The role of credit policy on the profitability of commercial banks in Uganda

Abstract

The study sought to find the role of credit policies in profitability of commercial banks. The objectives of the study include: establishing the relationship between credit standards and profitability of commercial banks, establishing the relationship between credit terms and profitability of commercial banks and, the role played by collection policies in ensuring repayment of credit. The study design collected information using questionnaire. Data was presented in tables with descriptive statistic such as mean, percentage and frequency. The study found that credit standards were formulated, known and implemented in the bank during screening of the credit applicant; the credit terms were also known by both the customers and were attributed to ensuring information flow between the bank and customer. At the same time, the respondent agreed that credit collection procedures were effective enough to see that the bank was not having increased provisions for bad debts and defaulting. In conclusion, effectiveness of credit policies on commercial banks dependent on being understood, communicated, updated and implemented with consideration of internal and external factors. A recommendation on better management of the bank’s loan portfolio is forwarded such that more profitable loans can be issued by the bank