The Effect of Risk Management on Financial Stability of Commercial Banks Listed at Nairobi Securities Exchange

Abstract

This study sought to establish the effect of risk management on financial stability of commercial bank. Specifically, to determine how operational risk management, capital risk management, market risk management and investment risk management influences financial stability. The study used a descriptive research design, the studied population comprised of listed commercial banks in Kenya. Random sampling method was used to 100 respondents. The study used questionnaire to collect data from the population's members who included risk managers, portfolio managers, credit managers, internal auditors, loan officers and investment officers. The data was summarized and presented in tables and charts.  The results of the study showed that operational risk management, capital risk management, market risk management and investment risk management influenced the financial stability of listed commercial banks in Kenya. The study recommended that banks should ensure that they identify risks, measure exposures to those risks where possible, ensure that an effective capital planning and monitoring programme is in place, monitoring risk exposures and corresponding capital needs on an ongoing basis, taking steps to control or mitigate risk exposures and reporting to senior management and the board on the bank's risk exposures and capital positions. For effective capital risk management, companies should practice appropriate risk measurement, monitoring, and control functions. The use of new technology in managing capital risk can improve banks' financial stability. Organizations should take into thought development of ways of managing market risk, management of interest rate risk and maintaining of company reputation to enhance financial stability