Abstract: The key objective of the research was to investigate the determinants of financial risks of commercial banks in Kenya. Specific aims of the study were to determine the influence of interest rates, operational efficiency, exchange rate and bank size on financial risk of commercial banks in Kenya. The research adopted a descriptive research design that enabled researchers to establish the current status without manipulation. The target population for this study was 42 licensed commercial banks in Kenya, out of which all were included in the study. In this research, secondary data was used gathered from the annual financial reports of commercial banks. The data was collected on the determinants of financial risks of commercial banks, which include interest rates, operational efficiency, exchange rate, bank size and financial risk. The data was analysed using descriptive and inferential statistics. Statistical Package for Social Sciences (SPSS) was used to aid in data analysis. The inferential statistics conducted include multivariate regression analysis which was run at 5% significance level. The findings of the study were presented in tabular and graphical forms. Regression analysis results revealed that a 79.0% variation in the financial risks of commercial banks, was explained jointly by these determinants understudy, that is (interest rates, operational efficiency, exchange rates and banks size) according to obtained coefficient of determination of 0.790. Interest rates, exchange rates and banks size had positive and significant relationships with financial risks as shown by beta coefficient of 0.052 (p-value = 0.032), 0.554 (p-value = 0.003) and 0.526 (p-value = 0.001) respectively, while operational efficiency reduced financial risks by 0.711 (p-value = 0.005). This study recommends to the policy makers and regulators to address the issue of continued increase in exchange rates. such move can reverse the trend and therefore lower the financial risks faced by commercial banks in Kenya. The research further recommends to the management of banks to put into place/review measures they have out in place to control this increase.
Keywords: interest rates, operational efficiency, exchange rate, bank size and financial risk.
Title: DETERMINANTS OF FINANCIAL RISK OF COMMERCIAL BANKS IN KENYA
Author: Christine Kemunto Onyango, Dr Agnes Wanjiru Njeru
International Journal of Social Science and Humanities Research
ISSN 2348-3156 (Print), ISSN 2348-3164 (online)
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