Non-performing housing loan and financial performance of selected commercial banks in Rwanda (2015-2019)

Abstract

The purpose of this research was to measure the influence of non-performing housing loans on financial performance of selected commercial banks in Rwanda (BPR, BK, and ECOBANK). The first objective was to examine the level of non-performing housing loans among the selected commercial banks in Rwanda, the second was to determine the financial performance of those banks and the third was to establish the influence of non-performing housing loans on the financial performance of selected commercial banks in Rwanda from 2015 to 2019. The study was entirely quantitative. Data was collected from secondary sources mainly published reports of the three selected commercial banks. Panel data was subjected to multiple linear regression analysis to measure the influence of gross NPHL and net NPHL on financial performance of the selected commercial banks. The study found out that the average rate of the gross nonperforming housing loans has been slowly reducing from 5.53 in 2015 to 4.36 in 2019. Whereas the average rate of net nonperforming loans has gradually and slightly reduced from 2.2 in 2015 to 2.1. This gradual decrease indicates that defaulting loans in the housing sector has been gradually declining. It was found out that average return on asset has not been high for the first three years. In 2015 it was 1.5 and gradually increased to 4.47 by the year 2019. The average return on equity has gradually increased from 9.7 in 2015 to 11.53 by the year 2019. The study revealed that the average net interest margin for the selected commercial banks has been gradually increasing. The average net interrest margin was 6.6 by the year 2015 and increased to 9 by the year 2019. This increase is an indicator of improvement in the financial performance of the concerned commercial banks. P. values (0.004, 0.006, and 0.014) from coefficients tables for return on equity, return on asset, and net interest margin were far less than the level of significance 0.05. Therefore, a decision was made to reject the null hypothesis and a conclusion was made that there was a liner relationship between nonperforming housing loans and return on asset, return equity and net interest margin. This means that in the selected commercial banks, the declining nonperforming housing loans had a positive influence on return on equity, return on asset and net interest margin. This implies that if nonperforming housing loans continues to decline, the return on equity and net interest margin will also increase.