ASSESSMENT OF FACTORS AFFECTING FINANCIAL PERFORMANCE OF COMMERCIAL BANKS LISTED ON DAR ES SALAAM STOCK EXCHANGE IN TANZANIA

Abstract

The study was intended to examine the trend of financial performance for commercial banks listed on Dar es Salaam Stock Exchange (DSE). It was also aimed at finding out whether there was significant difference between the average financial performance among CBs and further to determine the effect of selected bank specific factors on financial performance of CBs listed on DSE. The study involved nine CBs listed on DSE whereby data was obtained from CBs financial reports and collected for consecutive six years beginning from 2015 to 2020. The most important theories which guided this study were profit maximization theory and efficiency structure theory. By using descriptive analysis; the study found out that more that 50% of CBs listed on DSE had poor financial performance as measured by ROA with YETU bank recording the highest average financial performance of 5.32% while MCB indicated the lowest financial performance of – 8.91%. In addition, analysis of variance indicated that, there was significant difference in financial performance of CBs listed on DSE. Furthermore, using regression analysis, empirical results showed that income diversification significantly and positively affected financial performance of CBs listed on DSE. On the other hand management efficiency and deposits management significantly and negatively affected financial performance of CBs listed on DSE while credit risk management was insignificant. The study recommended that, the Bank of Tanzania (BoT) should continue to regulate the performance of CBs by ensuring that they remain efficient in their operations. Also, management of CBs should focus on managing operating costs because management efficiency represented by operating cost to gross income was found to be highly significant and negatively related to commercial banks performance. Banks should also open more other income generating activities rather than placing reliance on interest income. Furthermore, banks should avoid costly deposits and should invest these deposits in a more profitable way.