Relationship Between Financial Risk Management Practices And Financial Performance Of Commercial Banks In Kenya

Abstract

In the past two decades, the banking industry has evolved from a financial intermediation between depositors and borrowers, to a one-stop centre for a range of financial services. Banks also ventured into the low income segment to provide vast banking opportunities which were previously out of reach for the low income segment which consequently heightens the competition and risks faced by banks in the financial sector. This study investigated the relationship between financial risk management practices and financial performance of commercial banks in Kenya. The researcher used descriptive design. The population of the study was forty commercial banks which traded consistently for the period 2007-2011.Out of the forty banks, only thirty four responded. Both primary and secondary data were collected. The primary data were collected using questionnaires while secondary data was collected from the central bank of Kenya annual supervisory report for the period 2007-2011.Data was analyzed using descriptive analysis and regression analysis. The results are presented in tables. The study established that there is a positive relationship between financial risk management practices and financial performance of commercial banks with banks with a better risk monitoring and management information system as well as tight internal controls performing better than banks with lax internal control and less stringent risk monitoring and management information system. The policy makers need to put stringent measures on internal controls since more banks have lax internal controls.