Factors Influencing Non-Performing Loans for Listed Commercial Banks in Tanzania

Abstract

This study investigated the factors that influence non-performing loans (NPLs) for listed commercial banks in Tanzania. Lower NPLs are indicators of best credit risk management that enhance financial stability. Specifically, this study examined the influence of bank-specific factors—return on asset, capital adequacy, licensed bank age, and bank size—on NPLs covering the 2015 – 2022 period. The study employed a quantitative research approach, specifically the panel data regression to calibrate the coefficients of the independent variables of the study. The study findings suggest that capital adequacy is significantly inversely related to non-performing loans (NPLs). Also, bank size is significantly negatively linked with NPLs. However, the age of licensed banks is positively correlated with NPLs. As such, the study recommends for listed commercial banks to enhance equity as it provides a governance supervision mechanism that lowers NPLs. Likewise, listed commercial banks ought to increase the number of branches that can result in more staff with skills and expertise that may further lower NPLs. Moreover, listed commercial need not consider licensed bank age as enough attribute to enhance lower NPLs. The new insight about bank-specific factors that influence NPLs stemming from the study may help to enhance low NPLs, thus stimulating financial stability.

Keywords: NPL, Capital Adequacy, Bank Size, Licensed Bank Age, Return on Asset