Effects of Financial Risk Management Practices on Financial Performance of Listed Banks at the Nairobi Securities Exchange in Kenya

Abstract

Proper management of risks ensures that the financial earning capacity of a firm is enhanced and guarantees future firm growth. Firms face different kind of risks in its operations and the manner in which they deal with them greatly influences their performance. Risk in financial terms is usually defined as the probability that the actual return may differ from the expected return. The study was to establish the effects of financial risk management practices on the financial performance of listed banks at the Nairobi Securities Exchange. The study was guided by the objectives: to establish the influence of corporate hedging practices, to determine the influence of liquidity management practices and to establish the influence of employee risk management training on the financial performance of listed firms at the NSE. The study target officers in Finance Department whereby secondary data was collected from published annual financial statements. The study adopted a descriptive research design. A census approach was used since the target population is small. The sample size for this study was44 listed banks at the NSE. Percentages, tabulations, means and other measures of central tendencies was be used to present the collected data. The study found out that banks enter into contract to sell/purchase a set amount of foreign currency at a pre-determined price in a given future date and use currency options when dealing in foreign currency denominated transactions, bank identifies any other expected cash receipts, income from operating and non-operating activities and outline the expected collections from their budgeted period income and Banks identify the design, conduct and evaluation of the training programme and usually have a checklist to guide them on their day to day operations. The study concludes that banks listed at Nairobi stock exchange have entered contracts to sell or purchase foreign currencies and use currency options and forward contracts and design, conduct and evaluation of the training programme. The study recommends that there is need for the management of commercial banks in Kenya to maintain the liquidity level at safe level and training could be organized for staff so that they learn more about the concept of financial risk management on financial performance. The study suggests that a further study can be done on the effects of financial risk management by use of detailed questionnaire on the financial performance of other financial institutions like the micro finance institutions (MFIs) and development financial institutions (DFIs).