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Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda

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  • Isah Serwadda

    (Department of Finance, Faculty of Business and Economics, Mendel University, Zemědělská 1, 613 00 Brno, Czech Republic)

Abstract

The paper is set to analyse the impact of credit risk management on the financial performance of commercial banks in Uganda for a period of 2006-2015 using panel data for a sample of 20 commercial banks. The study employs return on assets as a dependent variable and non-performing loans, growth in interest earnings and loan loss provisions to total loans as credit risk measures. Secondary data is sourced from the Bank scope database, African development bank and the central bank of Uganda. The study employs descriptive statistics, regressions and correlation analysis. Regression models are to estimate the magnitude of significance of credit risk management on the performance of commercial banks in Uganda.The study revealed that credit risk management impacts on the performance of Ugandan commercial banks. The results portrayed that banks' performance was inversely influenced by non-performing loans which may expose them to large magnitudes of illiquidity and financial crisis. Thus given such results, the researcher recommends that banks need to enhance their credit risk management techniques not only to earn more profits but also to maintain a qualitative asset portfolio and attention be given to non-performing loans, loan loss provision to total loans and growth in interest earnings that were found to be significant.Banks need to design appropriate credit policies that must handle all necessary conditions before advancing credit to their customers and also develop strong credit administration committees and teams that must conduct appropriate and sound loan appraisal evaluations and which must also monitor the loans throughout the required processes right from extending a loan to a customer up to the completion of loan repayments so as to mitigate credit risks.

Suggested Citation

  • Isah Serwadda, 2018. "Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 66(6), pages 1627-1635.
    • Handle: RePEc:mup:actaun:actaun_2018066061627
    DOI: 10.11118/actaun201866061627
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    References listed on IDEAS

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    1. Sam Hakim & Simon Neaime, 2001. "Performance and Credit Rating in Banking: A Comparative Study for Egypt and Lebanon," Working Papers 0137, Economic Research Forum, revised 12 Jun 2001.
    2. Fadzlan Sufian & Royfaizal Razali Chong, 2008. "Determinants of Bank Profitability in a Developing Economy: Empirical Evidence from the Philipinnes," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 4(2), pages 91-112.
    3. Nachane, Dilip M., 2006. "Econometrics: Theoretical Foundations and Empirical Perspectives," OUP Catalogue, Oxford University Press, number 9780195647907.
    4. Mathias Drehmann & Steffen Sorensen & Marco Stringa, 2008. "The integrated impact of credit and interest rate risk on banks: an economic value and capital adequacy perspective," Bank of England working papers 339, Bank of England.
    5. Idowu Abiola & Awoyemi Samuel Olausi, 2014. "The Impact of Credit Risk Management on the Commercial Banks Performance in Nigeria," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(5), pages 295-306.
    6. Van Gestel, Tony & Baesens, Bart, 2008. "Credit Risk Management: Basic Concepts: Financial Risk Components, Rating Analysis, Models, Economic and Regulatory Capital," OUP Catalogue, Oxford University Press, number 9780199545117.
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    Cited by:

    1. Sathyamoorthi C. R. & Mogotsinyana Mapharing & Mphoeng Mphoeng & Mashoko Dzimiri, 2020. "Impact of Financial Risk Management Practices on Financial Performance: Evidence from Commercial Banks in Botswana," Applied Finance and Accounting, Redfame publishing, vol. 6(1), pages 25-39, February.
    2. Amity Agi Ijuwo, 2024. "Non-Performing Loans and Credit Risk Management in Listed Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 427-443, July.
    3. Jamil Salem Al Zaidanin & Omar Jamil Al Zaidanin, 2021. "The impact of credit risk management on the financial performance of United Arab Emirates commercial banks," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 303-319, April.
    4. Ruba Bsoul & Maysa’a Milhem & Mahmoud Odat, 2022. "Determinants of Banks’ Credit Risk: Evidence from Jordanian Banks Listed on Amman Stock Exchange," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, September.

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