The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya
International Journal of Finance and Banking Research
Volume 3, Issue 5, October 2017, Pages: 70-81
Received: Apr. 19, 2017; Accepted: Jun. 15, 2017; Published: Nov. 23, 2017
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Authors
Stephen Muthii Wanjohi, Department of Statistics and Actuarial Science, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Joel Githinji Wanjohi, Department of Humanities, University of Nairobi, Nairobi, Kenya
James Muchiri Ndambiri, Department of Humanities, Chuka University, Chuka, Kenya
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Abstract
An efficient risk management system is the need of time. Managing risk is one of the basic tasks to be done, once it has been identified and known. The risk and return are directly related to each other, which means that increasing one will subsequently increase the other and vice versa. The purpose of this study was to analyze the effect of financial risk management on the financial performance of commercial banks in Kenya. In achieving this objective, the study assessed the current risk management practices of the commercial banks and linked them with the banks’ financial performance. Return on Assets (ROA) was averaged for five years (2008-2012) to proxy the banks’ financial performance. To assess the financial risk management practices, a self- administered survey questionnaire was used across the banks. The study used multiple regression analysis in the analysis of data and the findings were presented in the form of tables and regression equations. The study found out that majority of the Kenyan banks were practicing good financial risk management and as a result the financial risk management practices mentioned herein have a positive correlation to the financial performance of commercial banks in Kenya. Although there was a general understanding about risk and its management among the banks, the study recommends that banks should devise modern risk measurement techniques such as value at risk, simulation techniques and Risk-Adjusted Return on Capital. The study also recommendsuseofderivativestomitigatefinancialriskaswellasdevelop training courses tailored to the needs of banking personnel in risk management.
Keywords
Financial Performance, Risk Management, Financial Risk
To cite this article
Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri, The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya, International Journal of Finance and Banking Research. Vol. 3, No. 5, 2017, pp. 70-81. doi: 10.11648/j.ijfbr.20170305.12
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Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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