Loan recovery practices and financial performance of commercial banks in Uganda a case study of equity bank - Entebbe town branch.

Abstract

The study aimed at examining the impact of loan recovery practices on financial performance of commercial banks in Uganda, focusing on Equity bank-Entebbe branch as a case study. It objectively concentrated on examining the effect of collateral repossession on the financial performance of the bank, the effect of loan monitoring on the financial performance of the bank and the impact of legal procedural enforcement on financial performance of the bank. Data was collected from a total of 63 respondents who were employees/ staff of Equity bank – Entebbe town branch; while interviews were carried out with 10 informants from the bank staff. A cross sectional study design was used. Data collection techniques adopted were questionnaires, interview guide and document review, where qualitative and quantitative data about loan management techniques and Equity bank performance were gathered and analyzed. Study findings revealed that there is a strong positive and significant relationship between loan recovery and financial performance of commercial banks in Uganda. The findings demonstrated that legal procedural enforcement, loan monitoring, and collateral repossession each have a statistically significant and positive impact on the financial performance of Equity bank-Entebbe town branch. Specifically, all three factors show moderate positive correlations with financial performance. Collectively, these results highlight the critical role of sound loan recovery practices particularly effective legal enforcement, loan monitoring, and collateral repossession, in enhancing the financial health and operational success of Equity bank- Entebbe town branch. Strengthening these areas can therefore serve as a strategic approach to improving bank performance in a competitive financial environment. Finally to enhance effective performance of loan recovery practices, this study ends up with some recommendations where Equity Bank-Entebbe town branch should improve the training of employees of the credit department to increase awareness on the rationale for loan management to avoid incompetence, considering collateral security for loans before they are disbursed and carefully reviewing loan scheduling to enable the bank meet the increasing competition in the industry and the dynamic demands of customers.