Risk management strategies used by equity bank ltd to enhance performance

Abstract

This study aimed to identify the risk management strategies implemented by Equity Bank and how those strategies have helped improve their performance. This study was a case study since the unit of analysis was one organization and the purpose was to establish the risk management strategies used by Equity bank to enhance performance for competitive advantage in the banking industry. The study aimed at getting detailed information regarding risk management strategies used by equity bank to enhance its performance. Primary data was collected using a self-administered interview guide. The respondents of this study were five senior managers of the bank. Data was analyzed using content analysis. The study revealed that risk occurrence has been a common phenomenon with the bank, that risk management is a key aspect in determining the performance of the equity bank. It was established that risk management enables the organization to classify its customers for better service, as close attention is given towards each and every customer to build their confidence.The risk management strategies that are used by Equity bank include risk control and risk financing .Risk control includes risk aversion, risk homeostasis, decision analysis and trade off analysis whereby risk financing involves risk retention and risk transfer. Retention is the deliberate acceptance of risk because it is low enough in probability to be reasonably assumed without impacting the development effort. Transfer can be used to reduce risks from one area of design to another where a design solution is less risky. The findings revealed that equity bank has adopted pricing strategy that takes into account the market inflation tendencies which are laid out in bank’s contractual documents and tariffs. Market intelligence and research has also been conducted to check on the inflation trends to help mitigate such risks. The bank also manages through analysis the ability of borrowers and potential borrowers to meet interest and principal repayment obligations by obtaining collateral and corporate guarantees which are considered necessary and it has also adopted a Debt Recovery Unit which is in charge of follow-up and collections. The bank has access to diverse funding base that are raised mainly from deposits and share capital.The study recommended that bank should come up with effective risk management strategies which focus on the needs and wants of the customer towards building their confidence. Identified risks should be dealt with appropriately before their effects spill over to the organization clients. Managers should be able to identify the dynamic risks of the customer in order to keep abreast with the changing threats that are likely to impact on the performance of the bank. Equity bank has adequate capital which enables them to contain and manage risks through, fixed exchange rates, stable interest rates, capital controls, and oligopolistic banking markets which enhance profitability from low risk business, thus ability to overcome the effects of the equity risks. From the study it is evident that risk management is a key aspect in determining the bank performance. On what a bank can do to improve on the risk management strategies, it should adopt integration approach where they integrate human-resources systems into the strategic plan, it should also identify, assess, plan and implement the risk management strategies and keep records on the risk retention strategies so as to be able to follow track of all the risks and effectively report procedures on the risk occurrence.