Credit risk management and profitability of commercial banks in Uganda :

Abstract

This study intended to find out the effect of credit risk management on profitability of commercial banks in Uganda, particularly centenary bank Pallisa branch. Credit risk management was viewed as three dimensional construct consisting of non-performing loans (NPL), capital adequacy ratios (CAR) and loan loss provisions (LLP). Profitability on the other hand was viewed in terms of ROA, ROE, and Net Profit Margin. The study used cross sectional research design and quantitative approach. Data were collected from 50 as a target population comprising of loan officers, administrators, branch supervisors and the accountants. Data was collected using a closed end questionnaire and statistical package of social science was used for analyzing data from which frequency tables, descriptive statistics, reliability, validity, correlation and regression results were obtained. The findings of the study revealed that there is a positive and significant effect between Non-performing loan ratio and profitability; capital adequacy ratio profitability; and loan loss provision ratio and profitability. Therefore, the study, recommends that in order for the commercial banks to improve on profitability the owner’s particular centenary bank Pallisa branch should depend on appropriate reducing non-performing loan ratio, capital adequacy ratio and loan loss provision ratio.