An Investigation of Risk Assessment Techniques Applied by Commercial Banks in Kenya

Abstract

The goal of this study was to investigate the risk assessment techniques being applied by the commercial banks in Kenya a well as evaluate the risk exposure level of the commercial banks in Kenya. Risk assessment involves the process of identifying, measuring and prioritizing risk. It is the first step in a risk management process. It's used to which determine the quantitative and qualitative value of risk related to a concrete situation and a recognized threat or hazard. There is need for Kenyan banks to put in place workable and efficient risk assessment techniques. Having an efficient risk assessment systems increases the likelihood of banks success, reduces possibility of bank failures and limits the uncertainty of the overall financial performance to preventing banks from suffering unacceptable losses This study was conducted through the use of a questionnaire with both structured and unstructured questions.

The questionnaires were distributed to all the 44 commercial banks operating in Kenya as per the CBK data of 2008. Each bank was given two questionnaires so as to compare the variability of the results between the two from the same bank in ensuring data reliability. The outcome of the study indicated that Kenyan Banks have put in place various techniques suitable to their operating environment to check on risk that comes with lending of loans. The study was able to identify the causes of these risks and how the banks in Kenya are addressing them as well as the mitigation factors that they have put in place to ensure checks and controls.

In conclusion the study established a need for the banks to keep on updating their risk assessment techniques in line with the changing operational environment as well as global trends related to the banking industry. This will help ensure sustainability of these institutions and enable them handle emerging risks within the banking sector.