CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction.
This chapter presents analyses and interpretation of the research findings and the impact of risk

management on the financial performance of equity bank;

In the presentations, tables and figures have been used, frequencies and percentages have also

been used to describe and analyze the findings got by the questionnaires.

4.1 Background information on respondents.

4.1.1 Findings on the duration of employment.

Table 4.1 showing the duration of employment

Years Frequency Percentage Cumulative percentage

1-2 9 45 45

2-4 10 50 95

4-6 1 5 100

>6 NIL NIL NIL

Total 20 100 240

Source; Primary data

From table 4.1, 95% of the respondents have worked with the bank for utmost 4years.This is so

because the bank branch is still new in the banking business and it has been in operation for a

period of four years. That is from 2007 up to date.

4.1.2 Findings on the education levels.

Table 4.2 showing the education levels.

Level Frequency Percentage Cumulative percentage

Diploma 3 15 15

Degree 16 80 95

Masters and above 1 5 100

Others NIL NIL NIL

Total 20 100 210

Source; Primary data.

From table 4.2, among the employees and managers of the bank (respondents), 85% of the

respondents are degree and master holders. This is so because the bank is always employing

people with good qualifications to boost its efficiency, effectiveness, service delivery, quality

and performance.

4.1.3 Findings on any training taken in respect to risk management

Table 4.3 Showing training taken in respect to risk management.

Response Frequency Percentage Cumulative percentage

Yes 6 30 30

No 14 70 100

Total 20 100 130

Source; primary data

From table 4.3, 20 respondents took trainings in respect to risk management, trainings like

financial computing, risk management short courses and certificates, CFA ,and internal audit

workshops with ICPAU, Equity bank seminars and workshops on risk management. Majority of
the respondents with a percentage of 70 don’t have the additional necessary trainings of risk

management but use their experience and on job trainings to manage risks.

4.1.4 Findings on the departments of the bank.

Table 4.4 Showing the Departments of the bank.

Department Frequency Percentage Cumulative percentage

Marketing 3 15 15

R&D 2 10 25

Finance & accounting 13 65 90

Others 2 10 100

Total 20 100 230

Source; Primary data.

From table 4.4, 65% of the respondents are from the finance and accounting department and 35%

from other departments. Most of the respondents are from the finance and accounting department

because it’s the biggest department, dealing with accountability and inflows of the bank(money)

and this is were most of the risks are experienced most especially liquidity, credit risks among

others
4.2 Findings on Risk management.

4.2.1 Findings on credit risk minimization.

Table 4.5 Showing credit risk minimization.

Response Frequency Percentage Cumulative percentage

SA 2 10 10

A 9 45 55

NS 9 45 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 165

Source; Primary data.

From table 4.5, 45% of the respondents are not sure and 45%agree while 55% of the

respondents agree and strongly agree that to some extent credit risk is minimized by reducing

connected party lending, renegotiated exposure to related parties as well as reducing exposure to

the economic sector and also minimized by credit rating agencies setting up good credit rating

models and mechanisms since credit risk is associated with the failure of a counter party with

whom a particular financial transaction has taken place. This is so because the banks aims at

reducing defaults of clients and want always to be in a better position of recurring on its services.
4.2.2 Findings on liquidity risk minimization.

Table 4.6 Showing liquidity risk minimization.

Response Frequency Percentage Cumulative percentages

SA 4 20 20

A 12 60 80

NS 4 20 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 200

Source; Primary data.

From table 4.6. 80% of the respondents agree and strongly agree that liquidity risk is minimized

through diversification, adoption of good liquidity risk management and funding strategies,

ALCO is also set up to manage liquidity effectively. This is so because the bank must have cash

to cater for day to day clients withdrawals, therefore bank must find alternative sources of

finance.

Basing on the liquidity ratios, the current ratios decreased slightly from 1.45 to 1.44 in 2009 and

2010 respectively, the quick ratios also decreased from 1.43 to 1.17 in 2009 and 2010

respectively as shown below implying that the bank was running short of cash as of the equity

balance sheet as at 30th June 2010.

4.2.3 Findings on interest rate minimization.

Table 4.7 Showing interest rate risk minimization.

Response Frequency Percentage Cumulative percentage

SA 7 35 35

A 9 45 80

NS 4 20 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 215

Source; Primary data.

From table 4.7. 80% of the respondents agree and strongly agree that interest rate risk can be

reduced by maintaining interest risk exposures with in the authorized levels, interest rate swaps

and interest rate futures. This is so because when levels are maintained then clients won’t fear to

hold interest bearing accounts with the bank and will also further participate in the purchase of

bonds and other interest bearing securities of the bank.

Interest rate is very important indicator of the economy; It’s a key component of cost of capital

for any business organization. The falling interest rates may erode capital for investors and

lenders who provide funds for business activities, interest rate risk has very many dimensions,

most governments need funds to finance their developmental and social projects, in borrowing of

funds for a long term there is a greater element of uncertainty for borrowers and investors,

interest rates fluctuations reflect supply and demand of funds or credit in an economy, the level

of inflation and other economic indicators of the economy like GDP growth, employment, per

capita income and savings are factors directing related to interest rate fluctuations.
4.2.4 Findings on currency risk minimization.

Table 4.8. Showing currency risk minimization.

Response Frequency Percentage Cumulative percentage

SA 1 5 5

A 6 30 35

NS 13 65 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 140

Source; Primary data.

From table 4.8. 35% of the respondents agree and strongly agree and 65% of the respondents are

not sure that currency risk is minimized through risk exposures, open positions, currency

positions, concentration limits and revaluation. This is so because of foreign trades where

currencies are crossing boarders with different exchange rates, therefore a cross boarder

mechanism with the bank branches must be strengthened.

This risk can be covered partially or completely by booking a forward contract or buying suitable

options or futures (its available in the market).currency swaps can be used to mitigate the

exchange rate fluctuations in borrowing and lending in foreign currencies.

4.2.5 Findings on operational risk minimization.

Table 4.9 Showing operational risk minimization.

Response Frequency Percentage Cumulative percentage

SA 4 20 20

A 12 60 80

NS 4 20 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 200

Source; Primary data.

From table 4.9, 80% agree and strongly agree that operation risk is minimized through

implementing of a sound ICS(Internal Control System),proper and constant vigil of the

system(computer or telecommunication),proper training and motivation of employees and proper

insurance against unexpected/unanticipated losses which may considerably reduce the

operational risks. This is so because they occur due to breakdowns in day to day operations or

failure in any of the processes, internal and external frauds, mismanagement, claims and

compensations due to violation of labor laws and safety rules, unauthorized business practices,

damage of physical assets, systems failure and telecommunication problems, incomplete legal

documentations and data entry errors among others.

It’s very well known that operation risks are the basements of most of the other risks like; credit

risks, liquidity risks, portfolio risks, currency risks among others. With this belief, they must be

solved to a good extent as early as possible.

4.2.6 Findings on risk reduction by use of derivatives.

Table 4.10. Showing risk reduction by use of derivatives.

Response Frequency Percentage Cumulative percentage

SA 4 20 20

A 11 55 75

NS 5 25 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 195

Source; primary data.

From table 4.10. 75% of the respondents agree and strongly agreed and 25% of the respondents

are not sure that use of derivatives like forwards, futures, options, and swaps help to reduce risks

although at times banks retain some risks. This is so because of the changes in the prices of

services, future transactions and at times hedging tools are costly and expensive.

Therefore, derivatives are key to risk reduction, speculation, and reduction of transaction costs,

they are also used as investments, enhance capital markets liquidity, encourage banking

facilities, help in asset management, and key towards good corporate finance.

4.2.7 Findings on the future banking and increase in customer base in line with effective
risk management.

Table 4.11. Showing future banking, customer base in line to effective risk management.
Response Frequency Percentage Cumulative percentage

SA 5 25 25

A 13 65 90

NS 2 10 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 215

Source; primary data.

From table 4.10. 90% of the respondents agreed and strongly agreed and only 10% are not sure

that future banking and customer base will increase in line to effective risk management. This is

so because customer switching will reduce if they are given secure services by equity bank and

as a result the future of banking will be promising and the customers will continue increasing

with time.
4.3 Findings on the financial performance.

4.3.1 Findings on increase in Gross Profit Margins from 2007-2010.

Table 4.12. Showing increase in GPM from 2007-2010.

Response Frequency Percentage Cumulative percentage

SA 2 10 10

A 16 80 90

NS 2 10 100

D NIL NIL NIL

SD NIL NIL NIL

Total 20 100 200

Source; Primary data.

From table 4.12. 90% of the respondents agree and only 10% are not sure that GPM increased

with in the 3 years periods, although profits decreased in the period 2009-2010 as viewed in the

financial statements as of 30th June 2010.

With respect to financial performance, the results for the full year 2010 showed an increase in

the loss from (20.3) % to (137.8) % in 2009 and 2010 respectively. The loss remained static after

and before the tax in 2010.

4.3.2 Findings on increase in Net Profit Margins from 2007-2010.

Table. 4.13. Showings increase in NPM from 2007-2010.

Response Frequency Percentage Cumulative
Percentage
SA 1 5 5
A 16 80 85
NS 3 15 100
D NIL NIL NIL
SD NIL NIL NIL
Total 20 100 190
Source; Primary data.

From table 4.13. 85% of the respondents agree and only 15% of the respondents are not sure that

NPM increased with in the 3 years period. Although profits decreased in the period 2009-2010 as

viewed in the financial statements as of 30th June 2010.

With respect to financial performance, the results for the full year 2010, the bank showed an

increase in the cash balances with the central bank from 9.95% in 2009 to 19.60% in

2010.Similarly, there was an increase in cash with other banks from 7.11% to 7.14% in 2009 and

2010 respectively.

The bank showed a decrease in the customer loan and advances from 53.52% in 2009 to 47.94%
in 2010 and also a decrease in the financial investments from 5.00% in 2009 to 1.64% in
2010.Prepayments and intangible assets also decreased tremendously.
However decrease, the bank also showed increase in the property, equity, and other assets
significantly and kept the tax receivables constant at 0.99% in both years.
Dues to customer by the bank increased from 62.93% to 96.04% both in 2009 and 2010
respectively but the bank reduced managed to reduce its borrowed funds and other liabilities for
the year 2009 to 2010.
Share premium increased but issue capital, retained loss, regulatory reserves, and revolution

reserves used in financing all reduced unrepentantly putting the bank in hard situations
4.4 Risk management and financial performance.

4.4.1. Findings on effective risk management affecting financial performance

Table 4.14. Showing risk management and financial performance.

Correlations

Financial performance Risk management

Findings on Pearson 1 .804

financial Correlation

performance

Sig. (2-tailed) . .000

N 20 20

Findings on risk Pearson .804 1

management Correlation

Sig. (2-tailed) .000 .

N 20 20

** Correlation is significant at the 0.01 level (2-tailed).

Source: Primary data.

There is a very strong correlation (relationship) at 0.804 which is approximately 80.4% between

risk management and financial performance out of a sample of 20 respondents. This is so

because the bank aims at making profits and failure to reduce risks affects the performance of the

bank and vice versa, risks must be controlled because they accrue in all transactions of the bank.
 CHAPTER FIVE

5.0 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS

5.1 Summary of findings.

The underlying responses were in due respect to the research questions forwarded to the

phenomenon respondents. Findings from the study indicate that the financial performance of

equity bank in the highly competitive and financial community of Uganda is very well seen to be

highly attributed to the level of risk management carried out by the management of equity bank,

amidst internal and external factors like; sensitization and education, economic and political

stability mention it

5.1.1 Background.
The underlying responses indicate that most of the employees(95%) have worked with the bank

for a period of 1-4 years, most of the employees(80%) are degree holders, a small percentage of

employees(30%) have taken trainings in risk management like; financial computing, risk

management short courses and certificates, CFA, internal audit workshops with ICPAU, Equity

bank seminars and workshops on risk management, and a big proportion of the

respondents(65%) are employees from the finance and accounting department.

5.1.2 Risk management.

The underlying responses indicate that liquidity risk is minimized by diversification, ALCO and

adoption of good liquidity risk management and funding strategies, interest rate risk is

minimized by maintaining interest risk exposures with in authorized levels, interest rate swaps

and futures, currency risk is minimized through open exposures, currency positions,

concentration limits, booking forward contracts and currency swaps, operational risks can be

minimized by implementing sound ICS, proper training and motivation of employees, and

insurance against unexpected losses, derivatives have been used always to mitigate the risks.
5.1.3 Financial performance.
The successful and good financial performance of equity bank limited has helped and favored

several branches of the bank in different regions and parts of Uganda, performance has been

instrumental to the commercial business of equity bank and its survival in the competitive

business environment at large, therefore inefficiency and unlimited delays in transactions

especially loan distribution services among the big number of clients attended to has been eased.

NPM decreased with in the 3 years period. Although profits decreased in the period 2009-2010

as viewed in the financial statements as of 30th June 2010.

With respect to financial performance, the results for the full year 2010 showed a decrease in the

loss from (6,978,720) before tax to (6,255,498) after tax in 2009.The loss remained static after

and before the tax at (14,987,102) in 2010.

5.1.4 Risk management and financial performance.

There is a strong relationship of 0.804 which is approximately 80.4% between risk management

and financial performance .Going deep into the future of risk management in relation to financial

performance, top managers and employees indicated that the future of equity bank is promising

because sooner clients businesses are anticipated to expand and oil exploitation is to start in

Bunyoro hence more branches will be needed too, due to the anticipated cash/money in the hands

of people.

5.2 Conclusions.
Conclusively, therefore, risk management is a worthwhile venture to expertise and put in more

resources to enhance and frame a better performance and generation of the banking sector, and
other sectors of the economy which share the same strategies for their better beings and

optimism. In spite of the fact that financial performance levels are good enough; the risk

management framework can’t do it all. Risk management can’t make the final torches for

management; it is therefore a sign of management myopia and lack of strategic thinking towards

the risk management strategy to act alone.

A bank is like a business and a business operates in an environment, which includes the entire

economy, politics, tax policies, central bank regulations, customer switching, inflation, political

instabilities, embezzlements (frauds), consumption habits or trends among others. All these

issues need to be encompassed together to be able to make good financial decisions that can

scroll equity bank services towards good chapters but the addressed risk management framework

isn’t capable of doing this alone.

Therefore, managers and other financial experts should realize that risk management is not all

that equity needs to perform so well, but there are other factors that need to be considered and

integrated with the risk management strategy to yield and ascertain the synergy of resource

(profitability), as to lead to a booming and evergreen growing financial sector in Uganda.

5.3 Recommendations.
Bank should adopt a good and effective risk management criteria or strategy to boost the

financial performance of the bank because it’s capable of initiating warning signals or
information for/to potential problems, enhances efficient resource allocation with in the banking

business and also provides potential solutions to different consequences.

The bank should put in place a good risk management feedback loop engulfing the six key

components of; identifying, assessing and prioritizing risk, developing strategies and policies to

measure risk, designing policies and procedures to mitigate risk, implementing and assigning

responsibilities, testing effectiveness and evaluating results, and revising policies and procedures

as necessary since the core of risk management is making educated decisions about how much

risk to tolerate, how to mitigate those that cant be tolerated, and how to manage the real risk that

are part of the business.

The researcher recommends the bank to design risk management tools and approaches that

respond to their specific clients, lending methodologies, operating environment, financial and

social performance objectives, internal control and corporate governance with in the bank. Credit

risks like transaction and portfolio risks should be reduced by the bank setting up portfolio

delinquency, screening and monitoring, good portfolio reporting, routine comparing/detecting,

good credit culture, and encouraging credit rating agencies to come up with good credit rating

models and mechanisms, also credit default swaps should be emphasized to mitigate the credit

default risk.

The researcher also recommends the bank to adopt and strengthen the three pillars approach of

the BASEL committee to risk management that is to say; capital adequacy calculations
(quantitative), solvency of the financial institution, supervisory review (qualitative), and market

disciplines (regulating market forces) and disclosure norms to mitigate the irrelevant risks like;

liquidity risks, credit risks, and other recurring operational risks.

The researcher recommends that the bank should strengthen and adopt the following techniques

in all its branches of Uganda; Risk management short courses and seminars like; in financial

computing and CFA, telephone banking, research and development frameworks, marketing

facilities like sales promotions, advertisements and customer care, technological installations like

advanced ATM cards, internet banking, posting and withdrawing charges, installation of toll free

numbers for customers consultations and advices, feedback loops and interactive systems. This

would enhance further penetrations into the unleashed financial community thus boosting the

financial performance of equity bank.

The bank should further boost and encourage the point sales and international debt card

mechanisms, security measures in all its extensions to ensure safety of its clients deposited

money and precious variables, technical controls and fundamental controls like locking devices,

closed circuits, television surveillance, dial back systems to disconnect externalists, Derivatives

like forwards, options, futures and swaps especially currency swaps for the bank and its

enterprising financial business customers at large, use of scrambling and encryption devices in

all of its branches such as; digital signals, processors and physical access controls such as;

security badges, magnetic card readers and biological detection methods which render ATM

signals only meaningful to authorized users.

5.3.1. Management should address the following.
1. The changes in the risk management criteria in the banking business.

2. The level of financial performance in respect to the risk management criteria in the

banking business.

3. The level of financial performance changes in the financial business community.

4. The costs incurred to acquire a good risk management frame work.

5. The regulation and supervision of the reserve bank towards risk management in the

financial sector.

6. Employee’s knowledge, experience, capacity and seniority as far as service delivery

are concerned to enhance good financial performance of equity bank.

7. Patent rights (trademark protection) and the laws prevailing in the financial business

community should be abided.

5.4. Areas for further Research.

The following areas have not been addressed by this research report and are therefore open to

any willing researcher for further studies about the financial system of Uganda.

1. Global economic events and general performance of the banking sector.

2. Foreign exchange fluctuations and financial performance.

3. Electronic banking and financial performance.