Tag Archives: Credit Policy

Credit Management, Credit Policy and Financial Performance of Commercial Banks in Uganda (Published)

This study was carried out with the purpose of analyzing the effects of credit management on the financial performance of commercial banks in Uganda. Specifically, the study sought to establish whether there is a relationship between credit policy and performance, Capital Adequacy and performance and credit risk control and performance. In achieving the objectives assigned by the study, a causal research design was undertaken and that was facilitated by the use of secondary data which was obtained from published audited financial statements of commercial banks and the BOU annual supervision reports. The study used universal sampling techniques, where all banks licensed and operational in Uganda were selected, multiple regression was used. The findings indicated a significant relationship (r = 0.639) between credit management and the financial performance of commercial banks in Uganda. The coefficient of determination R² was 0;408 meaning that credit management indicators explain up to 40.8% of variations in the financial performance of commercial banks in Uganda. The results from the coefficients summary in the regression model indicate that the significance of coefficients of credit policy (LR), capital adequacy (CAR) and Credit Risk Control (NPL/TL) are -0.031, -0.555 and -1.005 respectively.  It was therefore found that both the CAR and the NPL/TL are significant though have an impact at different significance i.e. capital adequacy and Credit Risk control have a greater impact compared to Credit policy (LR) on the financial performance of commercial banks in Uganda. It was established that there is no significant relationship between credit policy and performance of banks in Uganda, however, a significant relationship between the credit risk control, capital adequacy and the performance of commercial banks was established. It was recommended that should use a moderate credit policy as a stringent credit will undermine the financial performance. Moreover, commercial banks should seek to adequately control their credit risk by keeping lower their ratio of nonperforming loans which is the major determinant of commercial banks’ financial performance as shown in the study. The bank of Uganda should encourage banks in Uganda to use credit metrics model in controlling its risks

Keywords: Commercial Banks, Credit Management, Credit Policy, Financial Performance, Uganda

THE IMPACT OF EFFECTIVE CREDIT POLICY ON LIQUIDITY OF MANUFACTURING COMPANIES IN NIGERIA (Published)

This study examines the impact of effective credit policy on liquidity of manufacturing companies in Nigeria. Credit policy from this perspective was viewed from the angle of controlling or regulating credit sales. The study looked into the problems of non-monitoring and the non-review of the credit policy of organizations as a cause of the liquidity problems associated with credit sales. The study centered mainly on the effects of each of the individual components of credit period, the cash discount and the collection period on an organization’s liquidity. Also to ascertained the type of effects that a company’s credit policy has on its liquidity. The study involved a survey of four manufacturing companies which include Unilever Nigeria PLC, Cadbury Nigeria PLC, Nestle Nigeria PLC and Nigerian Bottling Company PLC. The Annual Reports and Accounts of year 2007-2011 of the selected companies as well as a questionnaire were subjected to statistical analysis. Analysis of variance (ANOVA) and regression analysis were used in the hypothesis testing. The study revealed that when a company’s credit policy is favourable, liquidity is at a desirable level. And also, that manufacturing companies do not monitor and review their credit policy regularly and as a result the allowance of cash discounts could not be minimized as much as expected. We therefore recommended that companies should consider their mission, the nature of business and business environment before setting up a credit policy.

Keywords: Credit Policy, Impact, Liquidity, Manufacturing