Does Interest Rates Affect Financial Disclosure and Non-performing Loans? Evidences from Commercial Banks in Western Uganda

Abstract

The research examines the correlation between non-performing loans (NPLs) in Uganda's commercial banking sector and financial disclosure (FD), with attention to IR. A mixed-method study was conducted using survey data from 189 banking professionals, which contained descriptive statistics (means and standard deviations) combined with Pearson correlation analysis. SmartPLS was utilized to conduct research on the role of interest rates in shaping the relationship between FD and NPMs using Structural Equation Modelling (SEM). This indicates that there is a small but significant positive relationship between FD and NPLs (r=0.378, p0.05), suggesting that the more financial reporting is transparent, the lower the number of NPMs become. Interest rates play a significant role in shaping this connection, with the highest connection weight between IR and NPLs (0.916). This also showed that FD and NPLs were strongly negatively associated (r=0.777, p=0.000), suggesting the need for transparent reporting to mitigate the risk of such NPOs. The findings highlight the importance of interest rate policies and financial transparency in managing NPLs, providing valuable information for banking regulators and policymakers. Additionally, A partial explanation was given for why the connection between interest rates and financial disclosure played a role in decreasing NPLs, underscoring the crucial role of transparency within finance. It provides valuable insights into the dynamics of financial disclosure and its impact on non-performing loans in the banking industry.