The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya

Stephen Muthii Wanjohi; Joel Githinji Wanjohi; James Muchiri Ndambiri

doi:doi:10.11648/j.ijfbr.20170305.12

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The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya

Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri

Published in International Journal of Finance and Banking Research (Volume 3, Issue 5)

Received: 19 April 2017 Accepted: 15 June 2017 Published: 23 November 2017

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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.

Published in	International Journal of Finance and Banking Research (Volume 3, Issue 5)
DOI	10.11648/j.ijfbr.20170305.12
Page(s)	70-81
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

Financial Performance, Risk Management, Financial Risk

References

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APA Style

Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri. (2017). The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. International Journal of Finance and Banking Research, 3(5), 70-81. https://doi.org/10.11648/j.ijfbr.20170305.12

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ACS Style

Stephen Muthii Wanjohi; Joel Githinji Wanjohi; James Muchiri Ndambiri. The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. Int. J. Finance Bank. Res. 2017, 3(5), 70-81. doi: 10.11648/j.ijfbr.20170305.12

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AMA Style

Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri. The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. Int J Finance Bank Res. 2017;3(5):70-81. doi: 10.11648/j.ijfbr.20170305.12

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@article{10.11648/j.ijfbr.20170305.12,
  author = {Stephen Muthii Wanjohi and Joel Githinji Wanjohi and James Muchiri Ndambiri},
  title = {The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya},
  journal = {International Journal of Finance and Banking Research},
  volume = {3},
  number = {5},
  pages = {70-81},
  doi = {10.11648/j.ijfbr.20170305.12},
  url = {https://doi.org/10.11648/j.ijfbr.20170305.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20170305.12},
  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.},
 year = {2017}
}

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TY  - JOUR
T1  - The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya
AU  - Stephen Muthii Wanjohi
AU  - Joel Githinji Wanjohi
AU  - James Muchiri Ndambiri
Y1  - 2017/11/23
PY  - 2017
N1  - https://doi.org/10.11648/j.ijfbr.20170305.12
DO  - 10.11648/j.ijfbr.20170305.12
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 70
EP  - 81
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20170305.12
AB  - 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.
VL  - 3
IS  - 5
ER  -

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Author Information

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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APA Style

Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri. (2017). The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. International Journal of Finance and Banking Research, 3(5), 70-81. https://doi.org/10.11648/j.ijfbr.20170305.12

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ACS Style

Stephen Muthii Wanjohi; Joel Githinji Wanjohi; James Muchiri Ndambiri. The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. Int. J. Finance Bank. Res. 2017, 3(5), 70-81. doi: 10.11648/j.ijfbr.20170305.12

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AMA Style

Stephen Muthii Wanjohi, Joel Githinji Wanjohi, James Muchiri Ndambiri. The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya. Int J Finance Bank Res. 2017;3(5):70-81. doi: 10.11648/j.ijfbr.20170305.12

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@article{10.11648/j.ijfbr.20170305.12,
  author = {Stephen Muthii Wanjohi and Joel Githinji Wanjohi and James Muchiri Ndambiri},
  title = {The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya},
  journal = {International Journal of Finance and Banking Research},
  volume = {3},
  number = {5},
  pages = {70-81},
  doi = {10.11648/j.ijfbr.20170305.12},
  url = {https://doi.org/10.11648/j.ijfbr.20170305.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20170305.12},
  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.},
 year = {2017}
}

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TY  - JOUR
T1  - The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Kenya
AU  - Stephen Muthii Wanjohi
AU  - Joel Githinji Wanjohi
AU  - James Muchiri Ndambiri
Y1  - 2017/11/23
PY  - 2017
N1  - https://doi.org/10.11648/j.ijfbr.20170305.12
DO  - 10.11648/j.ijfbr.20170305.12
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 70
EP  - 81
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20170305.12
AB  - 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.
VL  - 3
IS  - 5
ER  -

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