The role of credit management in the financial performance of commercial banks

Abstract

This study investigated the role of credit management in financial performance of commercial banks. The specific objectives of the study were; to establish the relationship between credit worthiness and financial performance of commercial banks, to evaluate the relationship between credit approval process and financial performance of commercial banks and to assess the role of credit risk management in financial performance of commercial banks. The study adopted the case study design with quantitative and qualitative research techniques. A total sample size of 44 respondents from Stanbic Bank Mpigi Branch was used. Self-administered questionnaires and interviews were used to collect data. Data was coded and later processed and analyzed and presented using means and standard deviation. From the study it was revealed that credit worthiness can also help the commercial institutions in determining the character of a potential debtor which is an important consideration used by lenders in loan grant. The greater the risk, higher the profit and hence the business unit must strike a tradeoff between the two. The essential functions of risk management are to identify measure and more importantly monitor the profile of the banks. In conclusion, it is worth noting that credit worthiness and credit approval greatly relate a lot to financial performance of commercial banks. Credit risk management involved managing the change before the risk occurs which enhances the financial performance of commercial banks. It is recommended that the banks should develop proper credit management policies. This may involve setting some clear boundaries in assessment of credit potential for what the bank can and cannot compromise in a bid to promote proper financial performance. Banks are also recommended to carry out risk management regarding credit. This involves developing procedures to ensure that there are no defaulters and delinquents in credit repayment