Impact of credit risk and outreach on sustainability of financial institutions in Uganda: 2009 -2013

Abstract

The study investigated the impact of credit risk and outreach on the sustainability of 27 financial institutions in Uganda over the period of five years (2009-2013) using panel data analysis. The panel regression model examined Return on Equity (ROE) as a function of the Non-performing Loan Ratio (NPLR), Capital Adequacy Ratio (CAR), and ratio of Loans & Advances to Total Deposit (LA), ratio of number of branches to Total number of Branches (NoB) and ratio of number of savers to total population (NoS). The results showed that non-performing loan ratio (NPLR) has a negative and significant impact (P-value=0.000) on return on equity (ROE) and number of savers to total population ratio (NoS) has a positive and significant impact (P-value=0.000) on ROE. The impact of Capital Adequacy Ratio (CAR), Loans & Advances to Total Deposit ratio (LA) and number of branches to total number of Branches ratio (NoB) were insignificant. Based on the findings, it is recommended that financial institutions should enhance their capacity in effective credit analysis and loan administration. They should engage in savings mobilization in both the number of savers and volume of savings to deposit.