Developing a Competency-Based Risk Management Framework for the Ethiopian Commercial Banking Industry

Abstract This study, entitled “Developing a Competency-Based Risk Management Framework for the Ethiopian Commercial Banking Industry,” examined the institutional competencies required to strengthen effective risk management in Ethiopian commercial banks. Its main objective was to develop and validate an integrated framework explaining how Human Capital Competency, Risk Governance Competency, Risk Culture and Awareness Competency, Regulatory Compliance Competency, Risk Information and Technological Competency, and Integrated Risk Management Process Competency influence Effective Risk Management. The study adopted a pragmatist, cross-sectional, sequential explanatory mixed-methods design. Quantitative data were obtained from 447 banking professionals drawn from seventeen commercial banks and analysed using descriptive statistics, Pearson correlation, multiple regression, hierarchical regression, and hypothesis testing in SPSS. Qualitative evidence was collected from 312 substantive open-ended responses and twenty-seven key-informant interviews and analysed thematically to explain the statistical findings and refine the proposed framework. The results showed that all six competency dimensions were positively and significantly associated with Effective Risk Management. Collectively, they explained 77.4% of the variance in risk-management effectiveness, R² = .774, adjusted R² = .771, F(6, 440) = 251.255, p < .001. Risk Information and Technological Competency was the strongest predictor and independently explained 69.3% of the variance, although it recorded the lowest mean score. This result identified technology, data quality, analytics, cybersecurity, and system integration as the sector’s most important capability gaps. Human Capital Competency was the second strongest predictor, while governance and integrated risk processes also made significant positive contributions. The qualitative findings confirmed persistent weaknesses in professional certification, employee retention, board engagement, Chief Risk Officer independence, risk incentives, data quality, manual processes, regulatory capacity, and interdepartmental coordination. The study concluded that formal policies, committees, and regulatory compliance alone cannot ensure effective risk management; sustainable effectiveness requires the coordinated development of all six competencies. It recommends that banks prioritize integrated risk-data architecture, automated reporting, cybersecurity, role-specific professional development, stronger board risk expertise, independent risk leadership, and enterprise-wide process integration. The National Bank of Ethiopia should adopt competency-oriented and proportionate supervision supported by institutional maturity assessments and targeted capacity-building for less-developed banks.