MINIMIZING BANKS INVESTMENT FINANCIAL RISKS THROUGH MODERN CAPITAL PROJECT APPRAISAL TECHNIQUES

Abstract

The rapid expansion of financial environments has escalated investment risks in the banking industries across the globe, motivating this study to investigate the capability of modern capital project appraisal techniques on minimizing banks’ investment financial risks in Nigeria. Specifically, the study examines the influence of sensitivity analysis and net present value (NPV) on investment financial risks reduction in Nigerian banks. The research employs descriptive quantitative approach to obtain primary data through the questionnaires administered to 1,200 Bank Managers, Accountants, Finance Managers, Investment and financial analysts of the 10 purposively selected banks in Nigeria. The collected data were analyzed using descriptive statistics and multiple regression technique. Findings reveal significant positive influence of both NPV and sensitivity analysis techniques on investment financial risks reduction in Nigerian banks. The research concludes that applying NPV and sensitivity analysis for project appraisal will reduce banks’ exposure to investment financial risks, and recommends that Nigerian banks stakeholders should invest more in capacity building to close knowledge gaps of their investment analysts in order to minimize investment financial risks. This study’s findings inform the banks’ managers that while NPV facilitates viable capital projects selection, the sensitivity analysis assists in assessing the financial risk profiles of such project in managing the uncertainties in financial investment decision-making.