The Relationship Between Risk Management Practices and Financial Performance of Credit Unions in Ghana

Abstract

The study investigated the influence of risk management practices on the financial performance of some selected credit unions in Kumasi metropolis; therefore a descriptive qualitative design was adopted where both primary data and secondary data were used. A total number of One Hundred (100) respondents were selected using the purposive sampling technique. A questionnaire was used as data collection instrument. Statistical Package for Social Science (SPSS) was used to analyse the data gathered from the respondents. The analysis revealed that all the risk management practices variables such as risk management environment, policies and procedures, risk measure, risk mitigation, risk monitoring and internal control have strong positive relationship with return on asset (ROA) and return on equity (ROE). Also the study revealed that the higher the return on asset (ROA), the better will be the risk measurement practices and risk monitoring practices in the credit unions. With regard to return on equity (ROE), credit unions that have higher return on equity (ROE) tend to practice better internal control practices. It is concluded that, there is strong statistically significant relationships between risk management practices and financial performance. The study recommends that senior management should recognize that the future is inherently uncertain and that its endless possibilities are too complex for anyone to predict with great accuracy. Instead of maintaining the illusion that the future can be fully understood or controlled, senior management should show courage and honesty when updating key stakeholders based on the latest forecasts.

Keywords: Risk Management, Return on Assets, Return on Equity, Financial Performance

DOI: 10.7176/RJFA/11-17-08

Publication date:October 31^st 2020