The Effect of Internet Banking Risk Management Strategies on Financial Performance of Commercial Banks in Kenya

Abstract

The banking industry in Kenya is faced with various risks that are prevalent in the financial sector. As these risks heighten, there is need for banks to manage them better. Better management of risks may have a profound effect on firm performance in terms of reducing the risks and therefore reducing the losses. The study sought to examine the effect of internet banking risk management practices on the financial performance of commercial banks in Kenya. This study adopted a descriptive study design. The population of this study was all the 43 commercial banks in Kenya. Data was collected using primary sources and secondary sources. The primary data was collected using structured questionnaire which was administered to risk managers. The data on financial performance was sought from the financial statements of respective banks. Other financial data were also sought from the financial statements to compute the control variables. The data was collected for a five year period from 2010 to 2014. Data was analysed using descriptive analysis, correlation analysis and regression analysis. The study found that that internet banking risk management practices had a positive but insignificant effect on financial performance (β = .000, p = .820). The results also showed that capital adequacy had a positive but insignificant effect on financial performance (β = .000, p = .925). The study also revealed that asset quality had a positive but insignificant effect on the financial performance (β = .009, p = .531). The results showed that management quality had a positive and significant effect on the performance of commercial banks (β = .075, p = .000). It was revealed that earnings quality had a positive and significant effect on the financial performance of banks (β = .227, p = .000). The further found that liquidity had a negative but insignificant effect on the financial performance of banks in Kenya (β = -0.011, p = .165). It is concluded that internet banking risk management does not influence the performance of commercial banks in Kenya. The study recommends that while this study did not find any significant effect of internet banking risk management practices on the performance of banks, commercial banks should invest in better interest risk management practices in order to reduce risks and, therefore, curb fraud through internet banking. It is also recommended that the Central Bank of Kenya as the regulator of commercial banks should conduct risk audits that focus on internet banking risk management practices and report on the findings in order to alert the management on the areas of weaknesses that need further work.