Abstract
The study was about capital management and performance of the banking sector with Bank of Kigali as the case study. The study was motivated by the various episodes of private bank failures in many parts of the world. This study therefore, examined the role of capital management on the performance of banking sector. To achieve, this objective, the following specific objectives guided this study: To explore the capital management techniques used by bank of Kigali; To examine the level of performance of Bank of Kigali To analyse a relationship between capital management and performance of the bank of Kigali and to examine challenges in the capital management and solution to the mentioned challenges. A multi-method approach composed of both qualitative and quantitative research design was used. Data was collected from both primary and secondary sources using questionnaire and documentation were used. A population comprised of 50 bank employees was selected, from which a sample of 32 respondents was determined using the Kreijcie and Morgan formula. Data was captured using the statistical package for sciences (SPSS) and presented into frequency tables. A regression analysis was carried out using SPSS. A significance test t≤5% was assumed. The findings indicated that a variation of 70.8%, 42%, 63%, 71.6% and 64% in the capital adequacy, asset quality, management efficiency, earnings and liquidity of the bank is caused by capital management and other variables. More still, the findings from the survey indicated that the bank encounters a number of challenges which include, but not limited to capital modelling, quantification of risks and interpretation Basing on the results the study concluded that capital management is a key component in the performance management of the banking sector. The study suggested the following policies for the effective performance management of the bank; establishing the internal capital assessment process committee, capital buffers to cover the unexpected losses, use of stress and back-testing and active involvement of the board of directors in the capital management.
Highlights
Effective capital management is a core requirement of the banking sector
Economic capital can be defined as the methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risktaking activities
This study examines the role of the performance of the banking sector in Rwanda in light of capital requirements
Summary
Effective capital management is a core requirement of the banking sector. Working capital management effectively influences the performance of commercial banks. Research on how to increase profitability of firms, whether financial institutions or not, points at effective working capital management as being one of the important factors that determines the profitability [2]. Sazir Nsubuga Mayanja et al.: Effect of Capital Management on the Performance of Private Commercial. Exchange rates were fixed and banking was not as international as today. In order to avoid insolvency a bank needs to hold a certain amount of capital to cover its unexpected losses and changes in asset values. This required capital can be divided into economic and regulatory capital
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