The Effect of Risk Management on the Profitability of Listed Deposit Money Banks in Nigeria

There has been increasing attention on risk management which had elicited various responses from several regulators and other interest bodies such as the Basel accord, International financial reporting standard and country’s central banks, in which they formulated frameworks for effective management of risks by financial institutions across the world which is expected to improve the performance of such institutions. This study therefore reviewed the effect of the nine risk management variables on the profitability of deposit money banks in Nigeria using Earning Per Share as proxy for profitability and adopting the nine (9) risk management codes of Credit Risk, Market Risk, Liquidity Risk, Operational Risk, Strategic Risk, Solvency Risk. Legal/regulatory/ compliance Risk, Reputational Risk, and Counterparty Risk as independent variables. A sample of 12 banks was adopted from which secondary data covering ten years were extracted and multivariate regression analysis, ordinary least square was used to examine the effect of the risk management variables on earning per shares of the banks. This study found that risk management has a significant positive effect on the profitability of the banks as measured by earnings per share and concludes that paying more attention to the risk management attributes would actually lead to improved performance. Hence, it recommended that executive management of banks and regulators should pay proper attention to risk management as this would eventually lead to improved profitability of the banks.