Investigation of the effects of business risks on the Performance of commercial banks in Nairobi, Kenya
Ogachi, Felix Mogoi
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The research project was an investigation of the effects of business risk on the performance of commercial banks in Kenya. In the late 1980's margins attained from traditional banking business began to diminish and the past decade has seen dramatic losses in the banking industry, Banks that had been performing well suddenly announced large losses for example, the disastrous losses of the 1990's, such as those at Orange county in 1994 and Barings bank in 1995. Commercial banks expose many risks in their ordinary course of business, such as interest rate, foreign exchange risks, environmental and operational risks that could minimize their profits by increasing their financial loss. This proposal determines how the financial institutions could reduce its financial loss from risk exposure by having risk management tools in place. The. issues prompting the organization to manage risk are not necessarily identical to the issues leading it to purchase insurance. For example, cost reduction might be the reason for establishing a loss prevention, program, a motive less likely to be served by purchasing insurance. This study used descriptive survey type of research, a descriptive study aims at determining the what, when and how of a phenomenon which is the concern of the study. The target population for this study was commercial banks that are registered and regulated by the Central Bank of Kenya (CBK). According to the CBK (2010), there are 43 commercial banks in Kenya. These banks are all involved in providing banking services in the country. A census study was used given that not all commercial banks responded, the population of 29 commercial banks is considered to be small and selecting a sample from a small population would be meaningless. Primary data was collected by use of a structured questionnaire. Target respondents were risk managers. Questionnaire used both open and closed questions and largely has been designed to use likert scale. The questionnaires were administered on the basis of drop and pick method. Secondary data were used to supplement primary data. Data collected was both quantitative and qualitative; the qualitative data will be analyzed using content analysis and descriptive statistics was used to analyze the quantitative data. The data was presented using both statistical techniques as well as graphical techniques. The statistical techniques included frequency distribution and measure of central tendency whereas graphical techniques included tables, pie charts and bar charts. Questionnaires used to collect data were edited, coded and analyzed with the help of SPSS program. Findings of this study were presented by the use of tables, graphs and charts, which was interpreted to assist the researcher in making valid conclusion and recommendations. Conclusions derived were generalized to all commercial banks operating in Kenya.