STRATEGIC RISK MANAGEMENT PRACTICES AND PERFORMANCE OF COMMERCIAL BANKS IN NAIROBI CITY COUNTY, KENYA
Martin Mwanzia Nzioka - Master in Business Admistration (Strategic Management Option) Kenyatta University, Kenya
Dr. Videlis Njeri Njuguna - Department of Business Administration, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
The banking industry operates in a changing and heavily regulated environment, making strategic risk management essential for financial stability and performance. However, Kenya Commercial Bank (KCB) has faced declining financial results, marked by stagnant profitability, lower returns on equity, and rising non-performing loans that exceeded industry averages. This decline prompted an investigation to see if strategic risk management practices could explain the performance gaps. This research explored how strategic risk management practices impacted the performance of Kenya Commercial Bank in Nairobi City County. Specifically, it looked into the effects of strategic risk transfer, strategic risk prevention, strategic risk control, and strategic risk retention on the bank's performance. The research was based on four main theoretical frameworks: Resource Based View Theory, highlighting the importance of internal resources for competitive advantage; Dynamic Capabilities Theory, advocating proactive adaptation to changing environments; Contingency Theory, which outlines situation-specific risk responses; and Balanced Scorecard Theory, offering a comprehensive performance measurement framework. A descriptive research design was chosen, focusing on key personnel at Kenya Commercial Bank, including branch managers, risk management officers, credit managers, operations managers, and compliance officers. The target audience included 200 individuals from KCB branches in Nairobi City County. A census sampling approach was used because of the manageable size of the target population. A pilot study was conducted in nearby Kiambu County, involving 20 respondents from 5 KCB branches. Data were gathered using structured questionnaires and analyzed through descriptive and inferential statistics with the Statistical Package for Social Sciences. Regression and correlation analyses were performed to examine the link between strategic risk management practices and the performance of Kenya Commercial Bank, measured by profitability, non-performing loans, and operational efficiency. A total of 176 completed questionnaires were received, reaching a response rate of 88.0%. The study found that all four strategic risk management practices had significant positive relationships with the performance of the bank. Risk control practices showed the strongest connection (r = 0.534), followed by risk prevention practices (r = 0.487), risk transfer practices (r = 0.412), and risk retention practices (r = 0.356). The multiple regression model accounted for about 65.9% of the variance in bank performance, with risk control practices emerging as the most significant predictor (β = 0.423, p = 0.000), followed by risk prevention practices (β = 0.357, p = 0.000). Findings from this study offered important insights for bank executives, policymakers, and investors on improving risk management frameworks to enhance financial resilience. The study also added to existing literature by addressing gaps in empirical research on strategic risk management and its impact on banking performance in Kenya.