Valuation of risk management practices in commercial banks in Uganda

Abstract

The purpose of this study was to evaluate the risk management practices in commercial banks in Uganda. A cross sectional descriptive research design was used to study a sample of 85 respondents from 19 commercial banks in Uganda where simple random sampling and purposive sampling techniques were used for the study. Primary data was collected using a semi structured questionnaire regarding risk and risk management. The study found that majority of the respondents were in the age bracket of 26-30 years (47.06%) and majority of the respondents were male (60%). Furthermore, majority of the respondents had studied up to university level (51.76%) and most of the respondents had worked for a period of 4 to 6 years in the banking sector (47.06). Respondents identified credit risk, liquidity risk, operational risk, market risk, foreign exchange risk, interest rate risk, strategic risk and technological risk as the major risks facing commercial banks in Uganda. From the study results, staff of commercial banks in Uganda overall have a common understanding of risk including risk identification. However understanding regarding risk management is still relatively low. The study also found that commercial banks are good in risk monitoring and controlling and have proper credit risk management policies in place but are still lacking concerning preparation of periodic credit risk reports. Generally, commercial banks in Uganda exhibit good credit risk management. The study also found that overall, commercial banks in Uganda are good in managing market risk and market risk exposure of Ugandan commercial banks is maintained at prudent levels. The study also found that commercial banks in Uganda are good in liquidity risk management and regularly report on market risk. Overall, commercial banks in Uganda are good in managing operational risk mostly because there is a proper set of rules for managing operational risk in commercial banks in Uganda. Finally, the study also found that commercial banks in Uganda have proper risk management practices especially that the bank’s risk management procedures and processes are documented and provide guidance to staff about how well to manage risks.