The effect of credit management on loan performance in Uganda, a case study of DFCU bank.

Abstract

The purpose of the study was to establish the relationship between credit terms, and loan collection procedures on loan performance in commercial banks of Uganda. The objectives of the study were to: establish the relationship between Credit terms and loan performance; examine relationship between loan collection procedures and loan performance; and determine effect Credit terms, collection procedures and loan performance. This study was cross-sectional and used a quantitative research approach. A sample of 67 respondents were selected and these involved credit officers, branch managers, loan recoveries officers and relationship mangers. The findings revealed a positive relationship between scope of credit terms and loan performance; positive relationship between repayment period and loan performance, as well as a positive relationship between marketing collection strategies and loan performance. The study also found that scope of credit terms was the significant predictor of loan performance at Dfcu bank, the study recommends Dfcu bank must ensure that terms of credit given to borrowers discloses all the information relating to the underlying loan facilities at all times. In case the bank keeps some underlying information silent from the borrowers before signing of the relationship the bank, loan performance is likely to be affected. Dfcu bank should carry out thorough training of the borrowers before and after giving them loans, the training of borrowers will ensure that borrowers are assisted on the basic financial management so that borrowers are in better position to have their businesses grow and loans are also well paid. This ensures business continuity and success of the industry. Furthermore, the study recommends that financial institutions should always make it a point to ensure that borrowers are well advised on the language and terms used in drafting the terms of credit used, this can be by availing them financial consultancy and literacy services.