Loans performance in commercial banks in Uganda: a case of Equity Bank

Abstract

The performance of loans in commercial banks is critical for their financial stability and overall success. In Uganda, high levels of non-performing loans (NPLs) have posed significant challenges for banks, impacting profitability and sustainability. This study focused on Equity Bank Uganda, examining the factors contributing to bad loans, the specific challenges faced by the bank, and the effectiveness of interventions implemented to manage credit risk. The research employed a mixed-methods approach, involving various stakeholders such as bank officials, credit officers, and financial analysts. The approach integrated both quantitative and qualitative data, with primary data gathered through questionnaires and interviews, and secondary data collected from Equity Bank’s annual reports, financial statements, and investor briefings from 2013 to 2023. Data analysis involved thematic analysis for qualitative data and descriptive statistics for quantitative data, providing a comprehensive understanding of the factors affecting loan performance. The study found that the primary factors contributing to bad loans at Equity Bank include inadequate credit risk assessment, ineffective loan recovery processes, and external economic conditions. Specific challenges faced by the bank included managing rapid growth, dealing with regulatory changes, and coping with economic instability in its operating regions. Over the analyzed period, Equity Bank implemented several interventions such as enhanced credit risk management practices and technological investments. Despite these efforts, challenges persisted due to economic instability and regulatory changes. The NPL ratio varied over the years, indicating fluctuating loan performance influenced by both internal and external factors. The research concludes that while Equity Bank has made significant strides in improving its credit risk management and adopting new technologies, persistent challenges remain, particularly those arising from regulatory changes and economic instability. The findings highlight the need for comprehensive and adaptive strategies to manage credit risk effectively and ensure the bank’s financial stability. Key recommendations include strengthening credit assessment procedures, enhancing loan recovery strategies, investing in technology and innovation, adapting to regulatory changes, and diversifying the loan portfolio across various sectors and regions to mitigate the impact of economic downturns.