Credit risk management and financial performance at Equity Bank Uganda
No Thumbnail Available
Date
2026-04-22
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Uganda Christian University
Abstract
This study examined the impact of credit risk management on the financial performance of Equity Bank Uganda over the period 2020–2024 using secondary data from the bank’s audited annual financial statements, with Return on Assets (ROA) as the dependent variable and Non Performing Loan (NPL) ratio, Capital Adequacy Ratio (CAR), and Liquidity Ratio as independent variables. Pearson correlation analysis, calculated via the formula r = Cov(X, Y) / (σ_X × σ_Y), revealed a strong negative and statistically significant relationship between NPL ratio and ROA (r = -0.742, p = 0.046), indicating that higher non-performing loans are strongly associated with reduced profitability; a moderate positive correlation existed between CAR and ROA (r = 0.514, p = 0.074), suggesting that stronger capital buffers support better performance; while Liquidity Ratio showed a weak and non-significant positive correlation (r = 0.286, p = 0.198). Multiple linear regression, expressed as ROA = β₀ + β₁(NPL ratio) + β₂(CAR) + β₃(Liquidity Ratio) + ε, explained approximately 79% of the variance in ROA (R² = 0.790, Adjusted R² = 0.580), with the overall model being marginally significant (F = 5.812, p = 0.081) due to the small sample size (N = 5). NPL ratio was found to be the most influential factor with the highest negative influence (B = -0.185, β = -0.742, t = -2.846, p = 0.046). This result indicates that proper management of non-performing loans is the key determinant of profitability. On the other hand, CAR showed a positive effect, but the significance was marginal (B = 0.124, p = 0.074); Liquidity Ratio was not significantly influential (B = 0.042, p = 0.198). It can be concluded from this analysis that efficient management of credit risk is of paramount importance at Equity Bank Uganda, although the number of cases analyzed was relatively smal
Description
Undergraduate