Effects of Professional Ethics on Risk Management in the Banking Sector in Kenya

Abstract

The study sought to analyse effects of professional ethics on risk management in the banking sector in Kenya. The research was guided by the following objectives: To evaluate the effects of professional competence on risk management in banking sector, to determine how objectivity addresses risk management in banking sector, to examine the effects of confidentiality on risk management in banking sector and to investigate the effects of integrity on risk management in banking sector. Descriptive research was used to answer the question of who, what, where, when or how much in determining the effects of professional ethics on risk management in the banking sector in Kenya. The study targeted 84 respondents of the internal audit function for all the 42 Commercial banks listed by the Central Bank of Kenya within Nairobi County. At a margin of error (e) of 5%, confidence level of 95% a sample size of 70 was arrived at. Only 52 responded, giving a 74% response rate. Statistical Package for Social Sciences (SPSS) and excel was used to analyze data. Quantitative technique was used to analyze results were presented in percentages, means, standard deviations and frequencies. Multiple regression analysis was applied to establish the relationship between the study variables to create a new single study variable. The findings on the effects of professional competence on risk management revealed that to a higher extent professional qualification affect risk management, keeping abreast with emerging issues and technology, auditor’s preparation and giving effective presentations and reconcile the results affected risks, training needs must be identified and implemented. The findings on the effects of integrity on risk management revealed that to a very high extent auditor have demonstrated honesty and candidness, auditors treat everyone with courtesy, respect, fairness, and objectivity, auditors have had a positive attitude and were proactive, understanding and satisfy the real needs of the organization. The findings on the effects of objectivity on risk management revealed that to a very high extent auditors enhance impartial and unbiased judgement, auditors carry out their work freely and objectively, economic status and inefficient reward systems affected risk management. Auditors were influenced by the independence of the activities that it audits, and by the engagement with threats i.e. familiarity, self-review, personal relationships, economic interest. The findings on the effects of confidentiality on risk management revealed that to a higher extent strengthening accountability affected risk management, disclosure of information was also found to affect risk, protection of working papers by keeping them under wrap affected risk management, enhancing confidential relationship and trust influence risk management. The study concluded that from the findings, auditors are qualified and keep up to date with emerging issues and technology, as well as preparation and giving effective presentation, creating a good image hence enabled banks to manage risk. Auditors have demonstrated that they possess qualities that enable timely, efficient, and effective manner hence being able to understand and satisfy the real needs of the organization. Moreover, professionals confer special benefits and/or give preferential treatment and auditors are corrupted by self-interest, financial or behavioral motives. It was also concluded that auditors enhance impartial and unbiased judgement, hence being able to carry out their work freely and objectively. The study recommended that banks should ensure that auditors have subscribed with relevant accounting professional bodies. Through this, auditors will be able to get up to date information about the industry, attend seminars and training and network and share information hence being able to manage risk. It is recommended that banks should ensure that professionals follow code of conduct and adhere to standards and behavior. The code of ethical conduct will prevent professionals from giving special benefits or preferential treatment to certain clients and prevent professionals from being corrupted by self-interest, financial or behavioral motives and banks should ensure that auditors are able to connect with management. Use of code of ethics should be encouraged hence encouraging auditors to uphold to rules of conduct which describe the norms of behavior expected of internal auditors hence, protecting client information. It is recommended that other studies be done to determine other factors that affect risk management. The study should be conducted in other financial institutions like SMES.