The effect of credit risk management on the financial performance of commercial banks in Rwanda

Abstract

The objective of this study was to establish the effect of credit risk management and Financial Performance of commercial banks in Rwanda. The study had four specific objectives of establishing how credit risk identification, credit risk analysis and assessment, credit scoring mechanism and risk monitoring affect financial performance of commercial banks in Rwanda. The study adopted a descriptive research design which assisted to examine the effect between regulation and financial performance of commercial banks. The sample size as well as the population of the study was eleven commercial banks. The response rate was a 100% which comprised 11commercial banks. Data was gathered using a data a questionnaire and analysed using SPSS 17. The overall finding and conclusion of the study was that all the measures of credit risk management used in this study are highly significant predictors of financial performance of commercial banks in Rwanda except risk monitoring. The credit risk identification was found to be significant in explaining profitability of commercial banks in Rwanda. The credit risk scoring and credit analysis and assessment also found to be significant to explain the financial performance . Based on the findings another study can be conducted in Rwanda but should really explain expand the variables of credit risk management that affect financial performance of commercial banks. Well management of credit risks a key pillar of financial institution operations in Rwanda and by extension pillar to financial prosperity and stability. The study recommends the Government of Rwanda to develop policy and legal environment that is conducive to association of financial institutions.