Effect of Client Appraisal on Financial Performance of Financial Institutions in Rwanda: A Case Study of Guaranty Trust Bank Rwanda PLC

A well-structured and sound Client appraisal is a prerequisite which is able to attain stability, continued profitability and long term sustainability amongst the financial institutions. The purpose of this study was therefore to establish the Effect of Client appraisal on financial performance of Financial Institutions in Rwanda based on a case study of Guaranty Trust Bank Rwanda Plc. A descriptive research design embracing qualitative and quantitative approaches was conducted on 80 employees of Guaranty Trust Bank Rwanda Plc. The data thereof obtained was analyzed by use of Statistical Package for the Social Sciences (SPSS) for descriptive and inferential statistics. Pearson correlation analysis and multiple linear regression analysis were computed to test for the relationship between client appraisal and financial performance. The results confirmed a linear, positive and significant relationship between client appraisal and financial performance with coefficient R is.948 and statistic p value 0.00 less than 0.005 at 4 degrees of freedom. Further, the coefficient R squared.899 suggested that client appraisal as a predictor of financial performance could explain for approximately 90 % of the variations in financial performance of the banking sector in Rwanda. Thus, the study concludes that client appraisal, on the basis individuals and businesses financial and physical characteristics in credit scoring models and utilization of the credit reference bureau and client credit risk analysis on individuals is key in identifying appropriate and reliable clients for disbursement of bank loans. Hence, it is imperative that banks in Rwanda adopt appropriate appraisal strategies that enhance identification of suitable clients and borrowers to minimize on loan defaulters. Such strategies may include a combination of individual and businesses characteristics, financial and physical characteristics, credit scoring models, utilization of the credit reference bureau and client c