Effects of Financial Risk Management on the Financial Performance of Kenya Power: Emphasis on Credit Risk

Over time, the auditing process has evolved from a bloodhound approach to a risk based approach. Whereas in the first approach organisations would look at a risk after its occurrence, the risk based approach aims to contain and control risks thereby preventing their occurrence. This case study examined the effects of financial risk management on the financial performance of Kenya Power, with special emphasis on credit risk. The study adopted descriptive and inferential research designs to establish whether there’s a link between credit risk management as an offshoot of financial risk management and an organisations financial performance. It considered a population of 150 management staff of Kenya Power finance division, to whom 108 online survey questionnaires were mailed out, with feedback being obtained from 87 respondents in helping to capture the depth of credit risk management practice and its effects on the organization’s financial performance. Data was then analysed using frequencies, percentages, mean, analysis of variance and spearman’s correlation coefficients in determining how independent and dependent variables related. The study revealed that credit risk management has a significant effect on the profitability of Kenya Power and also that credit risk management has a significant effect on the liquidity position of Kenya Power. This case study of Kenya Power therefore concluded that the practice of credit risk management as part of financial risk management is essential for any organisation that wishes to post a positive financial performance. In its recommendation, the study ended up underscoring the importance of inculcating credit risk management practices in any organisation that aspires to have a sound financial performance. A further recommendation is that Kenya Power needs to concentrate more effort on the existing policies it has in place towards minimising or eradicating vandalism of its equipment if it is to realise further growth in its financial performance.