Bank Fraud Mitigation Strategies and Performance of Commercial Banks in Kenya

Abstract

Fraud risk management has become a critical aspect of the operational framework for commercial banks, particularly in Kenya, where increased losses from fraudulent activities have impacted businesses and the financial sector. Despite existing literature on fraud risk assessment, strategic responses, and investigative frameworks, there remains limited information on the specific effect of these strategies on bank performance. This study aims to bridge this gap by exploring influence of fraud risk management strategies, Fraud Response, Fraud Prevention, Fraud Detection, and Fraud Reporting, on the performance of commercial banks in Kenya. Despite extensive research on fraud risk management, gaps remain regarding their collective influence on bank performance. With increasing fraud losses affecting the Kenyan financial sector, this study aimed to bridge these gaps by employing a cross-sectional survey design. Data were collected from 97 managers across 43 commercial banks, achieving a 75.2% response rate. Statistical analyses, including correlation and regression, revealed that these fraud management strategies collectively explained 73.1% of the variation in bank performance. Specifically, Fraud Detection accounted for 53.6% of performance variance, with significant findings in technology and employee training. Fraud Reporting significantly impacted performance, explaining 61% of the variance, while Fraud Prevention and Fraud Response also demonstrated strong positive relationships with bank performance, with Beta coefficients of 0.723 and 0.815, respectively. The study highlights the critical role of comprehensive fraud risk management in enhancing bank performance, recommending the adoption of advanced technologies, improved reporting mechanisms, robust prevention policies, and adaptive response strategies. Future research should explore emerging technologies in fraud management, conduct comparative studies, and examine the long-term effects and internal factors influencing fraud risk management efficacy.