Drivers of Bank’s Debt Financing: The Panel Data Evidence from Large Commercial Banks in Tanzania

Abstract

Debt financing is the major source of financing for commercial banks. In recent years, analysis of the banks’ debt financing has gained great interest in the context of the global financial crisis. Despite the importance of debt financing on banks, the determinants of debt financing in the banking sector have remained largely unexplored compared to non-banking firms. This paper examined the potential drivers of banks’ debt financing in Tanzania. The study used a balanced panel by extracting the data of all ten large Tanzanian commercial banks over the period of 10 years from 2013 to 2022. The study employed a fixed effect model along with a random effect model and pooled ordinary least squares regression. The findings revealed that debt financing was positively and significantly influenced by bank size, bank liquidity, and economic growth while profitability and collateral are negatively and significantly related to banks’ debt financing. The findings indicate that the drivers of debt financing of banks in Tanzania are similar to those of non-banks institutions however, distinctive in nature. The practical implications of this paper assist bank managers to identify the potential drivers influencing banks’ debt financing and opt for the best capital structure strategies.

Keywords: Commercial banks, Debt financing; Debt financing drivers, Dynamic panel data