Risk Management Policies and the Financial Performance of Commercial Banks in Mbale City

The effect of risk management practices on the financial performance of commercial banks in Mbale City, Uganda, is investigated in this study. Effective risk management plays a fundamental role in safeguarding financial institutions against market volatility, credit defaults, operational disruptions, and liquidity crises. Banks face various risks that, if unmanaged, can lead to significant financial distress and erosion of profitability. The objectives were to evaluate the specific types of risk that affect banks’ financial performance and analyse the relationship between risk management policies and the banks' financial performance. To examine the challenges of implementing risk management policies that affect the banks' financial performance in Mbale City, measured through key financial indicators like Return on Assets (ROA), Return on Equity (ROE), and Non-Performing Loans (NPLs) in Mbale City. A mixed-method research design was adopted, where quantitative and qualitative approaches. Statistical analysis was used to establish correlations between risk management policies and financially stronger financial resilience during periods of market uncertainty. These performance indicators, while thematic analysis helped interpret insights from the interviews. The findings reveal that banks with robust and proactive risk management policies tend to experience better financial outcomes. Precisely, the study found that credit risk management was highly correlated with lower levels of Non-Performing Loans (NPLs), while liquidity risk management was associated with higher levels of stability and profitability. Also, banks that invested in advanced technological systems for risk assessment and management showed research highlights the importance of successively improving risk management frameworks to familiarize with the varying financial landscape. It is recommended the adoption of dynamic risk assessment tools, enhanced regulatory compliance, and regular training of staff involved in risk management processes. Finally, it highlights that effective risk management is not only a regulatory requirement but also a critical factor for ensuring sustained profitability and competitive advantage.