Risk management practices and profitability of listed firms at Nairobi security exchange- Kenya

Banks like any other firms are exposed to a variety of risks including credit risk, liquidity risk, foreign exchange risk, market risk and interest rate risk. An efficient risk management is needed in time to control these risks. Managing risk is one of the basic tasks to be done, once it is identified and known. The risk and return are directly related to each other, which means that increasing one will subsequently increase the other and vice versa. Financial risks have a great impact on firms’ performance. The purpose of the study was to establish the effects of financial risks on profitability of listed banks in Nairobi securities exchange. The study was guided by the following theories: financial risk by portfolio theory. This study covered a period of five years (2020 to 2024). A longitudinal and descriptive design was used. The target population was only 11 listed banks in Nairobi exchange security in Kenya for that period of five years. Using inclusion and exclusion approach, purposive sampling technique was used to arrive at 9 listed banks which have complete records between 2020 to 2025 as the sample size. Secondary data collection form was employed to collect information from published financial statement from the year 2020 to 2024 from Nairobi security exchange. Descriptive statistics including mean and standard deviation was used to analyse the collected data. The inferential statistics was also used through correlations and regression analysis to establish the relationship between variables.  Data was presented by use of tables and figures. The study concluded that Liquidity risk had a strong positive and significant relationship with profitability. Credit risk had weak negative and insignificant relationship with profitability. IRR had a moderate positive and significant relationship with profitability. Interest rate risk had a significant effect on profitability of listed banks. Capital management risk had a significant effect of profitability of listed banks. The study recommended that banks with high SD (volatility) should align their asset-liability management framework to prevent sharp swings in liquidity levels. Banks with high liquidity levels should review their investment strategies without compromising safety. Also CBK should improve on their supervisory focus on banks with less than 20% statutory requirement.