Relationship between Risk Management Practices and the Performance of Islamic Financial Institutions. A Case Study of the First Community Bank
Keywords:
Risk identification, risk assessment, risk monitoring & evaluation, risk mitigation strategy, performance, First Community Bank, Kenya.Abstract
The main objective of this study was to establish the relationship between risk management practices and the performance of the first community bank in Kenya. The target population for this study comprised of 18 branches of the first community bank in Kenya. The unit of analysis was the senior managers, middle level managers, supervisors and staff of the 10 branches first community bank in Kenya. Descriptive research design was adopted and simple random sampling was used to select 322 employees from 10 branches first community bank in Kenya. This study used primary data obtained from semi structured questionnaires. Data was analyzed using inferential statistics and presented in a multiple regression model. The regression of coefficients results revealed that risk identification was positively and significantly related to performance of FCB (r=0.115, p=0.000). Risk assessment was positively and significantly related to performance of FCB(r=0.130, p=0.000). Similarly, monitoring and evaluation was positively and significantly related to performance of FCB(r=0.161, p=0.000). Finally, risk mitigation was positively and significantly related to performance of FCB(r=0.128, p=0.000). From the findings the study concluded that on risk identification, risk assessment, monitoring and evaluation and risk mitigation strategy positively and significantly affect the performance of FCB. The study recommended that banks should recognize potential source of risks, probability of hazards factors occurrences, attention to risk potentials, embrace programs on risk identification and evaluate risk components on their operations. Banks should carry out risk based auditing, fraud risk assessment, and considers risk frequency on new ventures and ultimate consequences. Management should use monitoring tools in their operation, their program officers trained and skillful on monitoring and evaluation. Banks should collaborate with other financial players to avert risks, continuously improve its risk management strategies, set standards as part of their objectives and operate based on policies and procedures.
Key words: Risk identification, risk assessment, risk monitoring & evaluation, risk mitigation strategy, performance, First Community Bank, Kenya.
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