IMPACT OF LOAN MANAGEMENT TO THE PERFORMANCE OF FINANCIAL INSTITUTION IN RWANDA. CASE STUDY: EQUITY BANK RWANDA PLC (2020 – 2023)

Abstract

The purpose of the study is to analyse the impact of loans management on performance of financial institutions in Rwanda with a case study of Equity Bank Rwanda Plc (2020-2022). Where the main objective of this research is to found out the impact of loans management on performance of financial institutions in Rwanda with a case study of Equity Bank Rwanda Plc (2020-2022) and the specific objective of the study is to evaluate the effectiveness of loan management in EQUITY BANK RWANDA PLC and to assess the contribution of loan management to the financial performance of Equity Bank Rwanda Plc. The data collection techniques are document technique and the methods of data analysis are analythical statistical, synthetic and comparative methods. The results of the findings shows that the bank's success in loan recovery, maintaining a recovery rate of around 95%, which aligns with NBR standards. Moreover, the management of Non-Performing Loans (NPL) has remained compliant with NBR regulations, staying below the threshold of 7% with a stable ratio around 5% from 2022 onward. The analysis shows that Equity Bank Rwanda Plc has demonstrated effective loan management practices through its loan issuance, recovery strategies, and adherence to regulatory requirements, positioning itself favorably for sustainable growth in the banking sector. This shows that first hypothesis has been verified and confirmed. Based on annual reports and interviews, highlights significant growth in customer deposits, with an increase from RWF 215.9 billion in 2020 to RWF 742.6 billion in 2023, indicating effective credit management strategies that attracted customers. The net income trend reflects a robust financial position, with profits rising from RWF 10.3 billion in 2020 to RWF 36.4 billion in 2023. This increase showcases the bank's operational efficiency and effective cost management, primarily driven by favorable credit management practices. Liquidity ratios, including the current ratio, demonstrate the bank‟s ability to meet short-term obligations, remaining above the Central Bank's standards. The return on equity (ROE) and return on assets (ROA) ratios indicate a positive trajectory in profitability, underscoring the bank's effective use of loans to enhance shareholder value. Overall, the analysis confirms that loan management has significantly contributed to the financial performance of Equity Bank Rwanda Plc, enhancing both profitability and liquidity. The researcher recommended that Equity Bank Rwanda Plc should enhance their collection policy by adapting a more stringent policy to a lenient policy for effective debt recovery.