Determinants of loan defaults in commercial banks in Uganda: A case study of Ecobank (U) Ltd

Abstract

This study was conducted in Ecobank Uganda and it was based on investigating the determinants of loan defaults in commercial banks in Uganda using Ecobank as a case study. The study included a study sample of 99 respondents from a sample population of 130 as stated by Krejcie and Morgan tables of sample size determination. This study population was selected randomly from the clients and the management of Ecobank form different branches in Uganda.

This study employed descriptive survey design by use of questionnaires and interview guide as the major tools for data collection. Data was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) Techniques using multivariate, composite reliability, AVE, path co-efficience and total effects of the variable data analysis method that is often used in marketing research

The coefficient of determination is 0.812 for credit repayment performance endogenous latent variable. This means that the variable (Borrower behavior, Customer commitment, Credit repayment performance and Credit administration) are significantly associated and they highly influence the credit repayment performance.

Borrowers’ behaviour is rarely the result of a single motive. Common behaviour results mainly from an individual’s interactions with the external environment, however, the personality of the borrowers always play an instrumental role in influencing the repayment of the loan.

Ecobank should ensure that their interests on the loan are not too high for the borrower in away that the interest rate should not take much of the borrowers’ money which may lead to repayment avoidance. The borrowers should first plan for the loan before they borrow to avoid diverting the borrowed money for other motives other than the intended. This will help them in meeting the loan repayment schedules and avoids bad debts.