| dc.description.abstract | Risk exposure management is very crucial to any business in the industry that is trying to
thrive given the current economic conditions. The banking sector is not left behind as it is
constantly faced with a number of unavoidable risks that are not limited to borrowers
defaulting on loans. Market forces for example change in interest rate and foreign exchange
rate also pose as a threat to these institutions. The general objective of this study was to
establish the effect of financial risk exposure on the financial performance of commercial
banks in Kenya. The specific objectives were: to assess the effect of credit risk, liquidity risk
and market risk exposure on financial performance of commercial banks in Kenya. This study
was anchored on Risk Management Theory. Other theories included contingency theory and
shift ability theory of liquidity which informed the study variables. The target population of
the study was the entire population of 42 commercial banks in Kenya. Secondary data was
obtained from annual supervision reports from the Central Bank of Kenya and financial
statements from the respective commercial banks. The data was analyzed using descriptive
and inferential statistics. The study conducted normality, multicollinearity, autocorrelation
and heteroscedasticity diagnostic tests. A panel data model was used to empirically test the
effect of financial risk exposure on financial performance of commercial banks in Kenya. The
three null hypotheses developed in chapter one of the study were rejected at 5% level of
significance. Findings revealed that financial risk exposure had a positive significant effect on
financial performance of commercial banks in Kenya. Credit risk exposure had a positive
significant effect on the financial performance of commercial banks in Kenya; market risk had
a positive significant effect on financial performance of commercial banks in Kenya; while
liquidity risk exposure had a negative significant effect on financial performance of
commercial banks in Kenya. The study recommended the need for commercial banks to set
up risk management strategies that minimize their exposure to various risks by setting
provision for loan loss through adoption of the Loan Loss Provision by all commercial banks
in order to mitigate from credit risk exposure; by having efficient risk management practices
to ensure that commercial banks are able to minimize the effect of certain risks that they face;
by ensuring that shareholder goal of wealth maximization is met, by attaining consistent
profits that are distributed to them in the form of dividends. Finally, the study recommended
that all business entities should practice risk management strategies in order to boost their
performance either in a financial or operational perspective. Moreover, an establishment of
comprehensive risk management of commercial banks should be made a prerequisite as it
contributes to the overall risk management systems. The greatest contribution to the body of
knowledge is that for a sound financial survival of commercial banks in Kenya, keen attention
needs to be directed towards credit risk exposure, liquidity risk exposure and market risk
exposure. Failure of which would sink commercial banks into liquidity, credit and market
risks. To regulators and policy makers, the study will form the basis of the control policy
framework to alleviate financial risks associated with commercial banks in Kenya and across
the world. | en_US |
