INFLUENCE OF FINANCIAL RISK MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA, A CASE OF BANKS IN KAKAMEGA COUNTY

Abstract

This study aimed at assessing risks facing commercial banks in Kenya. The general objective of this study was to determine the influence of financial risk management practice on performance of commercial banks in Kenya. The specific objectives were to establish the influence of credit risk management practice on performance of commercial banks in Kenya, to find out the influence of capital risk management practice on performance of commercial banks in Kenya, to determine the influence of interest rate risk management practice on performance of commercial banks in Kenya and to determine the influence of liquidity risk management practice on performance of commercial banks in Kenya. The study adopted a descriptive research design and a panel data analysis. The target population was all 9 commercial banks that were licensed and allowed to carry out business of banking in Kakamega County. The study was census because the target population was small. This study proposed to use both primary data and secondary data from the financial statements of the banks. Primary data was collected through issuance of questionnaires. Primary data analysis was done using SPSS version 23.0 and the panel data was analysed using STATA version 12.0 Data was presented in tables and charts. The study revealed that credit risk and capital risk management practices had a positive and significant influence on financial performance of commercial banks. On the other hand, liquidity management practice and interest rate risk management had a negative and none significant influence on financial performance of commercial banks in Kakamega. The study recommended that it was important for banks to have a robust framework that effectively management financial risks because they affect financial performance of commercial banks.