OPERATIONAL RISK AND PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Operational risk summarizes the uncertainties and hazards a company faces when it attempts to do its day-to-day business activities within a given field or industry. The study examined the effect of operational risk on performance of deposit money banks in Nigeria. Specifically, the study determined the effect of security/legal expenses on the performance of deposit money banks in Nigeria. Ascertain the effects of insurance premium on the performance of deposit money banks in Nigeria. Ascertain the effect of cost income ratio on the performance of deposit money banks in Nigeria and examined the effect of directors’ remunerations on the performance of deposit money banks in Nigeria. Econometric technique involving Augmented Dickey-Fuller (ADF) test for unit root test which discovered that the variables were Stationarity at level and first difference which necessitated the use of Autoregressive Distribution Lag (ARDL) as a method of data analyses. The result of the analysis revealed that security/legal expenses have a negative and insignificant effect on the return on equity of deposit money banks in Nigeria. Insurance premium has a negative and insignificant effect on the return on equity of deposit money banks in Nigeria. Cost income ratio has a negative and insignificant effect on the return on equity of deposit money banks in Nigeria and directors’ remunerations has a negative and insignificant effect on the return on equity of deposit money banks in Nigeria. The findings suggest that operating risk had an insignificant effect on the performance of deposit money banks. The study concludes that operational risk have negative and insignificant effect on the performance of deposit money banks in Nigeria. Amongst the recommendation is that the central bank should strengthen and adapt the regulatory framework to provide a balanced approach to risk management. This includes regularly updating regulations to keep pace with the evolving financial