sequel to the inability of their management to effectively manage risk and credit administration. That problem resulted to high bad debts in commercial bank and a number of other commercial banks were classified as distressed banks by the monetary authorities. Consequently, the need to examine the subject matter: An Assessment of risk management and credit administration in Union Bank Plc, Kaduna Main branch becomes worthy of investigation.
1.3 Objectives of the Study
The central objective of the study is to assess risk management and credit administration in Union Bank Plc, Kaduna. The specific objectives are: i) To examine risk management system in Union Bank Kaduna Main Branch. ii) To assess credit administration in Union Bank Kaduna Main Branch. iii) To identify the constraints militating against risk management and credit administration in Union Bank. iv) To proffer workable solutions to the identified problems.
1.4 Significance of the Study
This study will be beneficial to financial institution especially Union Bank Plc, as they utilize the finding of this study as a basis for policy formulation regarding risk management and credit administration in Banks. The shareholders, stakeholders and the entire society will benefit from this study.