Credit Risk Management and Financial Performance of Commercial Banks in Uganda: A Case Study of Barclays Bank, Kampala Road Branch

TABLE OF CONTENTS

DECLARATION ............................................................................................................... i

APPROVAL .................................................................................................................... ii

LIST OF TABLES ........................................................................................................ viii

LIST OF FIGURES ......................................................................................................... ix

LIST OF ACRONYMS ..................................................................................................... x

ABSTRACT .................................................................................................................... xi

CHAPTER ONE: INTRODUCTION ................................................................................. 1

1.1 Background of the study ............................................................................................ 1

1.2 Statement of the problem .......................................................................................... 4

1.3 Purpose of the study ................................................................................................. 5

1.4 Objectives of the Study ............................................................................................. 5

1.5 Research Questions .................................................................................................. 5

1.6 Scope of the study ..................................................................................................... 5

1.6.1 Content scope ........................................................................................................ 5

1.6.2 Geographical scope ............................................................................................... 6

1.6.3 Time scope ............................................................................................................. 6

1. 7 Conceptual frame work ............................................................................................. 7

1.8 Significance of the study ........................................................................................... 8

CHAPTER TWO: LITERATURE REVIEW ...................................................................... 9

2.0 Introduction ................................................................................................................ 9

2.1 Credit risk managment techniques used by commercial banks ............................... 10

2.1.1 Risk avoidance techniques ................................................................................... 10

2.1.2 Risk diversification techniques ............................................................................. 11

2.1.3 Credit policies ....................................................................................................... 12

2.1.4 Risk transfer ......................................................................................................... 13

2.1.5 Risk retention ....................................................................................................... 15

2.2 Factors influencing financial performnace of commercial banks ......................... 16

v

. 2.2.1 Liquidity ................................................................................................................ 17

2.2.1.1 Current Ratio ..................................................................................................... 17

2.2.1.2 Quick Ratio ........................................................................................................ 18

2.2.2 Profitability ............................................................................................................ 18

2. 7.2 Net Profit Margin .................................................................................................. 19

2.7.2.1 Return on Investment and Return on Equity ...................................................... 19

2.2.3 Loan recovery ....................................................................................................... 19

2.2.4 Financial statements; ........................................................................................... 20

2.2.4 Level of non-performing loans .............................................................................. 22

2.3 The relationship between credit Risk management and financial performance ....... 24

CHAPTER THREE: METHODOLOGY ......................................................................... 27

3. 0 Introduction .............................................................................................................. 27

3.1 Research Design ..................................................................................................... 27

3.2 Study Population ..................................................................................................... 27

3.3 Sample size ............................................................................................................. 28

3.2.3 Sampling method ................................................................................................. 29

3.3 Data collection ......................................................................................................... 30

3.3.1 Data sources ........................................................................................................ 30

3.3.2 Data collection Instruments .................................................................................. 30

3.3.3 Procedure ............................................................................................................. 31

3.8 Data gathering procedure ................................................................................... 31

3.9 Data analysis ........................................................................................................... 32

3.10 Ethical Considerations ........................................................................................... 32

CHAPTER FOUR: DATA PRESENTATION, INTERPRETATION AND ANALYSIS .... 34

4.1 Introduction .............................................................................................................. 34

4.2 Background of the Respondents ............................................................................. 34

4.2.1 Gender of the respondents ................................................................................... 34

4.2.2 Level of Education of the Respondents ................................................................ 36

4.2.3 Time spent working with Barclays Bank ............................................................... 37

VI

- 4.3. Empirical Findings .................................................................................................. 38

4.3.1 Findings on Credit Risk Management Techniques Used In Barclays Bank .......... 38

4.3.2 Findings on Financial Performance of Barclays Bank ......................................... .40

4.3.3 Findings on Relationship between Credit risk management and financial

performance of Barclays bank ....................................................................................... 45

CHAPTER FIVE: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS .......... .48

5.1 Introduction .............................................................................................................. 48

5.2. Summary of the main findings ............................................................................... .48

5.2.1 Credit risk management techniques used in Barclays Bank ................................. 49

5.2.3 Financial Performance Of Barclays Bank ............................................................. 50

5.2.4 Credit Risk Management And Financial Performance .......................................... 50

5.3 Conclusions ............................................................................................................. 51

5.4 Recommendations .................................................................................................. 51

5.5.Areas for further Research ...................................................................................... 53

REFERENCES .............................................................................................................. 54

APPENDIX 1: ................................................................................................................. 57

QUESTIONNAIRE FOR EMPLOYEES AND CREDIT RISK STAFFS .......................... 57

APPENDIX II: ................................................................................................................ 61

INTERVIEW GUIDE FOR KEY INFORMANTS (Bank managers) ................................ 61

APPENDIX 111 ................................................................................................................ 62

TIME SCHEDULE ......................................................................................................... 62

APPENDIX IV ................................................................................................................ 63

ESTIMATED BUDGET .................................................................................................. 53