DETERMINANTS OF NON-PERFORMING LOANS IN COMMERCIAL BANKS IN TANZANIA

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.