Abstract: In Kenya financial institutions play key role in economy development; they receive and lend money to the investors. Due to the nature of their function’s commercial banks face financial risks that originate from the market which affects their financial performance. In the past 10 years, the commercial Banks reported decline of Return on Asset. The hedging techniques are tools used to minimize the financial risks that can affects value of firms. This study's specific goal is to determine whether financial risk hedging and Kenyan commercial banks' financial performance which are publicly traded on the Nairobi Security Exchange (NSE) are related.
The study's specific objectives include forward contract, future contract, currency diversification of currencies, and swaps hence bank size is used as moderating variables. The agency theory, profit maximization theory, and enterprise risk management are all supporting hypotheses in the study. The study used a descriptive correlational approach to target all publicly traded commercial banks in Kenya and conducted a census. Secondary data was gathered annually over a five-year period (2017-2021) from publications by the Nairobi Securities Exchange and the respective commercial banks using a data collection form. Normality, multicollinearity, heteroscedasticity, and stationarity tests were performed as part of the diagnostic process, where hence the data collected shown normality. Data was therefore transformed in order to ensure that regression analysis was undertaken without carrying out a spurious regression. Means and standard deviation from the mean were used for descriptive statistics. Correlation and regression analysis were used to test hypotheses and develop conclusions. The correlation analysis revealed that using forward contracts as a hedging strategy has a strong positive and significant impact on financial performance. The futures, swaps, and currency diversifications also they had positive correlation against financial performance, and they had significant relationship. The regression study revealed a strong positive link between risk hedging and financial success, indicating a noteworthy correlation. Forward and future contracts were revealed to be risk-hedging approaches with significant effects on commercial bank financial performance, implying that currency diversification and swaps had a positive and significant effect on financial performance. Size had a strong favorable impact on the link between risk hedging and financial performance. The study suggested that commercial banks should implement risk-hedging measures such as forward contracts, future contracts, currency diversifications, and swaps since they increase financial performance. The report proposed that commercial bank management develop policies to encourage the usage of these risk hedging methods.
Keywords: financial risk hedging, economy development, commercial banks, Nairobi Security Exchange (NSE).
Title: FINANCIAL RISK HEDGING AND FINANCIAL PERFORMANCE OF COMMERCIAL BANK LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA
Author: Ahmed Mohamed Mohamud, Dr. Carolyne Kimutai, Dr. Grace Kariuki
International Journal of Thesis Projects and Dissertations (IJTPD)
Vol. 13, Issue 1, January 2025 - March 2025
Page No: 15-54
Research Publish Journals
Website: www.researchpublish.com
Published date: 20-January-2025
