Lending Rate Practices and Financial Performance of Commercial Banks in Rwanda. A Case of I&M Bank Plc

Abstract

The objective of the research project was to assess lending rate practices and financial performance of commercial banks in Rwanda. The specific objectives were to assess effect of loan to deposit ratio on financial performance of commercial banks in Rwanda, to evaluate the effect of loan to value ratio on financial performance of commercial banks in Rwanda and to determine the effect of credit policy on financial performance of commercial banks in Rwanda. In this research project, theories were used to draw their implications on the current study and a conceptual framework showing the link between the study variables was established. During data collection, researcher used a descriptive research design using two-mixed approach such as quantitative and qualitative approach. The research information were collected from chief Executive officers of I&Mbank, Board staff members of I&Mbank, Information technology officers of I&M bank, Risk and audit officers of I&Mbank, accounting and audit officers as well as customer service. The total targeted population was 132 from whom a sample of 99 was selected by use of stratified random sampling technique. To analyze data, SPSS version 21 was used to get frequency tables, pie charts and their related percentages. Findings of this research project revealed that loan to deposit ratio is a measure of lending interest rate and contribute to the financial performance with the mean of 2.02 and standard deviation of 0.751.As indicated, findings revealed that loan to value ratio is a measure of lending interest rate and contribute to the financial performance of commercial bank with the mean of 3.41 and standard deviation of 0.66.The study findings also showed that credit policy contribute to the financial performance of commercial bank at the standard deviation of 0.649 and p-value0.000. The overall conclusion is that there is significant relationship between lending interest rate and financial performance at 0.798 based on Pearson correlation. As recommendations, based on different problems encounter by I&M bank, there is a need to put more efforts on proper management system of credit and lending throughout monitoring and evaluation, using credit limits and using credit recovery experts. By use of all these strategies, the financial performance is to be achieved. Keywords: Lending Rate Practices, Financial Performance, Commercial Banks, I&M Bank Plc, Rwanda