International Journal For Multidisciplinary Research

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Effect of Banking Risk Management on the Profitability of Listed Commercial Banks in Rwanda (2015-2020) by Victoire Gakusi Reg No: Mba/af/ms/21/05/6659

Author(s) Ms. Victoire NA Gakusi
Country Rwanda
Abstract ABSTRACT
Every organization in the world faces risks, but commercial banks are more susceptible owing to the nature of their operations. Therefore, a need for a sound risk management system to ensure that these risks are catered for. The purpose of this study is to to assess the effect of risk management practices on the profitability of listed commercial banks in Rwanda. Specifically, the study aims to evaluate the effect of credit risk on the profitability of listed commercial banks in Rwanda, to analyze the influence of liquidity risks on the profitability of listed commercial banks in Rwanda and to assess the effect of operational risks on the profitability of listed commercial banks in Rwanda. To achieve these objectives, quantitative correlational research design was adopted. The target population is composed of the 4 commercial banks listed on Rwanda Stocks Exchange as of December 2021 namely the Bank of Kigali Plc, Equity Bank Plc, I&M Bank and Kenyan Commercial Bank (KCB). For the purpose of this study, a complete universal sampling technique was used to include all the listed commercial banks in the sample. Therefore, the sample size includes all four listed commercial banks. Data was gathered from publicly available audited financial statements of the selected banks from 2015 to 2020. Data were analysed using both descriptive and inferential statistics. Moreover, the Analysis of Variance (ANOVA) was used to test the significance of the model. Adjusted R squared were used to determine the variation in the dependent variable due to changes in the independent variables. Correlation analysis highlights the associations among variables. A non-statistically significant negative correlation (r = -0.527) between liquidity risk and ROA suggests that higher liquidity risk negatively impacts bank profitability. In contrast, a negative and statistically significant correlation (r = -0.472) between credit risk and ROA indicates that heightened credit risk is linked to reduced profitability. A similar finding emerges for operational risk, with a negative and statistically significant correlation (r = -0.367), emphasizing the impact of effective risk management on profitability. Credit risk has a statistically significant and negative impact on ROA, with a coefficient of -0.428. Liquidity risk is found to be positively related to profitability, but not statistically significant, as indicated by the coefficient of 0.384. Operational risk, however, has a significant negative influence, with a coefficient of -0.416, reinforcing the importance of risk management. The study concludes that effective risk management practices significantly impact the profitability of listed commercial banks in Rwanda. The findings highlight the need for banks, regulators, and policymakers to prioritize robust risk management strategies to enhance profitability. Moreover, the study suggests that future research could explore the impact of macroeconomic factors and technological advancements on the risk-profitability relationship, providing further insights into this complex domain.
Keywords Risk, credit risk, liquidity risk, operational risk, profitability, listed commercial banks.
Field Business Administration
Published In Volume 7, Issue 5, September-October 2025
Published On 2025-10-10
DOI https://doi.org/10.36948/ijfmr.2025.v07i05.57634
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