Financial risks associated with the banking industry encompass a range of components, including credit risk, liquidity risk, market risk, and operational risk. These risks have the potential to have a substantial impact on a bank's profitability, stability, and overall performance. Shifting economic conditions make these banks' financial risk more difficult. The purpose of the research was to determine the effect of financial risk on the financial performance of banks listed at the Nairobi Securities Exchange, Kenya. To achieve this aim, the research objectives that guided the study were to assess the extent of exposure to financial risks faced by banks listed at the Nairobi Securities Exchange, Kenya, and to analyze the influence of return on assets on banks listed at the Nairobi Securities Exchange, Kenya. and to determine the effect of financial risk on the financial performance of banks listed at the Nairobi Securities Exchange, Kenya. The study was anchored with the agency theory, modern portfolio theory, and the theory of financial intermediation. This research used a descriptive and correlational research design and a stratified sampling approach to describe both the independent and dependent variables for the study. The financial performance of banks was assessed in terms of return on assets (ROA), where secondary data was gathered using a data collection sheet over five years from 2018 to 2022. With a population of 38 banks, the sample size of 10 listed banks' quarterly financial reports served as the source for the data. Analysis of the data was done using descriptive and correlational research designs. Multiple regression analysis was conducted after diagnostic tests were conducted. The data were coded, entered, cleaned, and analyzed using Statistical Package for Social Sciences (SPSS) Version 23. The study found that liquidity risk has a positive and statistically significant effect on return on assets, and bank size has a positive and statistically significant effect on return on assets. While credit risk has a positive and statistically insignificant effect on return on assets, market risk has a negative but statistically insignificant effect on return on assets. Further, operational risk has a negative coefficient, showing no statistically significant effect on the return on assets. The study recommended that banks at NSE should adopt a proactive approach to liquidity risk management and consider leveraging advancements in technology for better predictive analytics. For market risk, investment in staff training on risk assessment and management can also enhance the decision-making process, leading to improved financial performance, and focus on strategic growth to increase bank size while maintaining prudent risk practices, as size is shown to correlate positively with performance. Also, monitoring operational risk continuously by investing in advanced technologies for operational processes can help mitigate inefficiencies and reduce the risks associated with operational failures. To increase their profitability, banks should prioritize credit risk management with an emphasis on lowering non-performing loan levels and enhancing lending practices.
Ubul et al. (Fri,) studied this question.