Abstract:
This study examined the determinants of banks’ performance (profitability) in Tanzania using a
balanced panel data set consisting of 25 commercial banks for the period from 2007 to 2012. The
study employed the fixed effects (within) model of analysis in Stata 10. The bank performance was
measured by profitability proxies which are Return on Assets (ROA), Return on Equity (ROE), and
Net Interest Margin (NIM) as a function of bank specific, industry specific and macroeconomic
determinants. The findings revealed that bank size (SIZE), size bank system (SBS) have a positive
and significant impact on bank performance. However, non-performing loans (NPLs), capital
adequacy and operational efficiency measure proxied by cost income ratio (CIR) have a negative
and significant effect on banks performance. Furthermore, macroeconomic determinants namely
GDP growth and inflation do not affect bank performance. The study results suggest that banks
can improve their performance by increasing bank size, decreasing non-performing loans and
managing its operating expenses. In addition, health financial system through increased size bank
system can boost their performance.
