Assessment of credit risk management practices at DFCU bank Uganda limited.

Abstract

The purpose of this study was to investigate credit risk management practices at DFCU Bank Uganda Limited, with a focus on how these practices influence loan portfolio quality and overall financial performance. The study was guided by three specific objectives: to examine the different credit risk practices used by DFCU Bank Uganda Limited, to determine the challenges faced in managing credit risk, and to suggest ways of improving credit risk management at DFCU bank. A cross‑sectional and descriptive research design was adopted, employing a mixed‑methods approach. Quantitative data was collected through surveys administered to staff respondents, while qualitative insights were obtained from interviews with key informants. Quantitative data was analyzed using the STATA (VERSION 16), while qualitative data was processed using Atlas.ti. The findings revealed that DFCU Bank has a clearly documented credit risk policy, enforces collateral requirements, conducts borrower assessments, and applies monitoring and internal controls. These practices contribute to financial sustainability. However, weaknesses were identified in proactive risk identification, inadequate documentation, ineffective recovery procedures, and weak monitoring systems, which contribute to loan defaults and non‑performing loans. External factors such as economic downturns and regulatory challenges were found to be less significant compared to internal inefficiencies. The study recommends strengthening loan monitoring and recovery processes, customizing loan products to suit specific businesses, issuing timely breach letters to defaulting customers, and integrating digital solutions to enhance efficiency and real‑time monitoring.