Bank Specific, Industry Specific and Macroeconomic Determinants of Banking Performance in Tanzania

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.