Macroeconomic determinants of retail banking loan performance in Uganda: a case of ABSA Bank

Abstract

This study examines the macroeconomic determinants of retail banking loan performance in Uganda, focusing on Absa Bank Uganda. Using quarterly secondary data from 2015 to 2023, the research investigates the influence of key macroeconomic variables GDP growth, inflation, unemployment, and exchange rate on loan performance. The data were analyzed using descriptive statistics, correlation analysis, and the Autoregressive Distributed Lag (ARDL) modeling technique. The findings reveal that the exchange rate has a statistically significant positive impact on loan performance, suggesting that depreciation of the Uganda Shilling is associated with improved loan recovery efforts, possibly due to stricter repayment enforcement or inflation induced repayment prioritization. In contrast, GDP growth, inflation, and unemployment were found to have no significant effect on loan performance during the study period. The model explained approximately 77.9% of the variation in loan performance, confirming a strong explanatory power. The study concludes that exchange rate fluctuations are a critical driver of retail loan performance in Uganda. It recommends that banks strengthen foreign exchange risk management and enhance credit risk assessment based on past repayment patterns.

Subject keywords: Macroeconomic determinants; Retail banking; loan performance; Uganda; ABSA Bank