Risk Management and Financial Performance of Commercial Banks in Kenya
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Commercial banks are vital as they play an important role in allocation of resources for nations which span from linking of funds to investors from depositors. They are however susceptible to the various uncertainties relating to lending. Banks’ executives require reliable and sufficient measures to reduce or minimize the risk arising from capital being outside the limits established. The banking industry of Kenya has been characterized by several banks going under due to miss-management and also lack of preparedness in risk mitigation. Risks are in reality uncertainties and the banking industry is faced with large number of risks. This study was to examine the impact of risk management on commercial banks’ performance in the context of Kenya. The specific aims were to assess the impact of credit, liquidity and interest risks on performances of Kenya’s banks. The examination made use of the theories of Risk Theory, Moral Hazard Theory, Modern Portfolio Theory and Agency Theory. Descriptive design was utilized in this examination where the target populace comprised of the forty Kenyan banks. The study therefore was a census as it covered all the 40 commercial banking organizations in Kenya. It was based on the time period 2013 to 2017. Secondary data was utilized. The analysis was based on descriptive analysis (means and standard deviations) and inferential analysis (multiple regression technique). Ethical considerations were observed in the course of the research. Based on the panel regression approach, the conclusion of the study was that credit risk was not key in affecting the financial performance of commercial banks in Kenya. The study also concluded that liquidity risk is not a key determinant of financial performance of commercial banks in Kenya. Likewise, the study concluded that interest rates were key factors which influenced the commercial banking performances. Thus, interest rates should be continually adjusted by bank management to be in line with the prevailing economic conditions.