The Effect of Credit Monitoring Policy on Loan Performance in Commercial Banks in Central Uganda

This study examined the effect of credit monitoring policy on loan performance in commercial banks operating in Central Uganda. Guided by a pragmatic philosophy, a convergent mixed-methods design was adopted. Quantitative data were collected from 378 banking professionals and analysed using Exploratory Factor Analysis (EFA), Confirmatory Factor Analysis (CFA), and Structural Equation Modelling (SEM), while qualitative insights from semi-structured interviews were thematically analysed to support interpretation. The results reveal a positive but statistically insignificant relationship between credit monitoring policy and loan performance (β = 4.227, t = 0.425, p > 0.05). EFA identified three key dimensions of credit monitoring: effective governance and strategic leadership, organisational governance and continuous improvement, and risk evaluation approaches. These constructs demonstrated acceptable validity and reliability, with KMO values ranging from 0.616 to 0.626, Bartlett’s Test of Sphericity significant at p < 0.001, Cronbach’s alpha coefficients between 0.530 and 0.600, and Average Variance Extracted (AVE) values above 0.50. CFA results confirmed strong model fit (CFI = 1.000, TLI = 1.000, RMSEA = 0.000). Qualitative findings indicate that monitoring practices are largely manual, reactive, and inconsistently applied, limiting early detection of borrower distress and weakening policy effectiveness. The study concluded that the effectiveness of credit monitoring depends more on implementation quality than on the existence of formal frameworks. Strengthening automated monitoring systems, early warning mechanisms, and managerial accountability is essential for improving loan performance and reducing non-performing loans. While the cross-sectional design limits causal inference, the findings provide context-specific insights for enhancing credit risk management in emerging banking markets.