Financial Performance Determinants of Commercial Banks in Tanzania

Abstract

The financial performance of commercial banks is of utmost importance for the growth and financial stability of a country. Moreover, the financial performance of commercial banks is influenced by both external factors and internal bank-specific factors. However, the influence of external and bank-specific factors on the financial performance of commercial banks varies across countries and warrants further investigation. Therefore, the purpose of this study is to examine the financial performance determinants of commercial banks in Tanzania. The sample for this study is 18 selected commercial banks in Tanzania with a sample period of nine years ranging from 2012 to 2020. This study used the GMM model to estimate the determinants of the financial performance of commercial banks in Tanzania. The result reveals that bank size and asset quality positively influence the financial performance of commercial banks. However, it was also found that the activity mix has a significant negative effect on financial performance. Moreover, the result uncovers an insignificant negative association between ownership, liquidity management, market share and financial performance. Additionally, the result shows that external factors which are GDP and inflation, have a negative significant impact on the financial performance of commercial banks. The results have significant value to the management of banks and shareholders. Therefore, the management of banks and shareholders of commercial banks should use the results of this paper on their day-to-day managerial operations to enhance the financial performance of commercial banks.

Keywords: Financial performance, profitability, internal bank-bank-specific factors and external factors