An Assessment of the Risk Management Practices on the Profitability of Commercial Banks in Tanzania

Abstract

Risk management practices are an essential aspect of the banking industry, and their impact on profitability has been widely studied. Banks operate in a dynamic environment fraught with risks that can threaten their financial well-being and even lead to closure. Tanzania, as a developing country, has witnessed significant progress in its banking industry, which plays a vital role in supporting the nation's economic development and financial stability. Despite the implementation of risk management practices within the banking sector, numerous challenges persist, preventing banks from achieving optimal profitability. The primary objectives of the dissertation is to identify the risk management practices, to examine the risk management practices structured, and to gauge the adherence of TCB banks to regulatory requirements and compliance standards. The study focused on risk management practices in four TCB Bank branches, Arusha, evaluating their impact on profitability. Also the study contributes essential insights to Tanzanian banking by examining specific risk strategies. It aids banks, policymakers, and researchers in enhancing financial stability and aligning with global development goals. A mixed-methods approach, involved both quantitative and qualitative methodologies was employed. Primary data was collected using questionnaires. Stratified random sampling techniques were employed across four TCB Banks branches in Arusha Urban, with a sample size of 60 participants. The study revealed that most participants believe that managing risks well contributes positively to the bank's profits. Also the study revealed a positive correlation between risk management practices and profitability, with 98.4% of respondents expressing confidence in its positive impact. However, the study found areas where banks could improve, like communicating better with customers and using more advanced technologies. The researcher suggest that TCB Banks should focus on clear communication with customers and invest in advanced technologies for better risk management. This research not only helps TCB Banks improve but also adds to the wider conversation about making risk management effective for long-term success in banking