CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS.

Abstract

This study investigates the impact of credit risk management on the financial performance of Equity Bank, focusing on credit monitoring, credit assessment, and credit policy. Conducted at the Equity Bank Mukono branch in Uganda, the research employs a descriptive cross-sectional design with both qualitative and quantitative approaches. The target population consisted of 50 employees from the Credit and Finance departments, with a sample of 40 respondents selected using both probability and non-probability sampling techniques. The findings reveal that credit monitoring positively affects specific aspects of financial performance, particularly in identifying at-risk customers and enhancing return on equity (ROE). However, its direct impact on profitability and cash flow management is less clear. Credit risk assessment procedures, while essential for preventing non-performing loans (NPLs) and improving profitability, show varied perceptions of their thoroughness and accuracy. Credit policy at Equity Bank is perceived as supportive of financial stability but faces criticism for its complexity and effectiveness in encouraging timely loan repayment. The study concludes that while credit monitoring and assessment are beneficial, improvements are needed in credit policy clarity and the implementation of advanced monitoring tools. Recommendations include integrating data analytics for better risk prediction, revising assessment procedures for consistency, and simplifying the credit policy to enhance transparency and borrower understanding. This research contributes to a deeper understanding of credit risk management and its implications for commercial banks' financial performance