Credit Risk Management and Profitabability of Commercial Banks in Rwanda

Abstract

This study aims to assess the relationship between of Credit Risk Management and Profitability of selected commercial banks in Rwanda; Bank of Kigali, Access Bank and I & M Bank. Profitability was measured using Return on Asset (ROA), Return on Equity (ROE) and Net Interest Margin (NIM) while credit risk management as the independent variables was measured using Non-Performing Loan and loan principles. Data was obtained from both primary data and published financial statements for the period 2009-2018. The data analysis was done through descriptive statistical method, linear regression analysis, and mean and standard deviation. Study population is 58 employees while sample size was 51 respondents from Bank of Kigali, Access Bank and I&M Bank. The findings revealed that Credit Risk Management (CRM) has a positive effect on profitability. The researcher found also that the BK has the highest NPL ratio and is the most profitable bank from the selected commercial Banks mainly because of its bank size (about 38%) of the Market share. Based to the findings, the problem of the study was solved, the research objectives were achieved, research questions were answered and research hypotheses were verified where all hypotheses were retained by saying that there is no impact of credit risk management on the profitability to all selected commercial banks in Rwanda. It is recommended that the banks should regulate their loan facilities to customers and ensure they decrease the non-performing loan as it has been found to reduce the quality of the bank’s performance. The study confirms that there is a positive effect on profitability but insignificant on the influence of CRM on the profitability of the select commercial banks in Rwanda