Abstract:
The purpose of this study is to determine the effect of digital lending on the overall financial performance of NCBA BANK RWANDA PLC. Though this bank has been making losses in the first two years of study, the study reveals that digital business side of the bank has been making profits all along (from RWF 0.88 billion in 2019 to RWF 8.24 billion in 2023). The methodology covers mixed-research approaches. Secondary data were collected from NCBA BANK RWANDA PLC annual reports while primary data were collected from the Head of Digital business within the bank. Correlation matrices showed positive significant relationship between the overall bank PBT and digital components such as digital loans (r=0.997) and income (r=0.986) while a negative relationship was noted on digital operating expenses (r=- 0.963) suggesting that the bank should manage expenses if it needs the PBT to remain improving. Digital NPL ratios remained high over the five years due to their specific classification rule. The regression model suggests that for each unit increase in Digital Loans and Advances, ROA is expected to increase by 0.546 units, holding other factors constant while the predicted ROA is -3.351 when Digital Loans and Advances is zero. The study reveals that for each unit increase in Digital Total Income, ROE is expected to increase by 5.294 units while for each unit increase in Digital Total Income, NIM is expected to increase by 1.030 units, assuming all other factors remain constant. However, operating expenses negatively affect these performance indicators. The study shows a significant positive relationship between digital lending and overall financial performance of NCBA BANK RWANDA PLC. Therefore, policy makers such as Governments should give subsidies and other cheap deposits to banks to be lent to unbanked population. Investors should also start investing in digital lending given that this type of lending is having higher ROA, ROE, NIM and PBT compared to traditional bank lending.
