Loan management and performance of financial institutions in Rwanda. A case of Bank of Kigali PLC within the period of 2021-2023

Abstract

The study was about loan management and performance of financial institutions in Rwanda. A case of Bank of Kigali PLC within the period of 2021-2023. The study specifically examined the effectiveness of loan management applied by Bank of Kigali PLC and found out the contribution of loan management to the financial performance of Bank of Kigali PLC. After observing all findings what researchers can note here is that Bank of Kigali PLC applied loan management effectively. Regarding to the effectiveness of loans management researcher realized that the ratios of loans to deposit ratios 85%; 83.7%; and 79.3% respectively from 2021to 2023. Therefore, even if the maximum ration of 80% as required by BNR‟s regulations was exceeded the situation became in good position. It was also observed that in the other year it was the effects of Covid-19. It is also observed that the ratio of none performing loans to total loans was as follows: in 2021the ratio was 5.3%, in 2022the ratio was 2.6% and in 2022 the ratio was 4.5%. Therefore, this shows that the ratio as per BNR‟s standard was respected since BNR‟s regulations in credit management indicate that the ratio between NPLs to gross loans issued should not exceed 5%. This bank exceeded it only in 202. It is also observed that Bank of Kigali PLC has the ability of classifying it loans portfolio in five classes 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 Bank of Kigali PLC applies provision from the second class. Therefore, this allow researcher to confirm the first hypothesis stipulating that “Loan management is effective in Bank of Kigali 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 35.98%; 31.23% and 33.35% respectively. From 2021 up to 2023.The ratio of Return on Assets are 3.26%; 3.22% and 3.53% respectively. From 2021 up to 2023, the ratios of Return on Equity are as follow: 18.16%; 18.72% and 20.42% respectively. Therefore, this allow researcher to confirm that this bank recorded a considerable performance in this period and that this has a direct relationship with the applied loan management