Although Basel II accord has been criticized for its inadequacy in defining what constitutes a bank’s capital, it has extensively provided a basis for operational risk management in banks. Thus, this current research was needed to to analyze operational banking risk and how bank managers and central regulatory authorities have been able to mitigate the protracted inadequacies of bank capital. It infuses the exigency of capital adequacy and gap management into a stylized propagation for managing bank risks, in addition to wedging macroeconomic determinants. Various indicators such as profitability ratios, liquidity ratios, leverage, and efficiency index are used to assess the risks undertaken by Vietnam banks. Macroeconomic components such as GDP growth rate and inflation are included in our modeling to determine whether efficiency in managing bank-specific risk is sufficient, especially the trend in an unstable business cycle.A central focus of the BASEL guide has been on capital adequacy as a cushioning mechanism for risk exposure of bank assets. In other words, a higher exposure of a financial institution to credit and operation risk will require an augmentation of its capital to safeguard future operation in case of losses from such risk. For this purpose, we propose a dynamic financial statement analysis of various banks‟ balance sheet and income statements. Subsequently, a panel data analysis is used to check if risk management efficiency of a bank is sufficient to keep capital, or other macroeconomic determinants which pose a systemic threat. This will help in showing the nexus between quality of capital, risk asset, and bank value (total asset). Macroeconomic indicators will also be considered in the model to reflect the cyclicality bank operations to economic changes.Basic questions to be answered will include: What are the common risks faced byNigerian Banks? Do these risks concord with those identified by the Bank for InternationalSettlement? What is the direction for risk management of the banks taking cognizance ofbusiness cycles? How can banks sustain a regime of quality asset, high earnings and ensurecapital adequacy with no recourse to capital market performance? To answer this course,this study will focus on 9 top Nigerian banks (based on total asset-base). Based oncollected data, sourced from consolidated financial statements of each bank, it is clear thatthe selected banks account for about 78% of the total assets of commercial banks inNigeria. The financial statement analysis will cover the period from 2003 to 2009. Thisperiod witnessed symbolic reforms, transformation, profit explosion and credit crunch.The major gap in the knowledge of risk management discipline in the study was to help in bridging the relationship between risk management and the other three constructs of the study: corporate governance, regulation and bank performances. In past studies, these had been handled separately, thus isolating the impact of one from the others in banking operation. In synthesizing the relationships between these constructs, contemporary risk management techniques are suggested on how to (a) identify the inherent risks in banking operations, (b) measure them appropriately, and (c) analyze and control them holistically in an ERM environment to enable banks to allot their available capital to these risks to reduce the banks’ losses.This study is needed to help expose bank operators to the implications of not managing the inherent risks in their operation appropriately and to advance contemporary risk management techniques for adequate management of those risks in a holistic manner in order to guarantee the safety of banks. The root causes of banks failures are associated with ineffective risk management, nonadherence to regulation, and poor corporate governance culture in their operations. Although there could be other silent causes, for example, adverse economic, political and environmental situations, many of the major causes are linked to the ineffective risk management, nonadherence to regulation, and to poor corporate governance. In Nigeria, as a developing economy, the apparent gaps in prudential regulatory and supervisory frameworks compound the noticed weaknesses in the three main constructs of the study.
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