Credit risk management and loan portfolio performance at Bank of Africa Uganda

Abstract

This report aimed at examining how credit risk management and loan portfolio performance at bank Of Africa Uganda. The study was premised on three objectives; to evaluate credit risk management practices at bank of Africa Uganda, to assess loan portfolio performance at bank of Africa Uganda and to design strategies for improving loan portfolio performance at bank of Africa Uganda. The study employed a cross-sectional and descriptive research with a mixed study approach which involved collecting numerical data from 72 respondents and interviewing 5 key informants. Quantitative Data was analyzed using the statistical package for social science (SSPS Version 27) while qualitative Data was analyzed using Atlas ti (version 9). The study found that Bank of Africa Uganda employs robust credit risk management practices, including comprehensive credit risk analysis for every loan application (mean = 3.72), supported by checklists (mean = 3.36) and SWOT analyses (mean = 3.58) pre-submission. Collection officers actively engage clients for loan repayments (mean = 3.87), and the bank utilizes a system to track loan details (mean = 3.23). Thorough client interviews (mean = 4.33) and proactive credit risk predictions (mean = 3.75) underscore diligent risk management efforts. However, there is a perceived need for improvement in credit coaching (mean = 2.75). The bank ensures thorough financial record reviews (mean = 3.67) and rigorous risk analysis (mean = 4.33), with delegated authorities managing assessments effectively (mean = 3.83). Monitoring practices include specific staff oversight (mean = 3.43) and timely breach notifications (mean = 3.57). Areas for enhancement include more frequent annual credit risk reviews (mean = 2.33) and client visitations (mean = 2.17). Control measures focus on collateral security (mean = 4.07) and policy adherence (mean = 3.23). However, challenges remain in staff training (mean = 2.86) and committee involvement (mean = 2.87). Therefore, the study proposes that Bank of Africa prioritize improving credit quality through vigilant loan monitoring and timely corrective actions. Effective loan management involves credit risk assessment, classification, provisioning, and collateral management to maintain a robust portfolio. It suggests tailoring loans to businesses' specific needs to mitigate default risks, emphasizing the importance of understanding market conditions and financial health. Prompt issuance of breach letters for loan violations and integration of digital solutions for efficient communication are recommended to uphold loan agreements. Lastly, considering borrower-specific factors enhances risk management and strengthens lender-borrower relationships.