Factors Influencing Profitability of Commercial Banks In Tanzania

Abstract

The purpose of this study was to examine the factors influencing profitability of commercial banks in Tanzania and CRDB Bank Plc was used as a case study in this study, The time series data from the year 2008 to 2019 were used and the data of Bank deposits, Bank operating expenses and Non-performing loans were obtained from CRDB Bank Plc website while the data of Real interest rates and Inflation were obtained from World Bank website and the secondary data collection method was used in this study. The linear regression model was applied to investigate the impact of Bank deposits, Bank operating expenses, Non-performing loans, Real interest rates and Inflation on Profitability of Commercial Banks which was measured in terms of Return on Assets (ROA), The data were analysed using the STATA 13 software. The findings of this study showed that the Bank-specific factors(Bank deposits, Bank operating expenses and Non-performing loans) have a significant and negative relationship with profitability (ROA) while Macroeconomic factors (real interest rates and Inflation)have an insignificant and negative impact on Profitability (ROA). This study will be very useful for Bank managers in decision making about the bank’s performance, they will know which variables to deal with in order to generate profit, also the study will help depositors and investors to know which Bank they should invest to earn more returns, Also the study will be useful for Bank employees because they will understand how to deal with the important variables that affect profitability, also the Government will b benefited by using the study in policy making regarding Banks operations and Monitoring and Finally the study will add knowledge to the Researchers and Scholars. The study concludes that Bank deposits, Bank operating expenses and Non-performing loans can jointly predict commercial banks profitability in Tanzania while Real interest rates and Inflation cannot jointly influence commercial banks profitability in Tanzania. Therefore the study used Time series data for the year 2008 to 2019 to establish the factors influencing profitability of commercial banks in Tanzania using STATA 13 software