Thesis Title: Working Capital Management and Loan Portfolio Performance of Commercial Banks and Microfinance Institutions in Kampala Uganda

Student’s Name: Mick Kawudha

Supervisors Names:

1. Dr. Rashid Simiyu Fwamba
2. Dr. Arnety Makokha

Abstract

 The study’s general objective was to assess the relationship between Working Capital Management and Loan Portfolio Performance in commercial banks and microfinance institutions in Kampala, Uganda. The problem was that many reports have highlighted poor performance of financial institutions in Uganda. The average portfolio at risk, the risk coverage ratio and profitability showed a declining trend for the years 2021/2022. Issues of weak Working Capital Management and deteriorating competitive strategies have been identified as possible constraints limiting financial institutions from achieving their intended performance objectives. Hence the study objectives were to examine the relationship between Payables Management and Loan Portfolio Performance in commercial banks and microfinance institutions in Kampala Uganda, to establish the relationship between Receivables Management and Loan Portfolio Performance in commercial banks and microfinance institutions in Kampala Uganda, to determine the relationship between Liquidity Management and Loan Portfolio Performance in commercial banks and microfinance institutions in Kampala Uganda and to assess the moderating effect of competitive strategies on the relationship between Working Capital Management and Loan Portfolio Performance in commercial banks and microfinance institutions in Kampala Uganda. The study adopted a descriptive survey research design and the use of quantitative data collection and analysis techniques based on a case study method. The population for this study comprised of 3,500 staff working in the commercial banks and microfinance institutions in Kampala Uganda from which a sample of 346 was chosen using a simple random sampling approach. A questionnaire was used to collect primary data. Data was analyzed using SPSS version 26 and correlation, regression, as well as descriptive statistics were generated. The relationship between Payables Management and Loan Portfolio Performance was found to be linear, positive and significant. The relationship between Payables Management and Loan Portfolio Performance was found to be linear, positive and significant. The findings of Pearson Correlation analysis, the relationship between Receivables Management and Loan Portfolio Performance was found to be linear, positive and significant, and there was a positive strong correlation between Liquidity Management and Loan Portfolio Performance. The beta coefficient of the interaction term was significant; implying existence of interaction. This implies that competitive strategy moderates the relationship between Working Capital Management and Loan Portfolio Performance. Basing on that it is recommended that these financial institutions need to streamline how credit lines, terms of purchase, bankers’ cheques, book transfers, cash payments, international cheques as well as card and batch payments are made. It is important that financial institutions review their credit policies, credit terms, credit analysis as well as control and monitoring so as to ensure that their loan portfolios perform to the expected levels. Financial institutions should also strive towards proper management of liquidity such as being keen on liability maturity dates, their contingent commitment levels as well as the rates at which they borrow from other banks.