IMPACT OF LOAN MANAGEMENT TO THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA A CASE STUDY: EQUITY BANK RWANDA PLC (2021-2023)

Abstract

The study was entitled “impact of loans management on the financial performance of financial institutions in Rwanda with a case study of Equity bank Rwanda Plc, main branch (2021-2023)”. It was guided by two research objectives namely: to evaluate the effectiveness of loan management in Equity bank Rwanda Plc and to assess the contribution of loan management to the financial performance of Equity bank Rwanda Plc. Regarding to the effectiveness of loans management researcher realized that the ratios of loans to 67.17%; 57.15% and 55.12% respectively from 2021 to 2023. And looking at BNR’s regulations on the loan granting it is clear that the commercial bank must not exceed 80% of deposit when granting loans. It is also observed that the ratio of non-performing loans to total loans was as follows: in 2021, the ratio was 9.44%, in 2022, the ratio was 4.65%, and in 2023, the ratio was 5.02%. Therefore, this shows that the ratio as per BNR’s standard was respected since BNR’s regulations in loan management indicate that the ratio between NPLs to gross loans issued should not exceed 5%. This bank exceeded it only in 2021 and a little bite in 2023. It is also observed that Equity bank Plc has the ability of classifying the loans portfolio in five class from to normal category to loss risk category as required by the central bank of Rwanda. On the other side, even if Loans and advances classified as 1 and 2 are performing loans. According to the national bank of Rwanda guidelines and no specific provision for these loans are required, to ensure the effective credit management Equity bank Plc apply provision from the second class. Therefore, this allow researcher to confirm the first hypothesis stipulating that “loan management is effective in Equity Bank Rwanda Plc”. Also the performance of this bank was analyzed through different indicators and the profitability ration shows that from 2021 up to 2023 the ratios of net profit margin were 37.40%; 29.58% and 37.90 respectively. From 2021 up to 2023, the ratio of Return on Assets are 2.70%; 2.78% and 3.48% respectively. And from 2021 up to 2023 the ratio of Return on Equity are as following: 18.90%; 22.79% and 26.26% respectively. Also Capital adequacy ratios shows that this bank core capital to risk weighted assets was 20.42%; 15.48% and 17.13% respectively from 2021 to 2023. Also total qualifying capital to risk weighted assets is 21.48%; 16.67% and 18.38% from 2021 to 2023. And all these are above the minimum required ratio according to the central bank of Rwanda. Therefore, this allow researcher to confirm that this bank recorded a considerable performance in this period.