An investigation on the role of enterprise risk management on the performance of banking operations: the case of Kenyan Banking industry
Ogutu, Duncan Ouma
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Evidence assembled by several studies points to a high rate of failures of several financial institutions to create value for the shareholder. This can occur to any organization regardless of its size. Although risk management has expanded, its role beyond traditional approach to the current holistic nature (ERM), it is yet to gather momentum. Kenya gained independence in 1963. The post - independence period was one of tremendous economic growth in the banking sector. Twenty years later (1983) the stage was set for the first post - independence banking crisis when several indigenous banks developed acute liquidity problems. This led to the closure of one banking institution in December, 1984. The crisis and failure exposed the banks' inability to manage their respective threats. These in effect precipitated risk management measures through stringent regulation to improve the banks failure resolution mechanisms. To date major development have been put in place to effectively manage the operations of financial institutions since most have failed due to absence of an efficient system of risk management. The study hence therefore focused on the banking industry. It investigated whether the emergence of ERM had any relationship to the banking operational performance. In addition, it analysed the existing literature and/or current research as a key to realising the objectives of this study. The study's population was drawn from the banking industry; commercial banks in Kenya that have been in existence for the last five years. It excluded any bank that went under or will be under statutory management in the course of this study. From forty five (45) managers/respondents taken from a sample of fifteen (15) largest banks selected purposively based on the value of their net assets, the study attempted to achieve the objectives set. Data was collected using questionnaires which were delivered to the. respondents either personally by the researcher or online through e-mails using a 'drop and pick later' technique. Once filled, they were picked by the researcher while some filled questionnaires were returned back via e-mail. After data had been collected, it was analysed using the Predictive Analysis SoftWare package, formerly SPSS. These included frequencies, total scores, means and percentages, Spreadsheets were used to come up with appropriate charts and tables for data presentation, while total scores were also used to rank the responses. This ultimately helped to achieve the objectives of this study. Descriptive and empirical data analysis revealed a number of interesting facts on the current and preferred situations about ERM in the banking sector. A number of gaps identified during the descriptive data analysis were discussed and validated. Finally, through descriptive and statistical data analysis, the study collected and evidenced a number of current and preferred best practices that can prove quite useful as a benchmark for banking institutions and other organizations to adopt ERM in managing their operations.