Effect of Loan Portfolio Management on Financial Performance of Banking Institutions in Rwanda Case Study of Compagnie Générale de Banque (COGEBANQUE)
DOI:
https://doi.org/10.53819/81018102t2380Abstract
This study was carried out in COGEBANQUE, to examine the effect of loan portfolio management on financial performance of banking institutions in Rwanda, through identifying the effect of credit risk management, assessing the effect of loan appraisal, analysing the effect of loan monitoring on financial performance in COGEBANQUE, and determining the effect of loan recovery on financial performance, from 2020 up to 2023. Portfolio theory, loan pricing theory, Camel theory and agency theory were developed. This analytical descriptive study was conducted on 74 staff namely manager, credit officer and credit recovery officer of COGEBANQUE from all branches, who were purposively selected, to respectively answer to questionnaire for a descriptive, regression and correlation analysis, with the help of SPSS computer packages. The study revealed that loan recovery (β4 = 0.692), loan appraisal (β4 = 0.653), risk credit management (β4 = 0.424) and loan monitoring (β4 = 0.692), with all p<0.05, had a significant positive affect on financial performing of COGEBANQUE, what was concretized by the fact that the return on asset was 4% in 2020 and 5% in 2021, then 3% in 2022 and the return on equity was 12% in 2020 and 14% in 2021, then 10% in 2022. Results for first objectives positive perceptions collectively suggest that respondents believe COGEBANQUE employs sound credit risk management strategies, fostering confidence in the financial performance of the institution. Secondly, overall positive outlook on COGEBANQUE's loan appraisal process, with respondents recognizing its thoroughness, clarity, transparency, and effective communication, though opinions vary regarding its direct impact on the bank's financial performance. Thirdly, an overall positive outlook on COGEBANQUE's loan monitoring practices, with participants acknowledging the bank's reactiveness, effective communication, and support in loan management, though opinions vary slightly regarding the direct impact on financial performance. Lastly, overall positive outlook on COGEBANQUE's loan recovery practices, with participants acknowledging the bank's effectiveness, transparency, and ethical considerations in loan recovery, though opinions vary slightly regarding the direct impact on financial performance. The study concluded that loan portfolio management had effect on financial performance of banking institutions in Rwanda. It was recommended for banking institutions, in Rwanda, to enhance Transparency and Communication in Credit Risk Management, Strengthen Thoroughness and Clarity in Loan Appraisal, Optimize Proactive Loan, Monitoring Strategies, Improve Ethical Considerations in Loan Recovery and Implement Swift Actions for Issue Resolution.
Key words: Credit risk management, Loan appraisal, Loan monitoring, Loan recovery and Financial performance.
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