A survey of risk management practices adopted by banking institutions in Kenya
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Financial risk in a banking organization has been described as possibility that the outcome of an action or event could bring up adverse impacts on the financial institution's capital or earnings. Since risk taking is an inherent element of banking and indeed profits are in part the reward for successful risk taking, risk management has become a critical function in organizations. Many institutions have adopted Enterprise-wide Risk management framework to have holistic approach of combating risks that threaten their performance especially during tough times. The main objective of the study was to conduct a survey of risk management practices adopted by commercial banks in Kenya, Identify the types of risks faced and establish the various tools applied by institutions to identify and mitigate against business risks. The population comprised of all the 45 commercial banks operating in Kenya as at 31 st December 2009 and the study was based on descriptive research design where a combination of quantitative and qualitative data was obtained using self-administered questionnaires. The study reveals that risk management in Kenya is considered a vital factor for organizations to meet their desired goals and objectives. Many of the institutions sampled strongly agreed that effective risk management could improve achievement of organizational goals and mirrors the Central Bank of Kenya (CBK) Annual report (2008) which observed that risk management had taken an increasingly pivotal role in the banking sector in view of enhanced customer expectations, technological advancements, improved regulatory framework and regional expansion by banks. Despite the critical importance of risk management in determining the overall success of organizations, risk management is still evolving in Kenya and the major challenges faced by banking institutions include inadequate capital resources, staff competencies and system limitations. There is need for banking institutions to allocate sufficient resources to strengthen risk management functions and further research is required to establish effective risk oversight methodologies.