The effect of credit risk management on the financial performance of commercial banks in Uganda A case study of Equity Bank-Katwe Branch

Abstract

The study investigated the effect of credit risk management on the financial performance of commercial banks in Uganda, using a case study of Equity Bank-Katwe Branch. The research was guided by the following objectives; to find out the effect of credit risk identification on financial performance of commercial banks; to establish the effect of credit risk analysis on financial Performance of commercial banks in Uganda; to find out the effect of credit risk monitoring on financial Performance of Commercial Banks in Uganda; and to assess the effect of credit approvals on the financial Performance of commercial banks in Uganda. The study adopted case study research design and used both qualitative and quantitative approaches. The target population was 40 employees where a sample size of 38 respondents was selected. Information was solicited from respondents by the use of self administered questionnaire. During the study both primary and secondary data were collected. Primary data was collected from the respondents who were employees of Equity bank where as secondary data was collected from the internet, documentary reviews, journals and other publications. Data was analyzed with the help of SPSS and presented in tables of frequencies and percentages. Findings of the study indicated that credit risk management is not well practiced at Equity Bank. Credit identification is not properly carried out in Equity Bank so is risk assessment. The bank failed to note the risks that it faces and to raise awareness about the risks. Lack of proper risk identification puts the bank at a disadvantage because it only learns of some risks after they have occurred and this affects its financial performance. Credit monitoring is lacking at the bank yet it is well known that credit monitoring reduces the costs of the bank and quality of the work in the bank. The research recommends that improvements in the bank’s credit identification strategies so that it is able to capture all the risks that the bank faces. Credit analysis needs to be given priority at the bank. There is a need for constant and periodic risk assessment. Proper risk analysis tools which can help the bank make informed decisions that can help the bank avoid costly and risky financial decisions that can cause the bank financial loss.