Loan management practices and performance of commercial banks in Uganda

Abstract

Banks are expected to be socially responsible, support local communities and ensure adequate supply of credit to all legitimate businesses and consumers and to price those loans reasonably in line with market determined rates without jeopardizing the viability of the institution. Therefore, the research was aimed at examining the effect of loan management practices on the performance of commercial banks in Uganda, a case study of equity bank, Kampala region. The study’s specific objectives were; to assess the effect of risk management on the performance of commercial banks in Uganda, to examine the effect of obtaining collateral security on the performance of commercial banks in Uganda and to establish the effect of loan scheduling on the performance of commercial banks in Uganda. The study was guided by Goal setting theory and Contingency Theory. A cross-sectional study design was used. Study population was 87 leading to a sample size of 70. Data collection techniques adopted were questionnaires, interview guide and document review, where qualitative and quantitative data about loan management techniques and Equity bank performance were gathered and analyzed. Study findings revealed that there is a strong positive and significant relationship between risk management and performance of commercial banks at (R) = 74.0% with variations in performance of commercial banks are explained by risk management at 53.8% (Adjusted R Square). There was also a strong positive and significant relationship between collateral security and performance of commercial banks at (R) = 66.8% with variations in performance of commercial banks are explained by collateral security at 43.5% (Adjusted R Square). Further still it was found out that a strong positive and significant relationship between loan scheduling and performance of commercial banks at (R) = 79.9% with variations in performance of commercial banks are explained by collateral security at 63.2% (Adjusted R Square). Finally to enhance the suitable effective performance of loan management techniques, this study ends up with some recommendations where Equity Bank Uganda Ltd should improve the training of employees of the credit department to increase awareness on the rationale for risk management to avoid incompetence, considering collateral security for loans before they are disbursed and carefully reviewing loan scheduling to enable the bank meet the increasing competition in the industry and the dynamic demands of customers.