| dc.description.abstract | Banking failures coupled with declining profitability have been experienced in the
Kenyan banking sector for a couple of years. This comes even after the Central Bank
of Kenya has made concerted efforts to address the problem by introducing the risk
management guidelines in 2005. Since the introduction of these guidelines, a total of
seven bank failures have been recorded. Additionally, in its report on the financial
position and performance of the Kenyan banking sector for 2016/2017, banks
profitability recorded a decline compared to the previous year. This situation raises
the issue of whether these guidelines have had any effect on enhancing bank
performance. The objective of this study was to determine the effectiveness of central
bank risk management guidelines on the financial performance of commercial banks
in Kenya. The specific objectives of the study were to establish the effect of the board
and senior management oversight, policies and procedures, internal controls system,
risk monitoring and management information system, and capital and liquidity limits
on financial performance of commercial banks in Kenya. The study further sought to
establish the moderating effect of bank size on the relationship between central bank
risk management guidelines and financial performance of commercial banks in
Kenya. This study was guided by three theories: Stakeholder theory, Institutional
theory, and systems theory. A descriptive research design was used for the study and
the study‘s target population comprised of all the 42 commercial banks licensed by
the central bank to operate in Kenya. Sampling was not required since the study
adopted a census of all the banks. Both secondary and primary data were collected
and subsequently analysed with the facilitation of the Statistical Package for Social
Sciences. The analysis encompassed both descriptive and inferential statistics. The
study found that compliance with risk management guidelines on board and senior
management oversight, capital and liquidity limits, policies and procedures, and risk
monitoring and management information system, did not have statistically significant
effect on the financial performance of commercial banks in Kenya. However,
compliance with the internal controls guidelines had a statistically significant effect
on financial performance of the banks. The study further revealed that bank size had a
significant moderating effect on the relationship between CBK‘s risk management
guidelines compliance and financial performance of commercial banks in Kenya. It
was concluded that bank size is a crucial factor in reference to how the compliance of
commercial banks to the risk management guidelines laid down by the CBK affected
the former‘s financial performance. The study recommended that, for the Central
Bank of Kenya to formulate risk management guidelines that take consideration on
bank size in terms of bank‘s overall financial strength, complexity of the institution‘s
operations, scope of the institution‘s activities, size of the institution, and bank‘s years
in operation. The findings of this study are beneficial to the Central Bank of Kenya in
informing the review of the guidelines, management of commercial banks in making
decisions and other scholars in the same area of study to provide literature. | en_US |
