Credit Risk Management And Financial Performance Of Commercial Banks In Uganda: A Case Study Of Barclays Bank W Andegeya Branch

ABSTRACT The study assessed the role of credit risk management on pe,formance of commercial banks in Uganda; the spec/fie objective of the study was to determine the relationship between credit risk management on performance of commercial banks. However, there is a concern high level of defaulters due to ineffective credit risk control mechanisms. The conceptualization of the study was based on the fact that commercial banks need effective credit risk management policies to achieve the set goals and objectives. The research embraced a research methodology that give valuable result as desired by the study research questions that gave valuable results as desired by the study research questions and objectives. The collected data were analyzed, edited and presented in a simpler form for easy interpretation using frequency tables. The study findings established that lack effective credit risk tools, inadequate staff, and poor record keeping might be the main cause of poor financial pe,formance of commercial banks. However, the researcher argues that for the there is need for commercial banks to undertake a role to advise their clients on the nature of loans that they apply for and their likely outcomes, provide training to their employees on how to effectively execute their responsibilities. This makes them more creative thus enhancing financial performance as desired, commercial banks should educate their clients to borrow only when it is extremely necessary, need for commercial banks to ask for collateral security fi'om clients when securing loans. This provides a guarantee of paying back the borrowed money since some of the clients are not trust worthy. There is need for commercial banks to make decisions that are rational while allocating their finances to different borrowers.

TABLE OF CONTENTS

DECLARATION ........................................................................................................................ .i APPROVAL ................................................................................................................................ ii DEDICATION ............................................................................................................................ iii ACKNOWLEDGEMENT .......................................................................................................... iv TABLE OF CONTENTS ............................................................................................................ v ABSTRACT ............................................................................................................................... ix CHAPTER ONE ........................................................................................................................ I INTRODUCTION ..................................................................................................................... I I .0 Introduction .................................................................................................................... I 1.1 Background of the study ........................................................................................................ I 1.1.1 Historical Background ........................................................................................................ I 1.1.2 Theoretical Background ...................................................................................................... 2 1.1.3 Conceptual Background ...................................................................................................... 3 1.1.4 Contextual Background ...................................................................................................... 3 1.2 Statement of the problem ..................................................................................................... 4 1.3 Purpose of the study ............................................................................................................... 4 1.4 Objectives of the study .......................................................................................................... 4 I .5 Research questions ................................................................................................................. 4 I .6 Hypothesis ............................................................................................................................. 5 I. 7 Scope of the study ................................................................................................................ 5 1.7. I Geographical scope ............................................................................................................. 5 1.7.2 Time scope .......................................................................................................................... 5 I. 7.3 Content scope ...................................................................................................................... 5 1.8 Significance of the study ....................................................................................................... 5 1.9 Conceptual framework of the study ....................................................................................... 6 CHAPTER TWO ....................................................................................................................... 8 LITERATURE REVIEW ......................................................................................................... 8 2.0 Introduction ............................................................................................................................ 8 2.1 The concept of risk in commercial banks .............................................................................. 8 2.1.1 Credit Risk Management in Commercial Banks ................................................................ 8 V 2.1.2 Credit Risk management process ........................................................................................ 9 2.2 Financial performance ......................................................................................................... 11 2.3 Credit Policy in Commercial Banks .................................................................................... 12 2.3.1. Identification and prioritization of Market Targets ......................................................... 13 2.3.2 Credit Initiation/ Analysis Process ................................................................................... 13 2.3.3 Credit Approval ................................................................................................................ 15 2.3.4 Credit Documentation and Disbursement.. ....................................................................... 15 2.4 Credit risk measurement, monitoring and control ............................................................... 16 CHAPTER THREE ................................................................................................................. 17 METHODOLOGY .................................................................................................................. 17 3.0. Introduction ......................................................................................................................... 17 3. I. Research design .................................................................................................................. 17 3.2. Target population ................................................................................................................ 17 3.3 Sample size .......................................................................................................................... 17 3.4 Sampling procedure ............................................................................................................. 18 3 .5 Research instruments ........................................................................................................... 18 3.6 Validity and reliability ofinstrument ..................................................................... 18 3.6.1 Validity ......................................................................................................................... 18 3.6.2 Reliability ......................................................................................................................... 19 3.7 Data collection ..................................................................................................................... 19 3.7.1 Before ............................................................................................................................... 19 3.7.2 During ............................................................................................................................... 19 3.7.3 After .................................................................................................................................. 19 3.8 Data Analysis ....................................................................................................................... 20 3.9 Ethical considerations .......................................................................................................... 20 3.10 Limitations ......................................................................................................................... 20 CHAPTER FOUR ................................................................................................................... 21 PRESENTATIONS, INTEPRETATIONS AND DISCUSSIONS ...................................... 21 4.1 Introduction .......................................................................................................................... 21 4.2 Demographic characteristics of respondents ....................................................................... 21 4.2.1 The position held in the organization ............................................................................... 21 4.2.2 Gender of respondents ...................................................................................................... 22 vi 4.2.3 Level of Education ............................................................................................................ 22 4.2.4 Age of respondents ...................................................................................................... 23 4.2.5Working experience ........................................................................................................... 23 4.3 To establish the extent of integrating credit risk management processes into the credit policies of the bank. ................................................................................................................... 24 4.3.1 Nature of loans offered to clients ...................................................................................... 24 4.3.2 Whether clients pay back the borrowed money in time ................................................... 24 4.3.3 Whether the delay in payment is due to inactive credit risk management policies .......... 25 4.3.4 Whether the organization sets, follows, and implements credit policies and terms ......... 25 4.3.5 Whether the organization offer training to all employees on the terms and policies set by the organization ......................................................................................................................... 26 4.4 To determine the relationship between credit risk management and financial performance of commercial banks ...................................................................................................................... 26 4.4.1 There has been an increase in financial performance of Barclays bank over the past 5 years ............................................................................................................................................ 26 4.4.3 Credit risk management policies have a positive effect on financial performance of an organization ............................................................................................................................... 27 CHAPTER FIVE ..................................................................................................................... 29 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS .............. 29 5 .1 Introduction .......................................................................................................................... 29 5.2 Summary of findings ........................................................................................................... 29 5.2.1 Summary of findings on the background characteristics of respondents ......................... 29 5.2.2 Summary of findings on extent of integrating credit risk management processes into the credit policies of the bank .......................................................................................................... 30 5.3 CONCLUSIONS ................................................................................................................ 30 5 .3 .1 Conclusions of findings on extent of integrating credit risk management processes into the credit policies of the bank .......................................................................................................... 30 5.3.2 Conclusions of findings factors on affecting financial performance of commercial banks ..................................................................................................................................... .31 5.3.3 Conclusions of findings on the relationship between Credits risk management financial performance commercial banks ................................................................................................. 31 5.4 RECOMMENDATIONS ..................................................................................................... 31 5.5 Areas for further research .................................................................................................... 32 REFERENCES .......................................................................................................................... 33 APPENDICES ........................................................................................................................... 38 Vil APPENDIX 1 ............................................................................................................................ 38 QUESTIONNAIRE ................................................................................................................... 38 APPENDIX II ............................................................................................................................ 41 INTRODUCTORY LETER ...................................................................................................... 41 APPENDIX III. .......................................................................................................................... 42 ACCEPTANCE LETTER ......................................................................................................... 42