MAKERERE UNIVERSITY
INSTITUTE OF ADULT AND CONTINUING EDUCATION
TOPIC: CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE
OF COMMERCIAL BANKS
CASE STUDY: BARCLAYS BANK - UGANDA
RESEACH REPORT PRESENTED
BY
NAMUWULYA RITAH
REG. NO: 07/U/13198/EXT
SUPERVISED BY:
MR. GABRIEL WASSWA
A RESEARCH REPORT SUBMITTED TO MAKERERE UNIVERSITY IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A
DEGREE OF BACHELOR OF COMMERCE OF MAKERERE UNIVERSITY
JULY 2011
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DECLARATIONI RITAH NAMUWULYA , hereby declaire that this is my own original work and that it has
never been submitted to any other University or Institution for any academic award.
Signiture...........................................................
RITAH NAMUWULYA
07/U/13198/EXT
DATE ...........................................................
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APPROVALThis is to certify that the above student carried out this reseach under my supervision and it is for
submission to the University.
Signed...........................................
MR. GABRIEL WASSWA
DATE...........................................
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DEDICATIONThis piece of work is dedicated to my parent Mrs. Lukyamuzi Norah and all my family.
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ACKNOWLEDGEMENTIn the period during which i developed the material for this report, I learned much from the
reactions of my collegues, family and friends.
My appriciation goes to my supervisor Mr. Gabriel Wasswa for the guidance rendered to me
during the course of this research and to the staff of Barclays Bank for their support .My friends
who participated in the Focus Group Discussions ; Charles, Ivan, Ayub, Abrah, Allan and
Waidah .
I would like to thank my family for their support. My sister, Mrs. Mercy kabanda for her
financialsupport and countless hours of assistance in preparing the manuscript.She always
motivated, encouraged and reminded me that ny reason for writing this report was to synthesize
ideas from my research and work that i believe would furthe thedevelopment of the course.
My thanks also go to my daughter Praise Partronella for her patience and understanding and to
sum it all, my dear mummy for her countless hours of help to see to it that this research is a
success.
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ABSTRACTThe study set out to investigate the relationship between credit risk management and financial
performance of commercial banks.
Credit risk management is very important to commercial bank’s improvement of their financial
performance, thus this reseach is inteded to address the extent to which credit risk management
can led to increased financial performance of commercial banks. On the other hand, the study
was intended to discuss the other factors that may hinder financial performance of the
commercial banks apart from credit risk control.
The study employed a survey reswearch design aand used self administered questionnaires, face
to face interviews and FGD. Asampling design of 20 respondents was selected which composed
of 4 management executives, 6 loan officers and 10 employees from barclays bank luwum street
branch kampala.
Findings from the study show that financial performance of commercial banks has improved due
to the good credit risk management techniques and process like training of stuff on credit risk
reduction. Findings also show that financial perfomance has been hindered by crashing ATMs,
longlines made by the customers each day and switching systems.
Fingings also show that credit risk and financial performance of commercial banks are positive
hence alot of awareness and training of employees has been put in place at the bank so curb the
credit risk.
The reseacher thus recommends that;
Barclays bank should continue with the credit risk management short courses and seminars and
should penetrate into the unleashed financial community so as to boost the financial perfomance
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TABLE OF CONTENTSDECLARATION.................................................................................................................ii
APPROVAL.......................................................................................................................iii
DEDICATION....................................................................................................................iv
ACKNOWLEDGEMENT...................................................................................................v
ABSTRACT.......................................................................................................................vi
TABLE OF CONTENTS....................................................................................................1
LIST OF ABBRIVIATIONS...............................................................................................2
CHAPTER ONE................................................................................................................3
1.0 iNTRODUCTION........................................................................................................3
1.1 Background of the study................................................................................................3
1.2 Problem Statement.........................................................................................................5
1.3 Purpose of the study.......................................................................................................5
1.4 Objectives of the Study..................................................................................................6
1.5 Research Questions........................................................................................................6
1.6 Scope of the study..........................................................................................................6
1.7 Significance of the study...............................................................................................7
CHAPTER TWO...............................................................................................................8
2.0 LITERATURE REVIEW...........................................................................................8
2.1 Introduction....................................................................................................................8
2.2 Credit Risk.....................................................................................................................8
2.3 Credit Risk Management (CRM).................................................................................10
2.4. Credit risk Management Frame Work........................................................................10
2.5 The Credit Risk Management Process.........................................................................11
2.6 Credit Default Swaps (CDS).......................................................................................11
2.7 Financial Performance of Commercial Banks.............................................................12
2.8 Credit Risk Management and Financial Performance of Commercial Banks.............14
CHAPTER THREE.........................................................................................................18
3.0 RESEARCH DESIGN AND METHODOLOGY...................................................18
3.1 Introduction..................................................................................................................18
3.2 Research design...........................................................................................................18
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3.3 Survey population........................................................................................................18
3.4 Classification...............................................................................................................18
3.5 Sample size..................................................................................................................19
3.6 Source of Data.............................................................................................................19
3.6.1 Primary Source.........................................................................................................19
3.6.2 Secondary Sources....................................................................................................19
3.7 data collection instruments..........................................................................................20
3.7.1 Questionnaires..........................................................................................................20
3.7.2 Interviews.................................................................................................................20
3.7.2 Focus Group Discussions.........................................................................................20
3.8 Data Processing and Analysis......................................................................................20
3.9 Limitations and problems encountered........................................................................21
CHAPTER FOUR...........................................................................................................21
4.0 DATA PRESENTATION, DISCUSSION AND INTERPRETATION..............21
4.1 Introduction..................................................................................................................21
4.2 Background information on the respondents...............................................................22
4.2.1 Findings on the general characteristics of the respondents.....................................22
4.2.2Findings on the academic level of the respondents...................................................22
4.3 Credit risk management............................................................................................23
4.3.1 Finding whether the bank involves training in respect to credit risk........................23
4.3.2 Finding whether the Bank uses credit risk management process and techniques in its
operations...........................................................................................................................24
4.3.3Findings on credit risk minimization.........................................................................24
4.3.4 Findings on when the bank reminds a defaulting customer.....................................25
4.3.5.Findings on the future banking and increase in customer base in line with effective credit
risk management................................................................................................................26
4.4 The financial performance........................................................................................27
4.4.1 Findings on the financial performance of Barclays bank.........................................27
4.4.2 Response on how much the bank has lost due to fraud committed last year............30
4.4.3 Responses on the number of customers who have failed to pay back loan obligations
...........................................................................................................................................31
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4.4.4 Findings on the hindrances to financial performance improvements.......................31
4.5 Credit risk management and financial performance.............................................32
CHAPTER FIVE.............................................................................................................33
5.0 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS..........................33
5.1 Introduction..................................................................................................................33
5.1.1 Summary of the main findings.................................................................................34
5.1.2 Credit risk management............................................................................................35
5.1.3 FINANCIAL PERFORMANCE..............................................................................35
5.1.4 CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE.............36
5.2 Conclusions..................................................................................................................37
5.3 RECOMMENDATIONS.............................................................................................37
5.3.1. Management should address the following.............................................................37
5.4.Areas for further Research...........................................................................................38
REFERENCES..................................................................................................................38
Questionnaires……………………………………………………………………...…….43
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LIST OF TABLES
Table 1: Showing the respondents..................................................................................................17
Table 4.1: showing sex of respondents...........................................................................................20
Table 4.2: showing the education levels.........................................................................................21
Table 4.3 :Showing whether there was any training taken in respect to credit risk management.
........................................................................................................................................................21
Table 4.4: Showing the bank’s involvement of credit risk management process and techniques in
its operations...................................................................................................................................22
Table 4.5: Showing credit risk minimization................................................................................23
Table 4.6 :Showing when the bank reminds a defaulting customer...............................................24
Table 4.7: Showing the future banking and increase in customer base in line with effective risk
management....................................................................................................................................25
Table 4.8:Barclays bank balance sheets as at 30th June 2010.........................................................26
Table 4.9:Statements of comprehensive income and profit and loss accounts..............................28
Table 4.10: Shows response on how much the bank has lost due to fraud committed last year....29
Table 4.11:shows the responses on the number of customers who have failed to pay back loan
obligations......................................................................................................................................29
Table 4.12:Findings on effective risk management affecting financial performance....................31
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LIST OF ABBRIVIATIONS
CRM Credit Risk Management
CDS Credit Default Swaps
FGDs Focus Group Discussions
BBU Barclays Bank Uganda
SPSS Statistical Package Of Social Scientists
ATMS Auto Teller Machines
CFA Certificate Of Financial Accounting
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CHAPTER ONE
1.0 iNTRODUCTION
1.1 Background of the studyThe experience with banking today has in many ways differed from what was anticipated
in 1974 when major banks abandoned the efforts to define ways of mitigating the credit
risk. there is a wide feeling that credit risks has turned out to be more volatile than it was
expected to be, than it will be, and perhaps than it needs to be.(Frankel, 1995)
Poorly managed credit risks will result into financial losses for banks, donors, investors,
lenders, borrowers and savers. This is because all tends to lose confidence in banks and
funds begin to dry up. And when funds dry up, the commercial bank is not able to meet
its objective of providing services to the poor and quickly goes out of business
Barclays bank Uganda is a commercial bank, one out of 23 commercial banks licensed by
the bank of Uganda. It is primarily involved in meeting the banking needs of the
individuals, small and medium businesses as well as large corporations it conducts cash
operations and emphasizes on risk management as an essential element of long time
success. It is the third largest commercial bank in Uganda with approximately 12% of all
bank assets in the country. It opened for business in Uganda in 1927 with two branches in
the capital city Kampala and Jinja the country’s second commercial centre.
In February 2007, due to its proper risk management frame work and policy, it managed
to acquire Nile bank Uganda ltd and thus strengthening its presence in the country. It
employs more than 1000 colleagues, 53 branches and 80 ATM in service. In 1960s,
commercial banks included local operations of Barclays bank as well as other banks.
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The asset allocation and risk management trends of commercial banks in
Uganda
Rank Bank Market Share Number of Branches
1. Stanbic 24% 67
2. Standard Chartered 15% 10
3. Barclays 12% 65
4. Dfcu 8% 24
5. Centenary 7% 37
To guard against this inconsistence, Barclays bank develops strategies to either eliminate
or reduce fraud risk which is the major aim of credit risk management ( Dawson and
Rodney, 2002).
Credit risk management is the process of measuring and assessing the risk that originates
from earnings and capital due to borrower’s late and nonpayment of loan obligation, and
then developing strategies to manage the risk. It looks forward to the rewards of good
performance of the bank’s finances, growth and increase on the bank’s lending Power.
The bank’s main goal is to ensure well financial performance from internal early warning
systems and management responses that prevent small problems from exploding into
large ones by focusing on credit risk management.
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1.2 Problem StatementIn the world of volatile cash movements and increasing global lending and borrowing of
funds , few banks if any remain un affected by borrower’s late and nonpayment of loan
obligations. This result from the bank's inability to collect anticipated interest earnings as
well as loss of principal resulting from loan defaults.Commercial banks carry out credit
risk management as a measure of administering credit to bellowers’. This is done by
having a well developed credit mechanism and procedure, that is to say, credit appraisal,
training of staff and setting credit standards and terms to offset the possibility for loss and
improve on financial performance.
Commercial banks thus develop strategies to either eliminate or reduce this credit risk. In
the management of this risk, banks are concerned about their financial performance.
However, despite the efforts made to address the poor credit risk management,
commercial banks still have difficulties resulting from the credit risk management
processes undertaken and changes in customer base leading to decreasing financial
performance. To most banks, their credit risk management goal is to arrange the bank’s
financial affairs in such a way that however much borrowers fail to pay back the loan in
the future, the effect on their return is diminished.The study thus was meant to address
the impact of credit risk management on the financial performance of commercial banks.
1.3 Purpose of the studyThe study sought to establish the relationship between credit risk management and
financial performance of Barclays bank of Uganda
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1.4 Objectives of the Study To determine the degree of financial performance of commercial banks.
To establish the relationship between credit Risk management and financial
performance of Barclays bank.
To discuss the other factors that may hinder financial performance of commercial
banks apart from credit risk control.
1.5 Research Questions What is the degree of financial performance of Barclays bank?
How does Barclays bank mitigate the credit risk that cannot be tolerated?
What is the relationship between credit risk management and financial
performance of Barclays bank?
1.6 Scope of the studyThe study focused on credit risk management measured by both default and risk
management assessment and use of default risk management strategies and financial
performance explained by profitability and sales growth of Barclays bank of Uganda.
The study was investigated at Barclays bank Uganda, Luwum Street branch because this
branch has the highest number of customers and borrowers compared to some other
branches of the bank.
The research was conducted in the period between 2nd / 4/ 2011 to 20th/6/ 2011 and
considered the benefits of risk management to Barclays bank Uganda.
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1.7 Significance of the studyThe study had the following contributions;
The study shall be of help to the commercial banks to mitigate and reduce credit
risk so as to stimulate their financial performance
The study shall contribute to the existing wealth of knowledge on financial
performance and risk management in commercial banks.
The research shall help to identify the other factors that may hinder financial
performance of commercial banks apart from the credit risk and this shall help
improve the profit margins and at the same time reduce costs of the bank.
The study shall be of help to the employees of commercial banks to improve on
their skills of management so as to improve performance.
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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 IntroductionThere has been little study on credit Risk management and financial performance of
commercial banks in developing countries. The literature review in the study is cited
mainly from Barclays Bank in relation to its applicability in Uganda.Commercial banks,
Barclays bank inclusive, are subjected to financial risk of default in terms of lending and
barrowing deficiencies arising from failure of barrowers to meet loan delegations.
According to Khambata, Dara (1996), Banks give out loans to barrowers but there is
always a possibility of barrowers failing to pay back. This uncertainty thus calls for
management’s intervention to mitigate the risk.
2.2 Credit RiskChristian Bluhm et. al (1964) define Risk as the possibility of loss while credit Risk is
associated with the failure of a counter party with whom a particular financial transaction
has taken place .Credit risk includes both credit default risk and transaction risk.
They further said that credit default risk is the most frequently addressed risk for
commercial bank. It’s the risk to earning or capital due to barrower’s late and non
payment of loans obligations. It encompasses both the loss of income resulting from the
bank’s inability to collect anticipated interest earnings as well as the loss of principle
resulting from loan defaults.Transaction risk refers to the risk with in individual loans.
The higher the percieved risk, The higher the rate of interest that investors will demand
for lending their capital .Credit risk is calculated based on the borrowers overall ability to
repay.
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Peter Rose(1992) says that the factor that is causing interest rates to differ from others is
the degree of risk. Investors in securities face many different kinds of risk, of course , but
one of the most important is default risk that a borrower will not meet all promised
payments at the time agreed upon.The yield on a risky security is positively related to the
risk of borrower default as perceived by investors. Specifically, the yield on risky
security is composed of at least two elements.
The yield to Maturity, that will be earned by the lender or investor if borrower makes all
the payments pledged when they are due and the risk premium.
Default risk Premium = Promised yield on a risky security - Risk free interest rate.
He further says that it is increasingly in the recent years that some of the banks and even
local government units have been forced into bankruptcy and into default on their bonds.
Most banks have experienced highly publicized financial problems and require
government help to survive.The volatile changes in business and consumer spending,
interest rates and prices frequently have led to serious financial crisis, for this reason
banks today have learned to look at the expected rate of return or yield on a loan or
security as well as its promised yield. The expected yield is simply the weighted average
of all possible yields to maturity from risky security. Thus if there are m possible yield
from a risky security;
Expected Yeild = ∑mi=1PiYi.
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2.3 Credit Risk Management (CRM) Dictor Devendra Jain (2010) says, we are in a dynamic uncertain word where the
economic climate and developments in lending agencies can affect changes in interest
rates. He further says that it is impossible to eliminate all the risk in any business activity
Credit risk management is the process of managing the probability or the severity of the
loss arising from loss of interest and principle due to barrowers default to an acceptable
range or with in limits set by the commercial bank.
Credit risk management is a method to devise a plan to measure the credit risk and
develop management strategies to counter the credit risk.
2.4. Credit risk Management Frame Work.This is a guide for commercial banks managers to design an integrated and
comprehensive risk management system that helps them focus on the credit risk in an
effective and efficient manner. Therefore a CRM framework is a consciously designed
system to protect the bank from undesirable surprise and enable it to take advantage of
opportunities.
According to Okello,et. el (1999), a good CRM framework integrates into banks
operations to set systematic processes for identifying, measuring and monitoring the risk
to help management keep an eye on the big picture.The credit rating agencies try to
ascertain the risk associated with the barrowers .They use the credit rating model.The
credit rating model is a preventive risk management tool and provides the detail analysis
of the counter party .However its not a complete risk elimination for commercial banks.
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The banks have derivatives like credit default swaps that can eliminate the credit default
risk.
2.5 The Credit Risk Management ProcessAccording to the Chattered Institute of Bankers (1999) CRM process evolves around
various departments of an organization such as, treasury, sales, finance, legal and
taxation. The process evolves around banks capabilities to face the uncertainty of lending
out.
Broadly speaking, there are three parts in the credit risk management process. The first
part is to identify and understand the risk the second part is associated with the
measurement and reporting of credit risk and the third part of the process is to implement
an effective credit risk management plan.
However, Preager (1964), Commercial banks can reduce and control credit risk
through use of internal financial controls. These are so classified because they do not
utilize external financial markets. They can use the credit swaps.
2.6 Credit Default Swaps (CDS) It can be thought of as a form of insurance. If a borrower of money does not repay
her loan, she defaults, if a lender has purchased the CDS on that loan, she default as a
credit to swap it in exchange for a repayment from an insurance company.
If the reference bond defaults, the protection seller pays per value of the bond to the
buyer and the buyer physically delivers the bond to the seller. (Wikipedia,
November2010)
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These changes will help to ensure that banks are better able to with stand shocks to their
balance sheets.To Mark Hirshey (2000), to measure credit risk, standard deviation can be
used. To calculate standard deviation using probability for loss, the expected value must
be calculated.
Credit risk management problems
In 2000, Mark Hirshey noted thar the significant differences in risk exposure of managers
and stock holders often lead to an excessive risk- taking problem. Most banks were
brought to their knees given excessive risk taking by individuals.
2.7 Financial Performance of Commercial Banks. In determination of a company’s overall performance, its investment of funds in assets,
profits from operations, the business risk and credit risk must be considered. The idea is
to acquire assets and invest in products and services where expected return exceeds their
costs. Performance is an element of financial statements and frequently, maximization of
profits is regarded as the determinant of financial performance or as a basis of other
measures.
Pandy, (1996) says a company should earn profits to survive and grow over a long period
of time. Information about financial performance is useful in predicting the capacity of a
firm top generate cash flows from its existing resource base.
Measurement of financial performance is based on accounting information contained in
financial statements used by management, creditors, investors and others to form
judgment about performance of a firm.
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According to Chirwa (2003), profitability is the most used financial performance
indicator for companies. It generally shows the ability of a company to generate returns
for the shareholders in light of the investment committed.
Commercial banks being deposit taking institutions allow a variety of deposits from their
customers, these include, demand deposits, savings deposits, and time deposits. Its these
deposits that are used by the commercial banks in the generating profits through lending
and investing in securities. Without significant deposits therefore, banks’ ability to
generate returns will be constrained.
However on the other hand, loan performance is the best indicator of financial institutions
performance as regards the credit lines (AMFIU, 2004). This loan performance indicates
the extent to which money lent out by a financial institution is being recovered. Bad debts
to both insiders and outsiders are the commonest indicator of credit riskiness of a bank
and its financial performance.
Other factors that have hindered financial performance of commercial banks apart
from the credit risk.
Un due concentration of loans to single activities, individuals or groups, poor corporate
governance with ion managers and bank officers, un educated and ill experienced credit
risk control personals, low levels of advertisement, the substance economy where most
people in Uganda are farmers and un educated in that they don’t borrow from commercial
bank, and in case they have borrowed, it’s possible that they shall fail to pay back.
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2.8 Credit Risk Management and Financial Performance of Commercial Banks. Policy details out ways of establishing the customers credit worthiness. These include use
of financial statements. To establish the capital structure of the customer as a basis of
determining whether the customer has the capacity to repay the loan, commercial banks
manager have put up means of reducing the credit risk and thus stimulate financial
performance.
Financial statements help to establish the gearing of a customer. High gearing may imply
that customer has over borrowed and may be risky to extend additional loan.
Financial statements may also reveal the ability of the customer to generate adequate
revenue for repayment of the loan. 1
According to Mark Hirschey (2000) Credit risk is the chance that another party will fail
to abide by its contractual obligations. A number of banks have lost substantial sums
because other parties that is, borrowers were either unable pr unwilling to provide
financing at agreed on prices. A bank must first define the exposure to loss from lending
out to borrowers and decide whether it will attempt its self against the possibility of loss
from exposure created by the use of different interest rates while lending.
First a credit risk management goal is very important. Should it attempt to eliminate all
interest rate gains and losses? Should it try to minimize financial losses? Or is it willing
to accept credit gains? (Dominguez and Teasar, 2004)
The sound practice setout specifically to address the following areas:
1 www.bis.org
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Maintaining an appropriate credit administration, measure and monitoring
process.
Establishing an appropriate credit risk environment, and
Operating under a sound credit-granting process and ensuring adequate controls
over credit risk.
Although specific credit risk management practices may differ among banks
depending upon the nature and complexity of their credit activities, a comprehensive
credit risk management program will address these four areas. These practices should
also be applied in conjunction with sound practices related to the assessment of asset
quality the adequacy of provisions and reserves, and the disclosure of credit risk, all
of which have been addressed in other recent Basel committee documents. This helps
to increase the financial performance of commercial banks.
Supervisory expectations for the credit risk management approach used by individual
banks should be commensurate with the scope and sophistication of the bank’s financial
performance. For smaller or less sophisticated banks, supervisors need to determine that
the credit risk management approach used is sufficient for their activities and that they
have instilled sufficient risk- return discipline in their credit management processes to
stimulate financial performance.
Internationally, to reduce credit risk, Euro credits have been adopted. These are short to
medium loans of Euro currency extended by euro banks to corporations, sovereign
governments. International organizations. The loans are denominated in currencies other
than the home currency of the euro bank.
13
The credit risk on these loans is greater than on loans to other banks in the inter- bank
market. Thus the interest rate on these loans must compensate the bank for the added
credit risk
The lending rate on this credit is stated as;
LIBOR + X% (Percent)
In summery however, Peter .S. Rose (1992) concludes that, careful studies of the
relationship between default or credit risk and financial performance points to the
fundamental principles in the field of finance. Default risk and expected return are
positively related. The bank and investor seeking higher expected return must also be
willing to accept greater risk of ruin. Moreover credit risk is correlated with both internal
borrowers specific factors associated with loan and external factors, especially the state
of the economy and demand for a particular banks service.
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Conclusion
Mr. Leo Omolo of the Bank of Uganda says that although banks have a great role to play,
credit risk has been identified as a serious threat to their performance. Banks finds
difficulties in lending out to customers / borrowers due to failure or nonpayment. For an
improved financial performance, the bank needs to incorporate credit risk management
into its operational and long range planning activities.
Thus there are reforms being introduced by bank of Uganda to help curb credit risk and
stimulate financial performance. (Mr. Kasekende) the Central Bank will introduce a
capital charge that is in compliance with the Basel I Accord and eventually introduce a
capital charge for credit risk based on the Basel II Cord.
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CHAPTER THREE
3.0 RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction. This chapter deals with data that is collected and analyzed. It describes the research
design employed. The survey population, sampling, data collection and analysis. It also
highlights problems to encounter in the study.
3.2 Research design This is a cross section study because data was gathered over a period of weeks or a
month in order to establish the relationship between credit risk management and
financial performance of Barclays Bank Uganda Luwum street branch Kampala. In order
to collect adequate data, qualitative and quantitative research designs were used. And
explanatory research designs based on results from questionnaires and interviews.
3.3 Survey population The study was to assess the credit risk management and its impact on the financial
performance of commercial banks with a case study of Barclays Bank Uganda. As a
result the population researched up on was of three folds including.
Barclays Bank management executives and loan officers because of their knowledge
of credit risk and performance of Barclays bank.
Employees at Barclays bank will give us information concerning performance of the
bank financially.
Credit risk managers and assessors.
3.4 Classification.This research was mainly be based on quality. It was a qualitative research because it
was subjective and based on opinion and perception to formulate a better performance of
Barclays Bank. However, it was on a small extent quantitative because it saught to
determine in numerical form the level of sales and financial statements of the bank.
16
3.5 Sample size As stated in the background to the study of Barclays Bank Uganda at Luwum street
branch, the bank has over 25 employees.
The research aimed at capturing 75% of the population.
This yields a sample size of 20 employees and officers.
Table 1: Showing the respondents
Category Number of persons Percentages
Management executives 4 20%
Loan officers/credit risk managers 6 30%
Employees 10 50%
Total 20 100%
3.6 Source of DataData sources were both primary and secondary. The main primary source of data was
from direct interview and questionnaires that were used to collect information from the
respondents in Barclays bank Luwum street branch.
3.6.1 Primary Source The primary data was mainly from self administered questionnaires along side
interviews to Barclays bank employees and loan officers on top of which Focus Group
Discussions were conducted.
3.6.2 Secondary Sources Secondary data was sourced mainly for corroborative purposes. This is composed of
written information about how commercial banks have tried to mitigate credit risk,
financial performance and credit risk management of commercial banks .Audit reports
and financial statements of the institute of Bankers and Bank of Uganda covering a
period of 1999-2010.
17
3.7 data collection instruments Data was collected from employees, management executives and loan officers or risk
evaluators through questionnaires and face to face interview in most cases concurrently
carried out. There was also use of documentation review and Focus Group Discussions
3.7.1 Questionnaires In order to minimize costs and save credit risk assessors time and be organized for
managers and with the respondents to fill during their free time and after considered
though, Few self-administered questionnaires were employed for those management
executives and risk manager plus employees who did not have time to participate in face
to face interviews.
3.7.2 Interviews For risk managers and employees of Barclays bank Uganda Luwum street branch
Kampala, face to face interviews were conducted alongside self administered
questionnaires to enhance response to questions generally regarded as sensitive.
3.7.2 Focus Group DiscussionsFocus Group Discussions were also employed where by the researcher formed groups of
respondents who discussed the problem at hand .The impact of credit risk management
on the financial performance of commercial banks while he recorded down the data about
the response.
3.8 Data Processing and Analysis The response rate was carried out using tables, Percentages and frequencies as this was
relatively simple. After dater was collected, the researcher got the percentages of the
response and recorded the response rate in relation to the phenomenon.By use of the
response rate, the researcher analyzed the data and found out the extent to which the
credit risk management helped the bank realize its purpose of increasing the financial
performance and making conclusions from the analysis.
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3.9 Limitations and problems encountered Given the nature of the study, there were many problems to encountered as highlighted
below.
A major setback of the study was a failure to get data and enough local research
findings relating to management and financial performance of Barclays Bank
Uganda.
Some of the data was regarded as highly sensitive and confidential. Therefore it
was difficult to fully assess the impact of credit risk management on the financial
performance of commercial banks.
Due to the fact that the employers were always busy at work, the researcher found
problems of non response and delaying of the response.
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CHAPTER FOUR
4.0 DATA PRESENTATION, DISCUSSION AND INTERPRETATION
4.1 IntroductionThis research study was designed to find out the impact of credit risk management on the
financial performance of commercial banks, specifically Barclays bank Uganda, Luwum
Street branch.
The purpose of this chapter is to give the findings of credit risk management and
financial performance of the banks.
Findings were got from a sample of Barclays bank Uganda, Luwum Street branch
officers and management staff.
The study was guided by the following research objectives;
To establish the relationship between credit Risk management and financial
performance of Barclays bank.
To determine the degree of financial performance of Barclays banks.
To discuss the other means by which commercial banks may increase their
financial performance apart from credit risk control.
4.2 Background information on the respondents.
4.2.1 Findings on the general characteristics of the respondentsTable 4.1 showing sex of respondents
Response Frequency Percentage(%)
Male 14 70
Female 6 30
Total 20 100
Source; Primary data
The observation of the responses indicated that the percentage of male respondents was
70% while that of females was 30%.
20
4.2.2Findings on the academic level of the respondents
Table 4.2 showing the education levels.
Level Frequency Percentage
Diploma 3 15
Degree 13 65
Masters and above 3 15
Others 1 5
Total 20 100
Source; Primary data.
From table 4.2, Respondents were found to be of a different academic background. Most
of them were University graduates. Within this group, 15% were holding diplomas in
business studies,65% were holding degrees from business institutes, masters degree and
above were 15% and the rest of the respondents included 5%.This implied that most of
the staff had the skills required for credit risk management and able to improve on
service delivery, quality and financial performance of the bank..
4.3 CREDIT RISK MANAGEMENT
4.3.1 Finding whether the bank involves training in respect to credit risk
management processes and techniques Table 4.3 Showing whether there was any training taken in respect to credit risk management.
Response Frequency Percentage
Yes 6 30
No 14 70
Total 20 100
Source; primary data
From table 4.3, 30% of the respondents took trainings in respect to credit risk
management, trainings like financial computing, risk management short courses and
certificates ,CFA , and internal audit workshops with ICPAU, Barclays bank seminars
21
and workshops on risk management. Majority of the respondents with a percentage of 70
don’t have the additional necessary trainings of risk management but use their experience
and on job trainings to manage risks.
4.3.2 Finding whether the Bank involves or uses credit risk management process and techniques in its operations.
Table 4.4 Showing the bank’s involvement of credit risk management process and techniques in its
operations.
Response Frequency Percentage(%)
Yes 19 95
No 1 5
Total 20 100
Source; primary data
95% of the respondents responded positively on the question of whether the bank
involves credit risk management techniques in its operations, while 5% think that the
bank does not. The above response shows that the bank involves the credit risk
management processes like evaluation of the risk .
4.3.3Findings on credit risk minimizationTable 4.5 Showing credit risk minimization.
Response Frequency Percentage (%)
22
Strongly Agree 2 10
Agree 9 45
Not Sure 9 45
Dis Agree NIL NIL
Total 20 100
Source; Primary data.
From table 4.5, 45% of the respondents are not sure and agree while 55% of the
respondents agree and strongly agree that to some extent credit risk is minimized by
reducing connected party lending, renegotiated exposure to related parties as well as
reducing exposure to the economic sector. This is so because the banks aims at reducing
defaults of clients and want always to be in a better position of recurring on its services.
However, the respondents in their opinion gave the factors that have hindered the credit
risk minimization and they cited the following factor to include;
Failure to recognize early warning systems for potential loss and problems
Poor and inefficient allocation of resources, especially failing to fund credit risk
reduction ventures.
Poor information systems especially on potential consequences, there is a
backward thinking organization culture which hinders managers from identifying,
measuring and assessing the risk to the bank.
4.3.4 Findings on when the bank reminds a defaulting customer.Table 4.6 Showing when the bank reminds a defaulting customer
Respondent Frequency Percentage
23
Immediately 2 10
Every month 4 20
Every after a month 12 60
Not at all 2 10
Total 20 100
Source; primary data.
10% of the respondents indicated that the bank reminds a defaulting customer
immediately after the due date but the other 10% say that the bank does not remind the
defaulting customer.20% indicated that every after a month while the 60% indicated that
every after two month.
The large percentage of 60% reveal that the bank takes a long period to remind the
customers and consequently this could be one of the reasons why the loan defaulters take
long to pay back loan obligations. In this case, they find themselves in financial problems
and fail to pay back loan obligations.,
Thus the level of failure of borrowers to honor debt obligations is still high and the bank
has lost out on its finances.
4.3.5.Findings on the future banking and increase in customer base in line with effective credit risk management.Table 4.7 Showing the future banking and increase in customer base in line with effective risk
management.
24
Response Frequency Percentage
Strongly Agree 5 25
Agree 13 65
Not Sure 2 10
Disagree NIL NIL
Strongly Disagree NIL NIL
Total 20 100
Source; primary data.
From table 4.6. 90% of the respondents agreed and strongly agreed and only 10% are not
sure that future banking and customer base will increase in line to effective credit risk
management. This is so because customer switching will reduce if they are given secure
services by Barclays bank and as a result the future of banking will be promising and the
customers will continue increasing with time.
4.4 THE FINANCIAL PERFORMANCE.
4.4.1 Findings on the financial performance of Barclays bank.In normal circumstances, financial performance is measured by the company’s audited
financial statements so as to arrive to profits and losses there in.At Barclays bank Luwum
Street branch, the financial statements reflect an increase in the level of profits of the
company,
Table 4.8:Barclays bank balance sheets as at 30th June 2010
Details 6 months to
30/6/2010.
% 12 months to
31/12/2009.
%assets
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(000) assets (000)
Cash with central bank 30,261,134 19.60 15,399,642 9.95
Cash with other banks 11,033,277 7.14 11,009,231 7.11
Customer loans and
advances
74,029,547 47.94 82,812,564 53.52
Financial lease
receivables
480,946 0.31 1,316,728 0.85
Financial investments 2,525,242 1.64 7,743,703 5.00
Pre-payments 445,820 0.29 28,720,130 18.56
Property and equity 28,443,823 18.41 1,685,054 1.09
Intangible assets 1,439,207 0.93 3,853,900 2.49
Other assets 4,239,996 2.75 - -
Tax receivables 1,527,116 0.99 1,527,116 0.99
Total assets 154,426,107 100% 154,740,776 100%
Liabilities and equity %
liabilities
Dues to customers 102,363,964 96.04 71,568,612 62.93
Borrowed funds 425,397 0.40 9,331,660 8.21
Other liabilities 3,796,969 3.56 32,821,452 28.86
Total liabilities 106,586,330 100% 113,721,724 100%
Financed by %
Equity
Issue capital 19,525,300 40.81 18,575,300 45.28
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Share premium 42,264,145 88.35 19,918,695 48.56
Retained(loss)premium (16,820,960) (35.16) (1,833,858) (4.47)
Regulatory reserve 1,713,818 3.58 3,360,381 8.19
Revaluation reserve 1,157,474 2.42 998,534 2.43
Total equity 47,839,777 100% 41,019,052 100%
Total liabilities and
equity
154,426,107 154,740,776
Source: Barclays bank Uganda director’s report and financial statements 30 th June
2010.
The bank showed an increase in the cash and balances at the central bank from 9.95% in
2009 to 19.60% in 2010.Similarly, there was an increase in cash with other banks from
7.11% to 7.14% in 2009 and 2010 respectively.
The bank showed a decrease in the customer loans and advances from 53.52% in 2009 to
47.94% in 2010 and also a decrease in the financial investments from 5.00% in 2009 to
1.64% in 2010.Prepayments and intangible assets also decreased tremendously.
However decrease, the bank also showed increase in the property, equity, and other assets
significantly and kept the tax receivables constant at 0.99% in both years.
Dues to customer by the bank increased from 62.93% to 96.04% both in 2009 and 2010
respectively but the bank managed to reduce its borrowed funds and other liabilities for
the year 2009 to 2010.
Share premium increased but issue capital, retained loss, regulatory reserves, and
revaluation reserves used in financing all reduced unexpectantly putting the bank in hard
situations.
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Table 4.9: Statements of comprehensive income and profit and loss accounts
Interest and similar income 11,078,218 32,931,407
Interest and similar expenses (3,982,782) (9,466,131)
Net interest income 7,095,436 23,465,275
Net fee and commission income 2,732,553 6,105,106
Net trading income 620,493 1,179,792
Other operating income 434,579 133,625
Total operating income 10,874,061 30,883,799
Credit loss expenses (7,405,201) (4,037,376)
Net operating income 3,468,861 26,846,423
Personal expenses 7,966,755 15,876,064
Depn of property and equipment 2,384,271 2,902,531
Amortization of intangible assets 258,224 462,127
Amortization of leasehold 12,526 25,214
Other operating expenses 7,834,186 14,559,207
Total operating expenses 18,455,963 33,825,143
Profit/loss before tax 14,987,102 6,978,720
Income tax credit/expenses - 723,222
Profit/loss for the year 14,987,100 6,255,498
Source; Barclays bank Uganda directors report and financial statements 30 th June
2010.
With respect to financial performance, the results for the full year 2010 showed an
increase in the profit from 6,978,720 before tax to 6,995,498 after tax in 2009.The profit
remained static after and before the tax at 14,987,102 in 2010.
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4.4.2 Response on how much the bank has lost due to fraud committed last yearTable 4.10: Shows response on how much the bank has lost due to fraud committed last year
Response Frequency Percentage (%)
Much 4 20
Little 12 60
None 4 20
Total 20 100
Source; Primary data
20% of the respondents were found to have indicated that the bank has lost much and non
due to fraud committed last year and 60% indicated that the bank has lost little.
4.4.3 Responses on the number of customers who have failed to pay back loan obligationsTable 4.11 shows the responses on the number of customers who have failed to pay back loan
obligations.
Response Frequency Percentage (%)
I-10 2 10
11-20 3 15
Above 20 15 75
Total 20 100
Source; Primary data
75% of the respondents indicated that above 20 customers failed to pay back loan
obligations on due time, 15% said that the number of customers who failed to honor their
debt obligations to babk at due time were 11 to 20, while 10 % said that the number was
1 to 10 customers.
4.4.4 Findings on the hindrances to financial performance improvements When asked about the hindrances to financial performance improvement apart from
credit risk management, respondents gave the following ideas;
Barclays crashing ATMs tests customer’ patience which caused the services level
and Barclays lost a lot of clients as a result and this reduced the bank’s profits.
29
The long lines made each day by customers while making transactions by either
use of ATMs or counter trading has led some of the customers to shift from
keeping their money on to the bank account to holding their money in cash form.
Thus the bank has lost a great deal of customers and financial performance has
decreased dramatically.
Switching; many Ugandan switch from bank to bank and thus meaning that the
profit margin can never be stable.
However, the respondents gave their view on how the above hindrances can be
improved up on so as to realize increased financial performance.
Barclays bank has managed to put in place many ATMs and branches al
over the country so as to reduce on overcrowding of the bank customers
while making transactions. 75 branches and 50 and above ATMs have
been put in place all over Uganda and have been located conveniently to
favor the bank’s customer.
4.5 CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE.Table 4.12:Findings on effective risk management affecting financial performance
Correlations Financial performance Risk management
Findings on financial performance
Pearson Correlation
.804
30
1
Sig. (2-tailed). .000
.
N
20 20
Findings on credit risk management
Pearson Correlation
.840
.1
Sig. (2-tailed) .000
N 20 20
** Correlation is significant at the 0.01 level (2-tailed). Source: Primary data.
Statistical package of social scientists (SPSS)
There is a very strong correlation (relationship) at 0.804 which is approximately 80.4%
between risk management and financial performance out of a sample of 20 respondents.
CHAPTER FIVE
5.0 SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
5.1 IntroductionThis chapter gives the summery of the main findings, conclusions and recommendations
that are in line with the study objectives and questions. The recommendations are related
31
to the findings of this study but others were drawn from similar studies on credit risk
management.
5.1.1 Summary of the main findings.Findings from the study indicate that the financial performance of Barclays is very well
seen to be highly attributed to the level of credit risk management carried out by the
management of Barclays bank, amidst internal and external factors like; sensitization and
education, economic and political stability mention it. The general characteristics of the
respondents gives a clear impression that credit risk management is at a fore front of the
banks objectives. All the employees are equipped with the knowledge regarding financial
performance improvement and credit risk reduction.
With that, 65% are university degree holders,20 % masters and above, and 15% hold
diplomas.
The findings also reveal that the credit risk is mainly due to financing, lending and
investment objectives as indicated by 90%of the respondents.
How ever, findings indicate that the the level of perfomance has been increasing though
the respondents cited some other hinderences to financial performance improvement to
include the following,
High level of non perfoming loans
ATMs tests customer’ patience which caused the services level and Barclays lost
a lot of clients as a result and this reduced the bank’s profits.
32
The long lines made each day by customers while making transactions by either
use of ATMs or counter trading has led some of the customers to shift from
keeping their money on to the bank account.
5.1.2 Credit risk management Findings indicated that 70% of the respondents did not agree that there is any
training being carried out by the bank as far as credit risk management is concerned while
the 30% agreed . Findings also indicate that the bank involves credit risk management
techniques and procedures in its operations, as indicated by 95%of the respondents who
agreed and the 5% did not agree.
Regarding credit risk minimisation, 45% of the respondents agreed that the bank has
managed to curb credit risk while the 45% were not sure but the 10% strongly agreed on
the issue.
However, respondents cited factors that have limited credit risk minimisation to include
the following;
Failure to recognize early warning systems for potential loss and problems
Poor and inefficient allocation of resources, especially failing to fund credit risk
reduction ventures
Poor information systems especially on potential consequences, there is a
backward thinking organization culture which hinders managers from identifying,
measuring and assessing the risk to the bank.
Findings show that the bank reminds the defaulting customers every after a month as
indicated by 60% of the response .20% say that it does this every month and the 10% say
that the bank reminds them immediately after the due date.
Also 90% of the respondents indicated that they agree that in the future the bank will be
able to achieve effective effective credit risk management and to increase the customer
base, but the 10% were not sure.
33
5.1.3 FINANCIAL PERFORMANCE The assessment of the financial perfomance indicated that there was an increase in the
cash and balances at the central bank from 9.95% in 2009 to 19.60% in 2010, the results
for the full year 2010 showed an increase in the profit from 6,978,720 before tax to
6,995,498 after tax in 2009.The profit remained static after and before the tax at
14,987,102 in 2010.
Findings indicated that 20% of the response showed that the bank has lost much due to
fraud committed last year, 60% indicated that thebank has lost little and 20% indicated
that the bank has lost non due to fraud.
Also, 75% indicated that above 20 customers failed to pay back loan obligatyions , 15%
indicated that 11-20 while 10% indicated 1-10 customers who failed to payback loan
obligations.
However, financial performance improvement is still low at barclays bank and
the respondents attributed this to ;
Crashing ATMS.
Poor banking methods employed by customers.
Concentration of loans to non productive projects.
5.1.4 CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMANCE.Findings indicated that there is a very strong correlation (relationship) at 0.804 which is
approximately 80.4% between credit risk management and financial performance out of
a sample of 20 respondents.
The successful and good financial performance of Barclays bank alongside credit risk
management has helped and favored several branches of the bank in different regions and
parts of Uganda, risk management has been instrumental to the commercial business of
Barclays bank and its survival in the competitive business environment at large, therefore
inefficiency and unlimited delays in transactions especially loan distribution services
among the big number of clients attended to has been eased.
Going deep into the future of credit risk management in relation to financial performance,
top managers and employees indicated that the future of Barclays
34
bank is promising and that with effective credit risk management, financial performance
will to a large extent increase.
5.2 Conclusions.Financial perfomance will be seen to increase due to the strong correlation of 84%
implying that the financial performance of Barclays bank Uganda is greatly attributed to
the effective credit risk management aspects carried out by the management and
employees of the bank. The number of customers increased fundamentally due to the
advent credit risk management forwarded and expertise.
Conclusively, therefore, credit risk management is a worthwhile venture to expertise
and put in more resources to enhance and frame a better performance and generation of
the banking sector, and other sectors of the economy which share the same strategies for
their better beings and optimism.
5.3 RECOMMENDATIONS.Barclays Bank should be able to train its staff on credit rick management so as to
stimulate its financial performance. Risk management short courses and seminars like; in
financial computing and CFA, telephone banking, research and development frameworks,
marketing facilities like sales promotions, advertisements and customer care,
technological installations like advanced ATMcards,internet banking, posting and
withdrawing charges, installation of toll free numbers for customers consultations and
advices, feedback loops and interactive systems as well as mobile
Therefore, managers and other financial experts should realize that credit risk
management is not all that Barclays bank needs to perform so well, but there are other
factors that need to be considered and integrated with the risk management strategy to
yield and ascertain the synergy of resource (profitability).
35
5.3.1. Management should address the following. The changes in the risk management criteria in the banking business.
The level of financial performance in respect to the credit risk management
criteria in the banking business.
The level of financial performance changes in the financial business community.
The costs incurred to acquire a good risk management frame work.
The regulation and supervision of the reserve bank towards risk management in
the financial sector.
Employee’s knowledge, experience, capacity and seniority as far as service
delivery
are concerned to enhance good financial performance of equity bank.
Patent rights (trademark protection) and the laws prevailing in the financial
business community should be abided.
5.4.Areas for further Research.The following areas have not been addressed by this research report and are therefore
open to any willing researcher for further studies about the financial system of
Uganda.
The impact of information technology on the level of financial performance.
The impact of politics on the level of financial performance.
The impact of motivation on the financial performance of banks.
Risk management and the teasing laws of finance.
Risk management and motivation of banks.
Financial performance and electronic banking.
REFERENCESKhambata, Dara (1996), monde and finance in Africa
36
Christian Bluhm; Ludger over Beck, Christoph Wagner (1964), international banking and
money markets
Dr. Devendra Jain in 2010, lecturer note of financial risk management (Treasury
Management)
Okello, George, Candiya (1999), credit risk and financial sustainability of micro finance
institutions in Uganda
Chattered institute of bankers, (1999) ed ‘lending study’ test London
Preagar (196 4), money and finance in Africa
International Banking and Money Markets (www. Bis.org/ Wikipedia, nov 2010)
Peter.S.Rose (1992) money and capital markets (the financial system in an increasingly
Chirwa, 2003, credit risk assessment and performance of micro finances (FINCA
UGANDA ltd)
Pritaman, Shanek And Singal, 2003 credit risk management and finance management of
banks, www.wikipedia.com
Mark Hirschey (2000) managerial economics (revised edition) university of Kansas
Uganda commercial bank ‘credit manual 1995’
Bank of Uganda’s Mr. Leo Omolo and Mr. Kasekende
SEMUKONO FREDRICK (1996) MBA dissertation on role of credit risk management in the
performance of Uganda Commercial Bank Rural farmes schemes.
John W. K & Melicher W. R (1982) 5 ED "Financial Management" Allyn & Bacpn Inc. Boston
Pandey I. M (1996) Financial Management Vikas Publishing house PUT India.
Van Horne J.C and Wachwitch J.M (1992) ed "Fundamentals of Financial Management"
Prentice Hall of Indial Private Ltd
Chattered institute of bankers, (1999) ed ‘lending study’ test London
37
Preagar (196 4), money and finance in Africa
International Banking and Money Markets (www. Bis.org/ Wikipedia, nov 2010)
Peter.S.Rose (1992) money and capital markets (the financial system in an increasingly
Chirwa, 2003, credit risk assessment and performance of micro finances (FINCA
UGANDA ltd)
Pritaman, Shanek And Singal, 2003 credit risk management and finance management of
banks, www.wikipedia.com
Mark Hirschey (2000) managerial economics (revised edition) university of Kansas
Uganda commercial bank ‘credit manual 1995’
Bank of Uganda’s Mr. Leo Omolo and Mr. Kasekende
SEMUKONO FREDRICK (1996) MBA dissertation on role of credit risk management in the
performance of Uganda Commercial Bank Rural farmes schemes.
John W. K & Melicher W. R (1982) 5 ED "Financial Management" Allyn & Bacpn Inc. Boston
Pandey I. M (1996) Financial Management Vikas Publishing house PUT India.
Van Horne J.C and Wachwitch J.M (1992) ed "Fundamentals of Financial Management"
Prentice Hall of Indial Private Ltd.
QUESTIONNAIRE
MAKERERE UNIVERSITY
Dear respondent,
38
I am a student of Makerere University, faculty of economics and management pursuing a Bachelor’s Degree in Commerce (BCOM). Am carrying out a research study on “Credit risk management and financial performance of commercial banks”, you have been selected to volunteer in the study as a respondent. Your views will be kept and treated confidently in line with the study. I appreciate every contribution that you make in furthering this research endeavor. Thank you for your time and cooperation.
SECTION A: Background of the respondents1. Name
……………………………………………………………………………………….
2. Sex: Male Female 3. Position held4. Marital status: Married Single5. Academic qualification: Degree Diploma Professional
Course
lf others specify…………………………………6. For how long have you worked in this bank?
1-5 5-10 Above 10
SECTION B: Credit Risk Management1. Does your ban k involve any kind of training in respect to credit risk
management?Yes No
2. Could the following processes and techniques be applicable as far as credit risk management is concerned?VA-Very applicable, A-Applicable, FA-Fairly Applicable, NA-Not applicable, NO- No opinion
VA A FA NA NO
Identify and understand the risk
39
Measurement and reporting of the credit risk.
Implementing an effective credit risk management plan
Credit Default Swamps CDS
.3. Has your bank tried to reduce credit or default risk?.
Strongly agree Agree Not sure Disagree Strongly disagree
4. Since credit risk is associated with default of borrowers, when do you remind a defaulting customer?Immediately Every monthAvery after two monthsNot at all
5. Following effective credit risk management plan, the bank expects future banking and increase in customer base. To what extent do you agree?
Strongly agree Agree Not sure Disagree Strongly disagree
SECTION C: Financial performance
1. What is the current probability level of the bank?
40
High Moderate Low Not sure
2. How many customers do you think have failed to pay back loan obligations?
1-10 11-20 Above 20
3. In your opinion, how much has the bank lost due to fraud committed this year?
Much Little None
4. To increase financial performance of the bank, which measures have been put in place?Commonly used (CU), Used (U) Fairly used (FU) Not used (NU) No opinion(NO)
CU U FU NU NO
Cost Reduction
Risk Reduction
Capital Adequacy
5. what do you think may hinder financial performance improvement, apart from credit risk?………………………………………………………………………………………………………………………………………………………………………………
6. How do you think this problem can be improved upon to realize an increase in the financial performance of a bank?………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
41
SECTION DThe relationship between credit risk management and financial performance of the bank 1. Credit risk management affects the financial performance of the bank
Strongly agree
Agree Not sure Disagree Strongly agree
2. Credit risk management processes and techniques result into high profitability levels
Strongly agree
Agree Not sure Disagree Strongly agree
3. To what extent has credit risk management affected the financial performance of
your bank?
Great Less
4. To what extent should your bank respond to credit risk management so as to achieve a sound financial performance?
Great Less
5. What do you think will happen to the financial performance of your bank lf it pays a deaf ear on credit risk management?…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
Thank you for your cooperation
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