The effect of credit risk management, interest rates and inflation on non-performing loans in commercial banks in Uganda

Abstract

This study examines the effect of Credit Risk Management, Interest Rates and Inflation on Non-Performing Loans in commercial banks in Uganda. The study was premised on three objectives; to examine the effect of credit risk management on Non-Performing Loans of commercial banks in Uganda, to examine the effect of interest rates on Non-Performing Loans of commercial banks in Uganda and to examine the effect of inflation on Non-Performing Loans of commercial banks in Uganda. To achieve the study objectives, the study used a quantitative approach. This involved use of statistical data from the Bank of Uganda. The data was initially cleaned using Microsoft Excel, and subsequently coded and analyzed using the SPSS v22 software package and Eviews 12. By employing these analytical tools, the study obtained descriptive, correlational, and inferential outputs, which were utilized to address the research questions at hand. The research findings revealed that credit risk management and inflation have a negative and significant effect on Non-Performing Loans while Interest rates have a positive and significant effect on Non-Performing Loans in commercial banks in Uganda. As such, the study underscores the need for commercial banks to build capacity at the bank to equip its human resource capacity in order to improve on the advisory services it offers to its clients prior to loan approval and subsequent disbursement of funds. Further, the study recommends that the commercial banks invest in frequent training of credit and loans officers in areas such as credit management, risk management, and financial analysis. Finally, the study recommends prioritizing of inflation control measures to maintain financial stability and reduce the number of non-performing loans.