The Effect of Risk Management on Financial Performance of Commercial Banks in Kenya
Abstract
As a result of the rising volatility of money markets, financial inventions, and the
expanding importance of financial instruments associated with financial
intermediation, risk management is becoming an essential subject in the banking sector.
Risk management frequently leads to improved financial performance since risk
management and risk control allow a company to save money. The effect of risk
management on financial performance Kenya’s commercial banks was the study
objective. The technique of descriptive research was applied for the research. The
secondary data sources in form of annual Bank Supervision Report aided in the
collection of secondary data which covered a 5-year duration from 2016 to 2020. SPSS
version 27 and STATA helped in data analyses and the outcomes were given in form
of tables, regressions, correlations, ANOVA and T-test. The study concluded that there
was a positive relationship between financial performance and liquidity risk
management though the relationship was weak and insignificant. Credit risk
management had a positive relationship with financial performance though it was weak
and insignificant. Operating risk management had a positive relationship with financial
performance though it was insignificant. Equity risk management had a positive
relationship with financial performance of commercial banks which was significant.
Bank size had a positive relationship with financial performance of commercial banks
which was significant. The study recommends that commercial banks should maintain
the right amount of liquidity so that they don’t suffer from panic withdraws by the
customers but at the same time ensure that they advance enough credit to their
customers to increase their interest income. Commercial banks should keenly monitor
their customers’ credit reports so that they advance credit to credit worthiness
customers. Commercial banks should come up with proper internal controls and
procedures to reduce cases of banks’ fund, forgery, cheque fraud, hacking and acquiring
unauthorized information. The banks should invest in research and development as well
as in relevant innovations so that they can increase their equity. The bank should invest
in emerging technologies and e-marketing so that they can increase their size at lower
costs in terms of customer numbers and the numbers of branches.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1576]
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