International Journal of Finance and Banking Research

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

Received: Apr. 19, 2017    Accepted: Jun. 15, 2017    Published: Nov. 23, 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.

DOI 10.11648/j.ijfbr.20170305.12
Published in International Journal of Finance and Banking Research ( Volume 3, Issue 5, October 2017 )
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), 2024. Published by Science Publishing Group

Keywords

Financial Performance, Risk Management, Financial Risk

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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://download.sciencepg.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
  • Department of Statistics and Actuarial Science, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya

  • Department of Humanities, University of Nairobi, Nairobi, Kenya

  • Department of Humanities, Chuka University, Chuka, Kenya

  • Section