The causes of financial loss in Ugandan commercial banks: a comparative case study of selected banks
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The purpose of the study was to analyze the causes of financial losses in Ugandan Commercial banks by performing a comparative case study analysis of the three banks (Bank of India, Exim bank and Tropical bank). The study focused on examining the causes of financial loss in affected banks and explored how profit making banks shield themselves against financial losses. The study adopted a comparative case study approach. The study population composed of 25 commercial banks which were operational by 31st December’2019. The 25 commercial banks were categorized into profit making banks and loss-making banks. Two (2) loss-making banks (Tropical Bank and Exim Bank) and one (1) profit making bank (Bank of India), which were relatively of the same size were selected for the study. A comparative ratio analysis was performed on these three banks. Four (4) respondents from the top management of each of the three banks were interviewed to establish both internal and macro-economic factors triggered financial losses in these banks. The study adopted purposive sampling to select both key informants. The study used both primary and secondary data. The main sources secondary data were audited financial statements and published annual reports of the three commercial banks for the period 2018-2019 which were mainly accessed from the individual bank and newspapers while primary data was collected directly through face to face interviews with the twelve (12) respondents. The findings from both ratio analysis and interviewees identified the major causes of financial losses as internal and micro-economic and these included; - high levels of NPLs, an indicator of low asset quality, capital inadequacy and high levels of financial leverage/gearing, high administration and operating expenses, imprudent lending practices, capital inadequacy, misappropriation of funds and fraud, low GDP, inflation and fluctuating currency, fluctuating interest rates and stiff competition. The study recommended three safeguards against financial losses; strong and effective internal controls, diversification of loan portfolio and prudent lending. The study suggested the following strategies to improve the financial performance of loan-making banks; proper lending policies, improving operational efficiency, strengthening both monetary and fiscal policies by policy makers and proper monitoring and supervision of loans and advances.