Effect of Credit Risk Management Practices on the Financial Performance of Listed Commercial Banks on the Rwanda Stock Exchange
Josee Ishimwe & Tarus Thomas
University of Kigali, Rwanda
Email: ishimwejosee66@gmail.com
Abstract: This study examined the effect of credit risk management practices on the financial performance of commercial banks listed on the Rwanda Stock Exchange (RSE), focusing on operational risk, default risk, and liquidity risk as determinants of Return on Assets (ROA). A correlational research design and census approach were employed, covering all four listed commercial banks: Bank of Kigali, I&M Bank Rwanda, Kenya Commercial BankRwanda, and Equity Bank Rwanda from 2015 to 2024, generating 40 firm-year panel observations. Quantitative data were obtained from audited financial statements and National Bank of Rwanda publications and analyzed using descriptive statistics and panel regression techniques. Descriptive results indicated that liquidity risk recorded the highest mean (M = 2.475, SD = 0.599), while default risk had the lowest (M = 1.925, SD = 0.572). Diagnostic tests confirmed data suitability, with no multicollinearity (VIF < 10). Regression findings showed that operational risk, default risk, and liquidity risk significantly influenced financial performance. However, default risk, reflected in non-performing loan ratios of 3.1%–4.18%, remained a major challenge affecting profitability and asset quality. The study concludes that effective credit risk management is essential for improving profitability, financial stability, and investor confidence. It recommends strengthening digital credit assessment, automated credit scoring, advanced analytics, borrower monitoring, and credit recovery systems. Regulators should enhance technology-driven risk management, improve credit information-sharing systems, and strengthen regulatory frameworks to promote a sustainable and competitive banking sector in Rwanda.
