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Evaluation of Operational Risk Management Practice and Financial Performance of Commercial Banks in Kenya

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  • Joan Wanjiru Kagima

    (School of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya)

  • Ruthwinnie Munene

    (School of Business, Jomo Kenyatta University of Agriculture and Technology, Kenya)

Abstract

Commercial banks in Kenya have been facing financial performance challenges. This is reflected in the fluctuating financial performance demonstrated by various performance indicators. For instance, Kenya’s banking sector’s profit before tax dropped by an 8.8% margin to Ksh. 219.2 billion in the FY ending December 31, 2023, from Ksh. 240.4 billion reported in the preceding year (CBK, 2023). Out of the 38 commercial banks and one mortgage firm, only 11 institutions posted a strong performance rating under the CAMEL rating system employed by the CBK. This study was conducted to determine the effect of operational risk management practice on financial performance. The theory of enterprise risk management and the economic value-added model anchored the study. A cross-sectional survey research design was adopted. The study employed a deductive approach and quantitative research methods. All 38 licensed commercial banks in Kenya constituted the unit of analysis. The accessible population included heads of finance, credit, compliance, operations, and marketing. A census design was adopted to obtain the respondents who constituted the unit of observation. A structured questionnaire and a data collection sheet were used to collect primary and secondary data, respectively. The Statistical Package for Social Sciences was utilized to assist in analyzing the data using descriptive and inferential statistics. Operational risk management practice exhibited a positive correlation with financial performance. The effect of operational risk management on financial performance was statistically significant at p-value = 0.05 (t = 31.2; p = 0.000

Suggested Citation

  • Joan Wanjiru Kagima & Ruthwinnie Munene, 2025. "Evaluation of Operational Risk Management Practice and Financial Performance of Commercial Banks in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(5), pages 1033-1043, May.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-5:p:1033-1043
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    References listed on IDEAS

    as
    1. Qian Long Kweh & Wen-Min Lu & Kaoru Tone & Hsian-Ming Liu, 2024. "Evaluating the resource management and profitability efficiencies of US commercial banks from a dynamic network perspective," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-20, December.
    2. John Fraser & Rob Quail & Betty Simkins, 2024. "What’s Wrong with Enterprise Risk Management?," JRFM, MDPI, vol. 17(7), pages 1-11, June.
    3. Mohamed Santigie Kanu, 2021. "A Theoretical Framework for Enterprise Risk Management and Organizational Performance," International Business Research, Canadian Center of Science and Education, vol. 14(5), pages 1-63, May.
    4. Muriithi, David, 2021. "Market structure and banks pricing behaviour: The case of Kenya," KBA Centre for Research on Financial Markets and Policy Working Paper Series 52, Kenya Bankers Association (KBA).
    5. Suné Ferreira & Zandri Dickason-Koekemoer, 2019. "A conceptual model of operational risk events in the banking sector," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1706394-170, January.
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