Abstract:
This study focused on determining the association between the bank’s liquidity and performance of commercial banks in Tanzania and the association examined by different scholars in Tanzania and outside the country in different aspects but this study intend to put more light through ratio analysis between liquidity and profitability of the Tanzania commercial banks. These two components are the essential elements for commercial banks operation with three specific objectives; to determine the relationship between liquidity ratios (LDR and LADR) with net interest margin which is a one profitability measures, to study the association between liquidity ratios (LDR and LADR) with return on asset, to study the relationship between liquidity ratios (LDR and LADR) with return on equity. The banks liquidity ratios treated as independent variables and the profitability ratios treated as dependent variables, and data were analyzed through regression equation analysis where by the equations; NIM= 0.0956774 – 0.029457LDR -0.280439LADR + £1, ROA= 0.320742 – 0.0309878LDR + 0.0933533LADR + £2, and ROE= 0.3925308 – 0.3458776LDR - 0.1311809LADR + £3. It was longitudinal study conducted in Tanzania commercial banks whereby five commercial banks were selected as samples (NMB bank, CRDB bank, NBC bank, Exim bank Tanzania, and Barclays bank Tanzania) from thirty-six licensed commercial banks were taken into consideration for the time period from 2012 to 2019. All models revealed that there is weak relationship evidence between the bank’s liquidity and its profitability, thus banks can concentrate on rising profitability without affecting its liquidity. Consequently, the banks can focus on raising their profitability without upsetting their liquidity, although this is not guaranteed because the situation might change.