Credit Risk Management and profitability in commercial banks in Uganda: A case study of Diamond trust bank
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The study focused on investigating the relationship between credit risk management and profitability in commercial banks in Uganda with specific focus on Diamond Trust Bank. The study was premised on the following research objectives: to establish the relationship between credit criteria and profitability in Diamond Trust Bank, to investigate the relationship between credit policies and profitability in Diamond Trust Bank and to investigate the relationship between risk mitigation measures and profitability in Diamond Trust Bank. The study adopted a descriptive cross sectional survey design where both quantitative and qualitative approaches were used. In this study, a total number of 101 respondents were expected but 85 respondents returned the survey instruments representing a response rate of 83.6%. The data was collected using questionnaires and interviews and analysis was done using regression analysis and correlation for the quantitative findings. Qualitative analysis was done using content and thematic analysis. The findings revealed that there is a positive relationship between credit criteria, credit policies and risk mitigation and profitability of Diamond Trust Bank. The results on credit criteria and profitability of Diamond Trust Bank were r = 0.197, p = 0.000 < 0.05, the results for credit policies and profitability of Diamond Trust Bank indicated that r = 0.353(**), p = 0.001 > 0.05 and the results for risk mitigation and profitability of Diamond Trust Bank revealed that r = 0.457(**), p = 0.000 < 0.05. The findings indicated that credit criteria, credit policies and risk mitigation explained 20.0% of the variation in profitability of Diamond Trust Bank (adjusted R2 = 0.200). Findings revealed that credit is extended to borrowers based on capacity, valuation of security is done before credit is extended to the borrower. Diamond Trust Bank has a strong credit policy that has been operation for some time now. It was recommended that instead of focusing on the credit criteria that has gaps, the bank should cast its eyes on a low cost fund source through intensive mobilization for example focus on urgency banking and use of platform fees for services like checking account balances using ATM. DTB should strengthen the implementation of the existing credit policy by ensuring enough resources and manpower is in place to implement the policy. There is need to identify and determine the extent of risk at an early stage take.