Assessment of credit risk management practices in financial institutions in Uganda: a case of Bank of Africa Uganda

Abstract

Financial institutions cannot avoid credit risk because they rely on lending as their prime business. It is therefore inevitable for such institutions to effectively manage credit risk if they are to thrive in business. Nonetheless, financial institutions are facing difficulties in ensuring credit risk management. The purpose of the study was to assess credit risk management in financial institutions in Uganda, a case of Bank of Africa Uganda Limited. Specifically, this study sought to establish the level of credit risk management practices; identify the challenges of credit risk management; and identify strategies to enhance credit risk management. The study was a cross-sectional research design which was descriptive in nature. A sample of 92 employees comprising of top, middle and lower managers was used. Primary data was obtained using a structured questionnaire instrument. The tool was tested for validity using expert judgement and CVI, and reliability through pretesting and Cronbach Alpha coefficient. SPSS v. 25 was used to analyze results which were presented using frequency table and descriptive tables. The study established low level of credit risk management. The lowest practice was risk assessment, followed by risk identification, risk monitoring, and lastly risk response. The study established that the major challenges associated with credit risk management were; failure to have clear timelines; inadequate knowledge; complexity of risk management; and unethical behavior. The major proposed strategies for credit risk management included refresher training; frequent audits; providing incentives; and two-way communication. The study recommends Bank of Africa Uganda Limited to; intensify employee training programs; continuously carryout credit risk audit; promote open communication; and provision of incentives to minimize credit risk.