ASSESSING THE IMPACT OF LOAN PORTFOLIO MANAGEMENT ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA CASE STUDY OF BANK OF KIGALI PLC PERIOD: 2020-2023

Abstract

The main objective of this study is to analyze the effect of loan portfolio management on the financial performance of Bank of Kigali Plc. While specific objective is to assess the effectiveness of loan portfolio management practices applied by Bank of Kigali Plc, to analyze the effectiveness of financial performance of Bank of Kigali Plc and to assess the relationship between loan portfolio management practices and financial performance of Bank of Kigali Plc. The study adopted quantitative method through the case study design and the main instruments used to collect data for analysis is document analysis as it helped to collect relevant data from secondary sources. Set of collected data has been carefully prepared for tabulation presentation, analysis and interpretation. From the research findings, loan portfolio management practices indeed affect the performance of commercial banks. Therefore, the management should play a critical role in delivering strategic objectives by advocating best practices in loan portfolio management that are helpful in tracking and evaluating the conduct of different borrowers and thus be in position to come up with favourable loan portfolios to help commercial banks realize not only sound financial performance but deliver their mandate to all stakeholders. Findings revealed that loan portfolio influenced the commercial banks’ financial performance in Rwanda. Overall, there exist a strong influence of loan portfolio management on Return on Assets (ROA, current ratio (CR) and mostly loan portfolio has impact on financial performance through interest income on loans in comparison to the total revenue as it was noted that income for the bank ranging from 67% to 75% come from loan portfolio. The loan portfolio planning, client screening and loan portfolio control, diversification involved in the loan portfolio management stands out as areas that deserve much attention and should be taken into account to improve financial performance and it is required to ascertain additional information on loan borrowers in order to minimize on defaults associated with issuance of loans.