The Impact Of Debt Management Strategies On Financial Performance Of Commercial Banks In Uganda (Centenary Bank Nakasero)

TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION

ACKNOWLEDGEMENT iv

LIST OF TABLES

LIST OF FIGURES

LIST OF ACRONYMS

TABLE OF CONTENTS

ABSTRACT

CHAPTER ONE 1

INTRODUCTION 1

1 .0 Introduction 1

1.1 Back ground of the study 1

1.2 Statement of the problem 3

1.3 Purpose of the study 4

1.4 Specific Objectives 4

1.5 Research questions 4

1.6 Scope of the study 4

1.6.lTime scope 4

1.6.2 Geographical scope

1.6.3 Subject scope

1.7 Significance of the study s

1.8 Conceptual framework 6

CHAPTER rrwo 7

VIII

LITERATURE REVIEW ~

2.0 Introduction 7

2,1.Debts 7

2.1.1 Types of debts or loans given to clients 8

2.1.2 Categories of clients who acquire loans from commercial banks 9

2.1.3 Debt management 10

2.1.3.1 A cash flow forecasting 10

2.1.3.2 Operational Risk Management 12

2.1.3.3 Debt records 14

2.2.0 Financial performance 16

2.2.1 Profitabj1jt~ 17

2.2.2 Liquidity 18

2.2.3. Effectiveness 19

2.2.4 Negative Side Effects of Debts 19

2.3 Relationship between debt management and financial performance 21

2.4 Factors hindering debt management strategies on financial performance of commercial

bank 25

2.4.1 A government policy 25

2.4.2Behavioral Trait 25

2.4.3Norms and Customs 26

CHAPTER THREE 27

RESEARCH METFIODOLOGY 27

3.0 Introduction 27

3.1 The Research design 27

3.2 Methods of collecting data 27

ix

3.3 Study population .27

3.4 Sample size 28

3.5. Sampling procedure 29

3.6 Study variables 29

3.7 Sources of data 29

3.7.2 Secondary data 29

3.7.1 Primary data 29

3.8. Methods of data collection and instruments 29

3.8.1 Questionnaires 29

3.8.2 Data collection instruments 29

3.8.3 Self-administered questionnaires 30

3.8.4 Observation 30

3.8.5 Response rate 30

3.9 Measurement of Variables 30

3.9.1 Validity of Instruments 30

3.9.2 Pre-Testing 31

3.10 Reliability of Instruments 3 1

3.11 Data Validity 31

3.12 Data Processing and Analysis 31

3.13 Ethical consideration 32

CHAPTER FOUR 33

PRESENTATiON OF FINDINGS & INTERPRETATION 33

4.0 Introduction 33

4.1 Response rate 33

4.1.1 Background Information 34

x

4.1.2 Age of the respondents .35

4.1.3 Response on the level of education of the respondents 35

4.1.4: Distribution by Marital Status 36

4.2 To find out the different debt management strategies used by commercial banks 37

4.3 To examine the financial performance levels of commercial banks 39

4.4 To assess the relationship between debt management and financial performance in

commercial banks 43

4.6: Data analysis and findings 48

CHAPTER FIVE 49

SUMMARY, CONCLUSION AND RECOMMENDATIONS 49

5’.Ti.ntio~uu~ti~n A

5.2: Summary of findings and interpretation 49

5.2.1 Debt management strategies used by commercial banks 49

5.2.2 Financial performance levels of commercial banks 49

5.2.3 Relationship between debt management and financial performance in commercial banks.

49

5.3: Conclusions 50

5.4: Recommendations for Policy 51

5.5: Limitation of the study 51

5.6 Areas for Further Research 52

REFERENCES 53

APPENDICES 58

APPENDIX 1 58

QUESTIONNAIRE 58

ABSTRACT

Commercial banks are in the business of safeguarding money and other valuables for their Members besides providing loans and offering investment financial services. Credit creation is the main income generating activity for the commercial banks. But this activity involves huge risks to both the lender and the borrower. The risk of a member not fulfilling his or her obligation as per the contract on due date or anytime thereafter can greatly jeopardize the smooth functioning of commercial banks business. The purpose of the study was to investigate the effect of debt management on the financial performance of commercial banks. The study was based on

three specific objectives; to find out the different debt management strategies used by commercial banks, to examine the financial performance levels of commercial banks and to assess the relationship between debt management and financial performance in commercial banks. It was based on a descriptive survey design basing on the use of qualitative and quantitative approaches that was adopted to establish the effect of credit management on Financial Performance of commercial banks in Centenary Bank Nakasero, Kampala district. A random sampling system used in the study.Questionnaires, observation and response rate were used to collect primary and secondary sources of data from 50 out of 60 respondents, using simple random sampling. Data analysis was done using SPSS’s frequencies. Finally the report looked at the study results and gave the discussion of each finding. Therefore, here, data analysis, procedures and response rate are focused on. Then the findings conclusions and recommendations are presented. According to objective one, provided average of different debt management strategies used by commercial banks have a positive effect that the strategies formulated debt management strategies being used by commercial banks in Centenary bank, Nakasero, Kampala District helped in the growth of commercial banks in which affect the credit management of financial institutions staff had the findings over 58% levels of agreement on the areas provided / studied or selected, According objective two, the importance of financial performance of commercial banks indicate that the financial performance has helped in the valuing the effectiveness of commercial banks and have greatly increased overtime by response of 68% and financial performance is helpful in the growth of commercial banks and has greatly increased overtime by 59%.According to objective three, the study findings revealed that the relationship between debt management and financial performance in commercial banks are responsible for the increase in the profitability of commercial banks has generated had a positive effect on the financial management in Centenary bank, Nakasero, Kampala District with 66% of respondents who strongly agreed and 24% agreed. Though majority of the respondents did not comply with what was being analyzed according to the data in the table above. The structures that would ensure that the laid down credit risk policies are strictly adhered to, is lacking in majority of financial institutions. We obtained the findings and analyzed the data by use of tables

and charts which helped to present data and arrive at conclusion and recommendations. Conclusion, enormous efforts have tried to improve on the nature of loan assessment/debt management policies and to prevent bad debts from accumulating by ensuring that they establish strict internal guidelines which ensure that the loan is based on a sound credit analysis and also to establish a long term customer relationship between the bank and its customers. Recommendation, this would help to minimize loan losses and ensure that the profitability of

these financial institutions and their members is safeguarded.