INFLUENCE OF FINANCIAL RISK MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA, A CASE OF BANKS IN KAKAMEGA COUNTY
Abstract
This study aimed at assessing risks facing commercial banks in Kenya. The general objective of this study was to determine the influence of financial risk management practice on performance of commercial banks in Kenya. The specific objectives were to establish the influence of credit risk management practice on performance of commercial banks in Kenya, to find out the influence of capital risk management practice on performance of commercial banks in Kenya, to determine the influence of interest rate risk management practice on performance of commercial banks in Kenya and to determine the influence of liquidity risk management practice on performance of commercial banks in Kenya. The study adopted a descriptive research design and a panel data analysis. The target population was all 9 commercial banks that were licensed and allowed to carry out business of banking in Kakamega County. The study was census because the target population was small. This study proposed to use both primary data and secondary data from the financial statements of the banks. Primary data was collected through issuance of questionnaires. Primary data analysis was done using SPSS version 23.0 and the panel data was analysed using STATA version 12.0 Data was presented in tables and charts. The study revealed that credit risk and capital risk management practices had a positive and significant influence on financial performance of commercial banks. On the other hand, liquidity management practice and interest rate risk management had a negative and none significant influence on financial performance of commercial banks in Kakamega. The study recommended that it was important for banks to have a robust framework that effectively management financial risks because they affect financial performance of commercial banks.
Key Words: credit risk, capital risk, interest rate, liquidity risk, financial risk management
Full Text:
PDFReferences
Abbas, A., Zaidi, S. A. H., Ahmad, W., & Ashraf, R. U. (2014). Credit Risk Exposure and Performance of Banking Sector of Pakistan. Journal of Basic and Applied Science, 4(3), 240–245
Afriyie, H. O., & Akotey, J. O. (2012). Credit risk management and profitability ofselected rural banks in Ghana. Ghana: Catholic University College of Ghana.
Ahmed, Afzal & Rehan, Raja & Umer Chhapra, Imran & Supro, Saima. (2014). Interest Rate and Financial Performance of Banks in Pakistan. 2. 1-7.
Al-Khouri, R. (2011). “Assessing the Risk and Performance of the GCC Banking Sector”, International Journal of Finance and Economics, 65(3), 72-80
Al-shakrchy, Eatessam. (2017). The Impact Of Credit Risk Managing On Bank Profitability An Empirical Study During The Pre-And Post-Subprime Mortgage Crisis: The Case Of Swedish Commercial Banks. Journal of Business and Finance. 3. 31-42.
Altuntas, M., Berry-Stölzle, T. R., and Hoyt, R. E. (2014): Implementation of Enterprise Risk Management: Evidence from the German Property-Liability Insurance Industry, Geneva Papers on Risk & Insurance - Issues and Practice 36(3): 414-439.
Anas Fathul Ariffin, and Fauziah Hanim Tafri(2014). The Impact of Financial Risks on Islamic Banks‟ Profitability. International Conference on Business, Sociology and Applied Sciences. 94-102
Athanasoglou, P. P., Brissimis, S. N. & Delis, M. D.(200. Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money, 18, 121-136.
Baldwin, Carliss Y., and Scott P. Mason(1983). "The Resolution of Claims in Financial Distress - The Case of Massey Ferguson." Journal of Finance, 38,(2) 138-153.
Bekhet, H.A and Eletter, SH.F. (2014), Credit risk assessment model for Jordanian commercialbanks: Neural scoring approach, Review of Development Finance 4, 20–28
Berger, A. N.; Humphrey, D. B. (1997). Efficiency of financial institutions: international survey and directions for future research, European Journal of Operational Research, 98:175–212.
Boahene, S. H., Dasah, J. and Agyei, S. K. (2012). Credit risk and profitability of selected banks in Ghana. Research Journal of Finance and Accounting, 3(7), 6-14.
Creswell, J. W. (2014). Research design: qualitative, quantitative, and mixed methods approaches. 4th ed. Thousand Oaks, California: SAGE Publications.
Dang, U. (2011).The CAMEL Rating System in Banking Supervision: a Case Study of Arcada University of Applied Sciences, International Business.
Demsetz, H.( 1973) Industry structure, market rivalry, and public policy, Journal of Law and Economics 16(1): 1–9
Devinaga, R. (2010). Theoretical Framework of Profitability as Applied to CommercialBanks in Malaysia. European Journal of Economics, Finance and Administrative Sciences.67 (1): 33-40
Diffu, I. (2011). The Relationship between Foreign Exchange Risk and FinancialPerformance of Airlines in Kenya: A Case Study of Kenya Airways. MBAUnpublished Research Project, University of Nairobi
Fauziah, H. T, Hamid, Z. and Omar,M. A (2009). The Impact of Financial Risks on Profitability of Malaysian Commercial Banks: 1996-2005. International Journal of Economics and Management Engineering, 3(6) 1320-1334.
Fitzpatrick, S. M. (2014). Fear is the Key: A Behavioral Guide to Underwriting Cycles.Connecticut Insurance Law Journal, 10(2), 255-275.
Gizaw. M, Kebede, M. and Selvaraj, S. (2013). The impact of Credit risk on Profitability Performance of Commercial banks in Ethiopia. African Journal of Business Management. 9(2), 59-69.
Golshan, N. M., and Rasid, S. A. (2012): Determinants of Enterprise Risk Management Adoption: An Empirical Analysis of Malaysian Public Listed Firms, International Journal of Social and Human Sciences 6: 119-126.
Hoyt, R. E., and Liebenberg, A. P. (2011): The Value of Enterprise Risk Management, Journal of Risk and Insurance 78(4): 795-822.
Hussain Ali Bekhet and Shorouq Fathi Kamel Elette (2014). Credit risk assessment model for Jordanian commercial banks: Neural scoring approach. Review of Development Finance 4 (2014) 20–28
Hymore Boahene, Samuel & Dasah, Julius & Agyei, Samuel. (2012). Credit Risk and Profitability of Selected Banks in Ghana.
Khan, H. M. & Khan, B. (2010) What drives interest rate spreads of commercial banks in Pakistan? Empirical Evidence Based On Panel Data. SBP Research Bulletin, 6
Khan, W. A and Sattar, A.(2014). Impact of Interest Rate Changes on the Profitability of four Major Commercial Banks in Pakistan. International Journal of Accounting and Financial Reporting, 4(1)142-154
Kithinji, A.M. (2010). Credit Risk Management and Profitability of Commercial Banks in Kenya, School of Business, University of Nairobi, Nairobi
Kolapo, F. T . Adeusi, S. O. & Aluko, A. O. (2014). Determinants of Commercial Banks’ Profitability Panel Evidence from Nigeria. International Journal of Economics, Commerce and Management, 2(12), 1-18
Kothari, C.R. (2009) Research Methodology: Methods and Techniques. New Age International, 401 p.
Lam, J. (2011). Managing risk across the enterprise: challenges and benefits, in riskmanagement (2nd ed.) .London: Elsevier, MA.
Malik, M.F., Khan, S., Khan, M.I. and Khan, F. (2014). Interest rate and its effects on Bank's profitability. Journal of Applied Environment and Biological Sciences, 4(12): 41-52
Mohieldin, M., Iqbal, Z., Rostom, A. M., & Fu, X. (2011). The Role of Islamic Finance in enhancing Financial Inclusion in Organization of Islamic Cooperation (OIC) countries. World Bank Policy Research Working Paper Series, Vol. (2011).
Muriithi, Jane & Waweru, Kennedy & Mwangi Muturi, Willy. (2016). Effect of Credit Risk on Financial Performance of Commercial Banks Kenya. IOSR Journal of Economics and Finance. 7, 72-83
Murty A.V.N (2018). "Effective Of Interest Rates Changes On Profitability Of Banking Industry In India. " IOSR Journal of Business and Management (IOSR-JBM) 20(2) 82-91
Mugenda, A and Mugenda, O. (2012).Research Methods Dictionary. Nairobi, Kenya arts press.
Nzongang, T. &Atemnkeng, J. (2006). Market Structure and Profitability Performance in the Banking Industry of CFA countries: The Case of Commercial Banks in Cameroon.
Onaolapo, A. R. (2012). Analysis Of Credit Risk Management Efficiency In NigeriaCommercial Banking Sector, (2004-2009). Far East Journal of Marketing andManagement, 2(4), 39-52.
Pagach, D., and Warr, R. (2011): The Characteristics of Firms that Hire Chief Risk Officers, Journal of Risk and Insurance 78(1): 185-211
Ramadan, Imad. (2011). Bank-Specific Determinants Of Islamic Banks Profitability: An Empirical Study Of The Jordanian Market. International Journal Of Academic Research. 3(1), 178-197
Razali, A. R., Yazid, A. S., and Tahir, I. M. (2011): The Determinants of Enterprise Risk Management (ERM) Practices in Malaysian Public Listed Companies, Journal of Social and Development Sciences 1(5): 202-207.
Runo, F. N. (2013). Relationship between foreign exchange risk and profitability of oil Companies listed in the Nairobi securities exchange. Unpublished MBA Project, University of Nairobi.
Ruziqa, A. (2013). The impact of credit and liquidity risk on bank financial performance: the case of Indonesian Conventional Bank with total asset above 10 trillion Rupiah. International Journal of Economic Policy in Emerging Economies, 6(2), 93-106.
Sangmi, M. & Tabassum, N. (2010). Analyzing Financial Performance of Commercial Banks in India: Application of CAMEL Model. Pakistan Journal Commercial Social Sciences, 2(1), 234-248
Sekaran, U. and Bougie, R. (2013) Research Methods for Business: A Skill-Building Approach. 6th Edition, Wiley, New York
Shafiq A. & Nasr M. (2010). Risk Management Practices Followed By the CommercialBanks in Pakistan. International Review of Business Research Papers, 6, 308– 325
Tahir, I. M., and Razali, A. R. (2011): The Relationship between Enterprise Risk Management and Firm Value: Evidence from Malaysian Public Listed Companies, International Journal of Economics and Management Sciences 1(2): 32-41.
Wekesa, M.S (2012). The relationship between foreign exchange risk Management and profitability of airlines in Kenya. Unpublished MBA Project. University of Nairobi
Wruck, K. H. (1990). Financial distress, reorganization, and organizational efficiency. Journal of financial economics, 27(2), 419-444
Zaidi, M & Rosly, S 2009, ‘Risk-return analysis of Islamic banks investment deposits and shareholders' fund’, Managerial Finance Journal, 34(10), 695–707.
DOI: http://dx.doi.org/10.61426/sjbcm.v5i4.934
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.