Abstract:
Over the past decade, Non-Performing Loans (NPLs) in Tanzania commercial banking industry have exhibited a
positive trend, in spite of the reforms undertaken in the industry. The continued increase in NPLs has not only
affected credit growth, but also resulted in the collapse and closure of some commercial banks. Against this
backdrop, it was necessary to understand the determinants of NPLs in Tanzania commercial banking sector. To
execute the study, quarterly data for the period 2010 to 2020 was analyzed using ARDL and bounds test
techniques. The findings of the study indicate that NPLs decreases with increase in banking operating efficiency,
return on assets, capital adequacy, and income diversifications of the commercial banks in Tanzania. Based on
the findings, commercial banks are advised to diversify their asset portfolio by holding other income earning
assets such as governments bonds, equity so as to reduce on credit risk exposure. In addition, commercial banks
need to focus more on internationally competitive sectors. Measure that increases income diversifications and
operating efficiency in Tanzania.
