Credit risk management practices and loan performance of commercial banks in Uganda with the moderating effect of corporate governance. A case of Stanbic Bank Uganda Limited.

Abstract

This study examined the effect of credit risk management practices on loan performance with a moderating role of corporate governance. The study was guided by two objectives; to establish the relationship between credit risk management practices and loan performance among commercial banks in Uganda and to evaluate the moderating role of corporate governance on the relationship between credit risk management practices and loan performance at Stanbic Bank Uganda Limited. A correlational research design with simple random sampling approach was employed to select 200 respondents from the different branches of the bank. A structured questionnaire was used to collect data. Data was analysed quantitatively using the Statistical Package for the Social Sciences (SPSS) version 20. The findings of the study indicate that credit risk management practices (r=0.959, P-Value<0.01), credit risk identification (r=0.33, P-Value<0.01), credit risk control (r=0.572, P-Value<0.01), credit risk assessment and credit risk monitoring (r=0.452, P-Value<0.01) are strongly and positively correlated with loan performance in Stanbic Bank Uganda Limited. On the other hand, credit risk monitoring and identification don’t influence loan performance at Stanbic Bank Uganda Limited, whereas credit risk control and assessment do. The findings of the study are relevant to commercial banks, regulators (Bank of Uganda), and future researchers. The commercial banks can use these findings to improve their loan portfolio performance and this will lead to the general performance improvement. The findings also revealed a positive but insignificant effect of corporate governance on the relationship between credit management practices and loan performance. This implies that the presence of good corporate governance practice improves the relationship of credit risk management and loan performance but the extent is negligible. The study recommends commercial banks to implement strict credit risk controls and assessments of loans that will probably result in better loan performance. Prior to extending credit, commercial banks should look out for collateral securities from clients to ensure that credit risk controls are carried out effectively.