Correlation of Board Compensation and Non-performing Loans of Commercial Banks in Western Uganda

Commercial banks across the globe are significantly impacted by Non-Performing Loans (NPLs) in terms of their profitability, liquidity, and potential insolvency. The presence of persistent NPLs undermines the lending capacity of financial institutions, resulting in a destabilization of finance and halting economic growth. While research has focused on the reasons behind NPLs, scant studies have revealed just how board remuneration functions, particularly in developing markets like Uganda. The issue. To address the gap, this study examines the connection between NPLs and board remuneration in commercial banks, focusing on two sub-constructs: Diversity and Expertise (BD) or Independence and Objectivity (BRb). In this study, descriptive, cross-sectional and correlational research designs were used using mixed-methods approaches. Using Slovin's formula and stratified, purposive, and random sampling methods, data was collected from 232 respondents out of a population of approximately 550. To gather the essential information, they conducted systematic questions and interviews, with a pilot study to verify its validity and reliability. Descriptive statistics, Pearson correlation, multiple regression, and Structural Equation Modelling (SEM) were employed for quantitative analysis, while qualitative data was subjected to thematic analysis using Nvivo software. Board independence and objectivity (BRb) were found to be more effective in reducing NPLs than diversity and expertise (BD) (path coefficient = 0.168). The SEM framework was deemed robust by its model fit indices, which were SRMR (0.08) and NFI (>0.90). Such findings also highlight the importance of making independent, unbiased decisions about credit risk reduction. The investigation into the relationship between board remuneration and NPLs in Uganda's banking sector is the first to provide fresh insights into governance factors in a new market. The outcomes offer practical recommendations for financial institutions and policymakers to create efficient compensation structures and governance mechanisms that can improve financial stability.