EFFECT OF LOAN MANAGEMENT ON THE PERFORMANCE OF BANKING INSTITUTION IN RWANDA. CASE STUDY: EQUITY BANK/MAIN BRANCH (2019-2022)

Abstract

The general objective of the study was to assess the impact of loan management to the profitability of commercial bank in Rwanda.The specific objectives of this study ,To analyze the effectiveness of loan management in Equity Bank PLC/Main Branch Rwanda,To assess the impact of loan management to the performance of Equity Bank PLC/Main Branch,To reach on those objectives and based on problem statement of study, two questions were formulated:Does Equity Bank PLC manage its loans effectively?,Does loan management affect the performance of Equity Bank PLC?To be able to answer these questions, again two responses have been anticipatively formulated:Equity Bank PLC manages its loans effectively,Loan management effect the performance of Equity Bank PLC.Information gathered shows how Equity Bank Rwanda conducted its credits distribution in the period under study. This table shows the evolution of credit improved in the period of 2019-2022 which means that bank is growing. In this table researchers have found out that in 2019 up to 2020 had decrease of credits distribution of 17.7% ,in 2020 up to 2021 credit distribution were reduced by 14.0% and from 2021 up to 2022, loans decreased up to 8.5%. Credits are main source of income institution like Equity Bank Rwanda which receive deposits of customers and offers loans to its customers who are in need of fund to carry out their economic activity.Equity Bank Rwanda has granted different types of credits, like commercial credits, auto credits and housing credits. Evolution of credits contribute to the performance of Equity Bank Rwanda when procedure of credits analysis is well respected thus the risk are reduced because performance of commercial bank is caused by good analysis of loans.Based on the above data analyzed, the first hypothesis which states that “Equity Bank PLC manages its loans effectively”was verified and confirmed.These ratios reflect a better return on average assets ratios indicate efficient management of Equity Bank Rwanda converted assets into net incomes. It is, rather, just an average of the period.The profitability of Equity Bank Rwanda, in terms of return on equity was 2019 it increased to 22.4% caused by the increase of equity shareholders and in 2020 was also decreased to 19.4% , the ROE was 43.1% in 2021 and in 2022 was decreased 36.5 % as resulting an increase of the net income. Return on equity (ROE) measure of bank profitability, in which the denominator, shareholders' equity, is changed to average shareholders' equity. Typically, return on average equity refers to a company's performance over a fiscal year, so the average-equity denominator is usually computed as the sum of the equity value at the beginning and end of the year, divided by two. Therefore, based on the above findings the second hypothesis was verified and confirmed. The main objective of the this hypothesis in this study was to analyze the contribution of loan management the performance of Equity Bank Rwanda.