Risk Management and Profitability of Commercial Banks: Evidence from Kenyan Commercial Banks

Abstract

Abstract

Purpose: The purpose of the study was to establish the relationship between risk management and profitability of commercial banks in Kenya.

Methodology: The study used secondary data which was obtained from banks’ financial statements for the period between 2014 and 2018. The study carried out several test statistics and diagnostic test in order to achieve the most optimal solution. A regression model was employed to the hypothesis.

Findings: The study results found that credit risk and profitability were negatively and insignificantly related, interest risk and profitability revealed a positive and significant relationship, foreign exchange risk positively but non significantly influences the profitability of Kenyan commercial banks, liquidity risk and profitability were negatively and significantly related, there was positive and significant relationship between capital management risk and profitability of the banks, bank deposits and profitability revealed a negative and significant relationship, a positive and significant relationship between bank size and profitability was revealed and a positive but significant relationship between operational risk and profitability of Kenyan commercial banks was revealed.

Implications: The study findings narrowed down the research gap brought about by the conflicting empirical literature though there is room for further analysis on the effect of risk management on the profitability of other companies (non-banks) in Kenya.

Keywords: Risk Management, Profitability, Kenyan Commercial Banks