Semusu, AlexEton, MarusKaaya, SirajeMpora, Eliab Byamukama2026-04-192026-04-192026-02-03Semusu, A., Eton, M., Siraje, K. & Mpora, E. B. (2026). The effect of credit limit policies on loan performance in the banking sector of the central region of Uganda. East African Journal of Business and Economics, 9(1), 194-206.2707-4269https://dir.muni.ac.ug/handle/20.500.12260/956This study identifies a significant gap between the design and implementation of credit limit policies in commercial banks in Central Uganda. Weak enforcement, managerial overrides, and limited review processes negatively affect loan performance and credit risk management. The research provides practical recommendations to enhance governance, monitoring, and financial decision-making. Furthermore, it contributes to SDG 8 by promoting financial sector stability, SDG 9 by improving banking systems and risk management, and SDG 16 by strengthening institutional accountability and governance. These findings are consistent with Uganda’s National Development Plan IV, particularly in advancing the financial sector, fostering private-sector growth, and establishing robust regulatory frameworks for sustainable economic transformation.This study examined the effect of credit limit policies on loan performance in the banking sector of Central Uganda. A quantitative cross-sectional survey design was employed and complemented with qualitative insights. Data was collected from credit officers, risk managers, and relationship managers in selected commercial banks using structured questionnaires. Credit limit policies were operationalised through borrowers’ cash flows, collateral adequacy, capital, conditions, creditworthiness, character, and capacity, while loan performance was measured using non-performing loans, recovery rates, and repayment timeliness. Data was analysed using SPSS version 26 and JASP version 0.19, with Structural Equation Modelling (SEM) applied to test the hypothesized relationship. The findings reveal a positive but statistically insignificant relationship between credit limit determination and loan performance. Qualitative evidence indicates that this weak effect is primarily due to inconsistent enforcement of credit limit policies, managerial overrides, and infrequent reviews of approved limits in response to changing borrower conditions and market dynamics. The study concludes that although formal credit limit frameworks exist within commercial banks, deficiencies in implementation and monitoring undermine their effectiveness in enhancing loan performance. By integrating quantitative SEM results with qualitative insights, this study contributes to the credit risk management literature by highlighting the implementation gap between policy design and practice. Practically, the findings offer actionable guidance for commercial banks and regulators, including the Bank of Uganda, on strengthening credit limit enforcement, review mechanisms, and governance structures to improve loan performance. While the focus on Central Uganda may limit generalizability, the insights remain relevant for similar banking contexts in emerging economies.enCredit limit policyBanking sectorLoan performanceCredit risk managementBank of Uganda.Article