Abstract:
Changing business practices and burgeoning regulatory requirements mean that organizations
require a broader and clearer perspective on enterprise-wide risk than ever before. Unfortunately
to date, enterprise risk management is improperly defined in the corporate agenda. Prior studies
were done both locally and globally but they did not analyze using some variables or they operated
in a different context. This gap provided the purpose of the study which established the effect of
enterprise risk management practices on financial performance of commercial Banks operating in
Kisii town. Specifically, the study sought to establish the effect of compliance risk, operational
risk, credit risk, and market risk each independently on the financial performance of commercial
Banks in Kisii town. Descriptive research design was used and the target population was 149
respondents from all the commercial banks operating in Kisii town. A sample of 108 respondents
was contacted using Yamane’s 2009 formula. The main instrument for primary data collection was
the questionnaire. The primary data was collected from 91 respondents and the secondary data was
obtained from the banks operating in Kisii town. The collected data analyzed using statistical
techniques while inferential statistics was done using multiple regression analysis and Pearson’s
correlation test. The data analyzed was presented by the use of tables. The findings of the study
indicated that majority of the respondents agreed that compliance risk; operational risk, credit risk
and market risk had a positive effect on commercial banks operating in Kisii town. The study
concluded that the major indicators of operational risk were identified as execution, delivery and
process management which had an effect on commercial banks operating in Kisii town through
accounting errors and data entry errors which are mainly caused by omissions in the cash book
leading to a difference between the balance as per bank statement and the balance as per cash
book.. The study recommended that the management of commercial banks operating in Kisii town
should put in place cost-effective measures for timely risk mitigation so as to ensure that their financial
performance should not be impacted negatively. The study was significant to the, Credit Reference
Bureau, Kenya Credit Information Sharing Initiative and Central bank of Kenya towards the
development of the banking industry, align standards for the industry and modernize the Payments
Systems.
