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THE EFFECT OF FINANCIAL FRAUD ON COMMERCIAL BANKS PERFORMANCE CASE STUDY OF EQUITY BANK RWANDA PLC.
Abstract: Fraud is like an epidemic disease that affects banking sector and has great effects on the country’s economy. This causes decline in liquidity of commercial banks hence performance depreciation. Therefore, the study identified the effects of financial fraud on financial performance of commercial banks in Rwanda taking a case of Equity Bank Rwanda Plc. Specifically, the study sought to assess the effects of fraudulent loans, fraudulent invoices and identity theft on bank performance. Descriptive and correlation research designs were utilized in the study. Population of 100 respondents from different Kigali branches was selected which majorly composed of the managers, tellers, credits and risk officers and finance officers. The study utilized primary data collected using questionnaires and secondary data sourced from Equity Bank Rwanda reports and National Bank of Rwanda. Data was analyzed using IBM SPSS version 21 and presentation done in figures and tables. From correlation findings, Pearson correlation coefficient of -.690, -.630 and .650 for fraudulent loans, fraudulent invoices and identity theft respectively was found. This implies that as financial fraud cases increases, commercial banks performance reduces. The R squared value was 62.4% and F statistic was 53.09 in the regression analysis. Additionally, the beta coefficients for fraudulent loans, fraudulent invoices and identity theft were -0.151, -0.582 and -0.431 respectively with respective significance values of 0.039 for fraudulent loans and 0.000 for both fraudulent invoices and identity theft. The study concluded that financial fraud particularly fraudulent loans, fraudulent invoices and identity theft have significant negative effect on bank performance. The recommendation of this study includes commercial banks putting in place fraud detection mechanisms and strengthen risk department to ensure that potential fraud risks are detected on time to avoid their occurrence. Additionally, the study recommends appropriate scrutiny of loan applicants documents to ensure they are true documents. Lastly the study recommends strict adherence to fraud control mechanisms in place within and outside the bank.
Keywords: Commercial Banks, Fraud, Financial Fraud, Performance