ENTERPRISE RISK MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA
Journal Title: European Journal of Business and Social Sciences - Year 2017, Vol 6, Issue 6
Abstract
Banking sector in Rwanda is exposed to various risks which originate from both the internal and external environment. Financial risk threatens Banks financial viability and long-term sustainability. Market risk, credit, liquidity, and operational risks possess a major challenge despite growth in the sector. This study sought to examine the effect of enterprise risk management practices on financial performance of commercial banks in Rwanda. To achieve this the study examined the effects of credit risk management on the performance of commercial banks in Rwanda, established the effects of liquidity risk management on the performance of commercial banks in Rwanda, examined the effects of market risk management on the performance of commercial banks in Rwanda and determined the effects of operational risks management on the performance of commercial banks in Rwanda. The study adopted a descriptive research design. The target population for the study was thirty-nine top management mangers from 13 commercial banks in Rwanda. Census approach for 39 managers from the 13 commercial banks was undertaken. Both primary and secondary data was used in the study. Primary data on enterprise risk management practices was collected using a questionnaire while secondary data on the banks performance in financial perspective was obtained from various bank's published financial statements for 4 years from 2013-2016. Collected data was summarized by descriptive statistics like the standard deviation and the mean and then analyzed using regression analysis and correlation. The study established that credit risk management has a positive influence on the financial performance of Commercial Banks in Rwanda. The study revealed that liquidity risk management has a positive effect on the performance of Commercial Banks in Rwanda. The study determines that market risk management has a positive on the performance of Commercial Banks in Rwanda. The study established that operational risks management has a positive effect on the performance of Commercial Banks in Rwanda. The study found that there is a correlation between liquidity risk management, default risk management and market risk management with performance of the banks. The study findings indicated that credit risk management (r=0.096, p<0.01), liquidity risk management (r=0.347, p<0.01), market risk management (r=0.506, p<0.01) and operational risk management (r=0.612, p<0.01) on financial performance. It however found that the banks do not involve experts and consultants in market risk management thus recommendations were made for the banks to revise their credit risk management policies, open up and share information with other players on market risk thus involve consultants more in their market risk management and to be more proactive than reactive in risk management.
Authors and Affiliations
EGIDE SEMPABWA| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, PAUL KARIUKI (PhD)| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda
Keywords
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