IMPACT OF LOANS MANAGEMENT ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA A CASE OF BANK OF KIGALI GROUP PLC (2020-2023)

Abstract

The general objective of this study was to assess the impacts of the loans management to the financial performance of commercial banks in Rwanda with reference of Bank of Kigali during the period from 2020 up to 2023. This study has the following specific objectives: Assessing the effectiveness of loans management in Bank of Kigali, assessing financial performance in Bank of Kigali, and assessing the impact of Loan management practices on the financial performance of Bank of Kigali. The research used explanatory research design to analyze the data collected throughout financial reports of the Bank of Kigali Plc and multiple regression analysis was used for hypotheses testing. The secondary data collected from the financial statements of Bank of Kigali Plc, in a 4 years period (2020 2023), formed the base of statistical analysis using the SPSS version 27. In assessing the loan management practices within the Bank of Kigali Plc, From 2020 to 2023, Bank of Kigali's loan management practices showed significant trends in the Non Performing Loan (NPL) Ratio and Loan Recovery Rate. In 2020, the NPL Ratio was high, but the Loan Recovery Rate was low. By 2021, the bank improved its loan management practices, reducing the NPL Ratio to 0.05 and increasing the Loan Recovery Rate to 0.07. In 2022, the NPL Ratio decreased to 0.03, and the Loan Recovery Rate increased to 0.31. Despite a slight increase in non performing loans in 2023, the Bank maintained a strong recovery rate. In assessing the financial performance within the Bank of Kigali Plc, The bank's Return on Equity (ROE) and Return on Assets (ROA) have shown an upward trend, indicating improved profitability. The Current Ratio (CUR) has remained stable, indicating good liquidity management. The Capital Adequacy Ratio (CAR) fluctuated slightly, but remained above regulatory requirements. The Debt to Equity Ratio increased from 4.08 in 2020 to 5.16 in 2021, and slightly decreased to 4.80 in 2023. The Cost to Income Ratio increased slightly from 0.44 in 2020 to 0.49 in 2022, and the Asset Turnover Ratio improved from 0.08 in 2020 to 0.11 in 2023. The results from regression model 1 shows that the coefficient of determination (R square) was 0.718. This implies that the predictors of Loan management practices contribute 52.8% on the financial performance in Bk Group PLC. The F test is 4.831 and is significant at .000. Based on the result showed from the result of objectives, it was concluded that loans management policy in Bank of Kigali are effective, that loan recovery rates in Bank of Kigali are effective. That financial performance in Bank of Kigali is good, and that there is a significant impact of Loan management practices on the financial performance of Bank of Kigali. Based on the analysis of Bank of Kigali's loan management practices from 2020 to 2023, it is recommended that the bank continue to strengthen its loan management and recovery strategies, particularly focusing on maintaining a low Non Performing Loan (NPL) Ratio while further improving its Loan Recovery Rate. 2.Based on the financial performance of Bank of Kigali from 2020 to 2023, it is recommended that the bank continue to focus on maintaining and enhancing its profitability, as indicated by the positive trends in ROE and ROA.