CHAPTER 1
INTRODUCTION
1.1BACKGROUND INFORMATION
The path of financial activity, which concerns banking,
insurance, savings and loans associations, etc, had always been paved with
numerous contingencies. Contingencies are referred to here as risks that
symbolises a situation that cannot be controlled or perfectly foreseen (S.R.
DIACON, 1984). These risks cannot be predicted accurately and this therefore
gives rise to the involvement of a careful management.
The Cameroonian financial framework, as any other financial
system in the world, deals highly with risks in its every day management. As a
reason for this, we can mention the fact that there are factors that are not
under the control of managers such as globalisation, world changes or market
variables like price changes or stock exchange trends.
Historically the banking and finance management in Cameroon
has always been subject to some major risks, the careful management of which
has always led to survival in the financial sector. Many Cameroonian financial
houses handle these risks on a daily basis in order to grow and encounter rapid
changes. Therefore, risks must be understood and carefully managed for a proper
decision making in the Cameroonian financial system.
1.2 PROBLEM STATEMENT
In 2005, 7 of 11 banks were found to be in a good or solid
standing (CEMAC, surveillance report, 2005).Furthermore, the liquid ratio of
the whole financial system was 2 in 2004 and 0.58 in 2005. This information
highlights the problem of liquidity risks encountered by banks in Cameroon.
Furthermore the amount of bad/non-performing loans was 13.1
billions in 2004 and an increase in 2005 (COBAC and staff calculations) and an
increase in the amount from 2004 to 2005 by 0.8 billions.
An analysis of these statistics shows an increase in the
banking and finance activity in Cameroon. For the past three years as a result
of a fall in the amount of bad debt from 2004 to 2005. This may imply that the
minimisation of credit risks has increased the amount in savings accounts by
0.8 billions. Here we have mentioned the level of bad loan in relation to the
risk analysis. This therefore helps us in asking ourselves the following
fundamental questions four our study.
- Is there any relationship between the risk management and
the growth of financial institutions in Cameroon?
- Does risk management have an impact on risky shift through
reduction of bad loans in the Cameroonian financial system?
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to investigate the impact
of risk management in reducing the risks of financial institutions in Cameroon.
To better cope with main objective, we may need to focus on the following
specific objectives.
- Investigating the impact of risk management on financial
institutions profitability.
- Assessing the impact of risk management on the overall
credit policy of financial institutions.
- Studying the effect of risk management on the liquidity
level of financial institutions.
- Making necessary recommendations on how to minimise risks in
the financial environment.
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