Enterprise Risk Management Strategies and Practices as Determinants of Performance in Commercial Banks in Kenya

Abstract

As far as enterprise risk management strategies and practices are concerned, there appears to be little done especially in Kenya. This creates a gap in literature that the present study sought to bridge. This study differs from the previous ones because it focuses on a developing nation, Kenya, which was not the focus of the previous studies hence such studies cannot be generalized to Kenya. Further, the enterprise risk management is used in this study as a strategic concept. This significantly shifts focus from the previous studies. The study therefore sought to analyze the various risk management practices adopted by Commercial Banks and their influence on bank performance in Kenya. A cross-sectional survey design was used in this study. A total of 36 banks took part in the study (80% response rate). Both primary and secondary data were collected. The primary data was collected through questionnaires while secondary data was collected from annual statements. The questionnaires were administered to the risk management staff using drop and pick later method. Both descriptive statistics and inferential statistics (especially regression analysis) were used in the analysis of data. The regression analysis revealed that there was a very high significant positive correlation between credit risk management practices and performance (R = 0.779, Sig. = 0.002). The R2 of 0.607 indicates that credit risk management practices influenced 60.7% of the variances in performance of commercial banks. The results also indicate that liquidity risk management practices had an insignificant positive influence on performance (R = 0.205, Sig = 0.545). The R2 of 0.042 indicates that liquidity risk management practices influenced 4.2% of the variances in performance of commercial banks. The results also show that interest rate risk management practices had a significant positive influence on performance (R = 0.610, Sig = 0.046). The R2 of 0.372 indicates that interest rate risk management practices influenced 37.2% of the variances in performance of commercial banks. The study also revealed that foreign exchange risk management practices had a significant positive influence on performance (R = 0.902, Sig = 0.000). The R2 of 0.813 indicates that foreign exchange risk management practices influenced 81.3% of the variances in performance of commercial banks.