Impact of Innovative Debt Management Strategies on Financial Performance of Commercial Banks: A Case of Selected Commercial Banks in Mbarara City, Uganda

Abstract

Commercial banks play a crucial role in economic development, yet many struggle with persistent challenges such as loan defaults, weak oversight mechanisms, and inadequate borrower assessments. This study investigates how three key strategies effective debt recovery, robust internal controls, and thorough client evaluation influence the financial performance of commercial banks in Mbarara City, Uganda. Using survey data from 95 banking professionals and advanced statistical analysis, the study reveals compelling insights. Strong debt collection policies significantly boost profitability (t=2.952, p=0.004), demonstrating that proactive loan recovery enhances returns. Similarly, well-structured internal control systems contribute to financial stability (t=2.901, p=0.014) by minimizing risks and improving accountability. Additionally, rigorous client appraisal processes reduce defaults and strengthen lending outcomes (t=2.646, p=0.020). The findings underscore the need for banks to adopt modern debt management tools, reinforce internal audits, and refine credit assessment methods. These measures can enhance operational efficiency, reduce financial vulnerabilities, and support sustainable growth. Policymakers, bank executives, and financial analysts can leverage these insights to foster a more resilient banking sector.