The Mediating effect of Interest Rates on Board Accountability and Non- performing Loans of Commercial Banks in Western Uganda

<ns3:p>Background Non-performing loans (NPLs) critically threaten banking stability in developing economies. While robust board governance is a known mitigant, the mechanisms particularly the strategic role of interest rate policy set by the board remain underexplored. This study investigates whether interest rates mediate the relationship between board accountability and NPLs. Methods A sequential mixed-methods approach was employed. Data from 232 respondents in commercial banks in Western Uganda were collected via questionnaires and interviews. Quantitative data were analyzed using descriptive statistics, Pearson correlation, and Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the mediation hypothesis. Results Board accountability showed a strong positive correlation with NPL reduction (r = 0.779, p < 0.05). Interest rates partially mediated this relationship (Beta = 0.286, t = 4.443, p = 0.000). Qualitative findings underscored the importance of flexible interest rate policies aligned with borrower risk profiles and economic conditions. Conclusion The study confirms that interest rates significantly mediate the effect of board accountability on NPLs. Enhanced governance frameworks and adaptive interest rate policies are critical for mitigating NPLs and promoting financial stability, particularly in developing economies.</ns3:p>