Business and Economics Journal

The Role of Risk Management on Financial Performance of Banking Institutions in Rwanda

Abstract

Harelimana JB

The aim of this study is to assess the role of risk management on financial performance in Rwanda institutions: Case study of Unguka bank Ltd undertaken within period 2012-2016. The data were collected through a questionnaire designed for 30 staff’s members of Unguka bank Ltd where both quantitative and qualitative techniques were employed. The interviews were conducted with key informants from like the Unguka bank Ltd staffs. Findings shows that the determinants of risk management in Unguka bank Ltd are credit risk, operational risk, and interest rate and liquidity risk are the determinants of risk management. The results shows that Unguka bank Ltd is profitable during the covered period because the standard ratio of return on asset is 1% may factors are the cause of that profitability but the quality service are the main cause of the increase of its profitability. The researcher also found out that there is a very strong relationship between risk management and financial performance. The role of risk management in Unguka bank Ltd is to improve profitability which accounted for 43.3% of the responses. It was found that the four independent variables moderately predict the performance of Unguka bank Ltd that means the model explains 69.5% the variance on the performance of Unguka bank Ltd. The results confirm the hypothesis because the linear regression F-test results (F = 8.741; and 5df) are significant at p < 0.05. The study conducted a multiple regression analysis so as to determine the regression coefficients (β) which shows that β0=10138 and which means that all the independent variables have a significant contribution to Unguka bank Ltd-Nyarugenge branch. After analysis, it is recommended that Unguka bank Ltd should emphasize more on training its personnel continuously particularly those in risk management in order to enable them apply accepted tools of risk management in a professional manner and to enable them give relevant and reliable answers to questions credit risk management.