Effect of credit risk management on performance of financial institutions in Uganda. A case study of pride microfinance.
Abstract
The study was aimed at investigating the effect of credit risk management on performance of
financial institutions in Uganda, using Pride Microfinance as the case study. The study was based
on different specific objective that included; establishing the relationship between risk
identification on financial performance of financial institutions, effect of risk assessment and
financial performance of financial institutions, and the relationship between credit risk control
and financial performance of financial institutions.
Data was collected from a sample of 62 staff of Pride Microfinance bank using a well-structured
survey questionnaire. Data collected was analysed using SPSS and relationship between variables was established using Pearson’s correlation and regression analysis.
The study showed positive correlation between risk identification and financial performance of
financial institutions (r = 0.657) and a positive correlation between risk assessment and financial
performance of financial institutions (r = 0.905). Credit risk control also gave a positive
correlation with Financial performance of financial institutions (r = 0.957). The regression results
showed a significant relationship between risk identification, risk assessment, and risk control
and financial performance of financial institutions (P=0.000<0.01) respectively.
This study found that Pride Microfinance bank had deployed a reliable information system which
provided a rich credit risk data base with potential to identify risk concentration. The study
recommended that for Banks to design an effective credit risk management system, there is need
to create a suitable credit risk environment; operating under a sound credit granting process
maintaining an adequate credit administration that includes monitoring, processing as well as
enough controls over credit risk.