Risk Management and Financial Performance of Financial Institutions in Rwanda; A Case Study of Urwego Bank PLC

The general objective of this study was to assess the effect of risk management on financial performance of financial institutions in Rwanda. Its specific objectives were to determine the effect of risk identification on the performance of Urwego Bank Plc, to identify the effect of risk analysis and assessment on the performance of Urwego Bank Plc and to analyze the effect of risk monitoring and control on the performance of Urwego Bank Plc. In this study, a descriptive survey has been carried out. The target population in this study equaled to 30 staff of Urwego bank who are concerned with risk management and the researcher will focus staff involved in executive level, senior leaders, risk management and compliance department and internal audit department. The total population was considered as sample. The questionnaires were administered by multiple approaches that include drop and pick later basis and use of emails to contact the respondents. The collected data were firstly captured in Microsoft Excel, checked for completion and coded. The data for this study were analyzed quantitatively using percentages, frequencies and linear regressions. Descriptive and inferential statistics were used to find out the effect of risk management on financial performance of financial institutions in Rwanda, considering Urwego Bank Plc as the case study. Statistical Package for Social Scientists was used to execute multiple linear regressions. The results are presented using tables for ease of understanding. The researcher concluded that adequate risk identification measures in Urwego Plc would lead to its positive financial performance. This has been concluded from the correlation analysis of the variables in the study. The beta coefficients realized in the regression equation were all positive which is a clear indication that an increase in risk identification practices including identification of credit risks, market risks, operational risks and reputational risks would lead to positive results in growth of sales volumes, growth in market share and return on equity. The researcher further concluded risk analysis and assessment have positive effect on financial performance of Urwego Bank Plc. Therefore the amount of money invested in risk analysis and assessment would increase the financial performance of Urwego Bank Plc. Hence banks have to increase their efforts in risk analysis and assessment by prioritizing risks, using historical& forecasted information for risk assessment and performing qualitative risk analysis. Finally, the study established a positive and high effect of risk monitoring and control and financial performance of Urwego Bank Plc. Therefore the researcher concluded that the study variables are highly correlated. The researcher recommended that managers of banks especially the ones dedicated for risk management should put many efforts in risk identification, risk analysis and assessment and risk monitoring so that they are aware of the risks that may hinder the financial performance of the banks under their management.