Credit Risk Management and Financial Performance of Commercial Banks in Rwanda: A Case of Bank of Kigali

Denyse Uwase Karake and Richard Kabanda
University of Kigali
Email: uwasedenyse15@gmail.com

Abstract: This study examined the effect of Non-Performing Loan Ratio (NPLR) on the financial performance of Bank of Kigali. A descriptive and explanatory research design was adopted using secondary data obtained from audited financial statements, annual reports, and relevant financial disclosures covering the period from 2014 to 2024. A census approach was used, resulting in 11 annual observations. Non-Performing Loan Ratio was used as the independent variable, while financialperformance was assessed as the dependent variable. Data were analyzed using descriptive statistics, diagnostic tests, Pearson correlation analysis, and simple linear regression analysis to determine the relationship between NPLR and financial performance. Pearson correlation analysis revealed a strong positive and statistically significant relationship between NPLR and financial performance (r = 0.738, p < 0.01). Regression analysis further showed that NPLR had a positive and statistically significant effect on financial performance (β = 0.738, p = 0.009), explaining 54.5% of the variation in financial performance (R² = 0.545). The ANOVA results confirmed that the regression model was statistically significant (F = 10.79, p = 0.009). Thestudy concludes that Non-Performing Loan Ratio was significantly associated with the financial performance of Bank of Kigali during the study period. It recommends strengthening loan monitoring, improving loan recovery mechanisms, and enhancing credit risk management systems to effectively manage non-performing loans and support sustainable financial performance.