Effect of Financial Risks on Financial Performance of Listed Commercial Banks in Rwanda
DOI:
https://doi.org/10.53819/81018102t2313Abstract
Financial risk influences the financial performance of commercial banks as the business of banks is all about taking risks and when a bank takes measured risks which can monitor, control, and manage, it affects tremendously its performance. This research aimed at examining the effect of financial risks on financial performance among listed commercial banks in Rwanda. The study used correlation design with a quantitative approach while the sample size was 363 respondents. Data was analyzed through descriptive statistics and inferential statistics (correlation and regression analysis). Results showed that liquidity risk has no significant effect on the financial performance of listed commercial banks (β=.084, p>.05). However, it is observed that credit risk has a significant effect on the financial performance of listed commercial banks (β=.774, p<.05). Similarly, market risk is observed to have a significant effect on the financial performance of listed commercial banks in Rwanda (β=.287, p<.05). It is recommended that there is need promote financial resilience among listed commercial banks in Rwanda by encouraging diversified funding, proactive risk management, adaptive lending strategies, strong financial practices, collaborative deposit protection, nuanced risk understanding, specialized training, informed risk-taking, and collective best practice development. It is hoped that the study will enable the listed commercial banks to improve risk management practices in the selected commercial banks so as to enhance their financial performance. This study will be valuable to other academicians for benchmark as they conduct their studies on the similar subject. Future research directions include extending the survey to all Rwandan financial institutions to improve reliability, exploring financing diversification for liquidity risk, examining credit risk within economic fluctuations, and studying banks' management of foreign exchange and stock price volatility for enhanced financial stability insights.
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