The effect of credit monitoring policy on loan performance in commercial banks in central Uganda
No Thumbnail Available
Date
2026-03-25
Journal Title
Journal ISSN
Volume Title
Publisher
East African Journal of Business and Economics
Abstract
This study examined the effect of credit monitoring policy on loan performance in commercial banks operating in Central Uganda. Guided by a pragmatic philosophy, a convergent mixed-methods design was adopted. Quantitative data were collected from 378 banking professionals and analysed using Exploratory Factor Analysis (EFA), Confirmatory Factor Analysis (CFA), and Structural Equation Modelling (SEM), while qualitative insights from semi-structured interviews were thematically analysed to support interpretation. The results reveal a positive but statistically insignificant relationship between credit monitoring policy and loan performance (β = 4.227, t = 0.425, p > 0.05). EFA identified three key dimensions of credit monitoring: effective governance and strategic leadership, organisational governance and continuous improvement, and risk evaluation approaches. These constructs demonstrated acceptable validity and reliability, with KMO values ranging from 0.616 to 0.626, Bartlett’s Test of Sphericity significant at p < 0.001, Cronbach’s alpha coefficients between 0.530 and 0.600, and Average Variance Extracted (AVE) values above 0.50. CFA results confirmed strong model fit (CFI = 1.000, TLI = 1.000, RMSEA = 0.000). Qualitative findings indicate that monitoring practices are largely manual, reactive, and inconsistently applied, limiting early detection of borrower distress and weakening policy effectiveness. The study concluded that the effectiveness of credit monitoring depends more on implementation quality than on the existence of formal frameworks. Strengthening automated monitoring systems, early warning mechanisms, and managerial accountability is essential for improving loan performance and reducing non-performing loans. While the cross-sectional design limits causal inference, the findings provide context-specific insights for enhancing credit risk management in emerging banking markets.
Description
The study shows that although commercial banks in Central Uganda have credit monitoring policies, their effectiveness in improving loan performance is limited by weak implementation, reliance on manual processes, and insufficient early warning systems. The findings highlight the need for better governance, more automation, and increased accountability in credit risk management. These measures are expected to strengthen financial systems and reduce non-performing loans. The results support Sustainable Development Goal 8 by promoting financial sector stability, SDG 9 by encouraging modern banking systems, and SDG 16 by advancing governance and institutional quality. They also align with Uganda’s National Development Plan IV, especially in developing the financial sector, expanding the private sector, and establishing strong regulatory frameworks for sustainable economic growth.
Keywords
Credit monitoring policy, Loan performance, Credit risk management, non-performing loans, Commercial banks, Uganda.
Citation
Semusu, A., Eton, M., Siraje, K., & Mpora, E. B. (2026). The effect of credit monitoring policy on loan performance in commercial banks in central Uganda. International Journal of Finance and Accounting, 5(1), 166-178.