Determinants of Profitability of Commercial Banks in Tanzania:

Abstract

The purpose of the study was to examine the determinants of banks financial performance in Tanzania using time series analysis over a period of twelve years. The data used was extracted from secondary data in the annual financial reports of the banks within the period of study. The data was analysed using Stata version 15. The coefficients of the Ordinary Least Squares (OLS) regression model were generated. The analysis discovered that the capital adequacy ratio had a positive impact on bank financial performance and was statistically significant at the 5% level, whereas the loan-to-deposit ratio had a positive impact on bank financial performance but was statistically insignificant, and the cost-to-income ratio had a negative relationship with the financial performance of the bank and was statistically significant at the 1% level. The study concludes that the capital adequacy ratio and cost income ratio are vital in influencing bank financial performance in Tanzania, and thus managers should pay more attention to these variables so as to elevate bank financial performance in the long term. The study recommends that the Bank of Tanzania should critically make sound decisions on bank capital bases to avoid financial crises in the banking sector and the country's economy as a whole.