Basel Iii Framework and Market Risk Management of Commercial Banks in Kenya

Abstract

The purpose of this study was to establish the role of Basel III framework on market risk management of commercial banks in Kenya and to determine the challenges faced in the implementation of Basel III framework on market risk management of commercial banks in Kenya. The study ought to find out the challenges commercial banks face in regards to the implementation of Basel III framework on market risk management. A descriptive survey design was applied to a population of 42 commercial banks in Kenya. The target population comprised of 42 risk managers employed at the head offices from all the 42 commercial banks. The response rate was 74% (31 out of 42 banks). Primary data was collected using questionnaires which were distributed to the 42 banks and later picked up after the respondents had answered them. Descriptive analysis was used to analyze quantitative data while content analysis was used to analyze qualitative data. The study findings asserted that market risk management under Basel III framework is very important to commercial banks in Kenya since it leads to enhanced market risk management techniques. The study also revealed that majority of the commercial banks in Kenya have commenced the implementation of Basel III framework on market risk management, even though they face challenges with regards to high implementation costs, technology and systems infrastructure and model development and validation issues. The study recommends that commercial banks in Kenya should continue with the pursuit of enhanced market risk management guidelines under Basel III framework by complying and adhering to guidelines enforced by the Central Bank of Kenya. Compliance with the Basel III framework guidelines on market risk management will lead to improved market risk management, thus commercial banks