Financial risks management on profitability of Commercial Banks in Rwanda

Abstract

This work titled “Financial risks management on profitability of commercial banks in Rwanda)” was guided by the following specific objectives: to assess the effect of liquidity risks management on profitability of selected banks in RSE; to examine the effect of credit risk management on profitability of selected banks in RSE; to find out the effect of operating risk management on profitability of selected banks in RSE and to determine the effect of bank size on profitability of selected banks in RSE. Since the aim of this study is to investigate the effect of financial risks management on profitability of commercial banks in Rwanda with reference of selected banks in Rwanda stock exchange, the researcher adopted quantitative research design. Four commercial banks that are listed on the Rwanda Stock Exchange (RSE) were sampled and their financial statements analyzed for the period of 2015 up to 2020. The study used descriptive statistics, correlation analysis and multiple regression analysis as method of data analysis. The findings revealed that credit and operational risks adversely affect the financial performance of commercial banks (ROA, ROE, and NPM) whereas liquidity risks modestly affect banks’ financial performance. More also, firm size (proxied by total assets) also significantly increased banks’ ROA and net profit margins. The results revealed that the value of coefficient of determination (Adjusted R Square) was 0.31564 (31.56%), an indication that there was variation of 31.56% in profitability items of ROE of selected commercial banks in RSE was due to changes in liquidity risk, credit risk, operation risk and bank size. The study recommended that selected commercial banks in RSE should mold a permanent and improve its risk mitigation techniques and is also indispensable to make all staff aware of risk issues they are exposed to Selected commercial banks in Rwanda’s internal audit group is mandated to conduct consistent reviews of the operational risk management involvement of the board of management and senior portfolio managers of selected commercial banks in Rwanda are expected to participate in risk management.