Risk Management And Its Impact On Financial Performance Of Commercial Banks In Ethiopia

Risk management has become an important topic for financial institutes, especiallyrnsince the business sector of financial services is related to conditions of uncertainty.rnThe turmoil of the financial industry emphasizes the importance of effective riskrnmanagement procedures. Consequently, this thesis studies “Risk management and itsrnimpact on performance in Ethiopian Commercial Banks.” The aim of this paper isrntherefore to identify the impact of risk management and its impact on bankrnperformance on the Ethiopian bank performance . Balanced fixed effect panelrnregression was used for the data of eight commercial banks in the sample covered thernperiod from 2002 to 2013. Four risk management variable that affects banksrnperformance were selected and analyzed. The results of panel data regressionrnanalysis showed that credit risk management indicator (NPLR), Liquidity riskrnmanagement indicator(LIQR) and operational risk indicator (CIR) had negativernand statistically significant impact on banks performance .Capital adequacy ratiornhad positive statistically insignificant impact on banks performance. In addition tornthis the study is also analysis of primary data by descriptive statistical tools and onrnhypothesis testing using regression model. This leads the researcher to conclude inrnthe last section that banks with good risk management policies have a lower risk andrnrelatively higher return on asset. Finaly None performing loan ratio, liquidity ratiornand cost to income ratio are significant key drivers of performance of commercialsrnbanks in Ethiopia. Indeed focusing and reengineering the institutions alongside thesernindicators could enhance the profitability as well as the performance of therncommercialbanksinEthiopia.rnKey Words; Bank Performance, Risk Management, Liquidity Risk, Credit RiskrnOperational Risk

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