Effect of Liquidity on Financial Performance of Commercial Banks in Tanzania.

Abstract

In this study, the researcher assesses the impact liquidity can bring on financial performance of commercial banks in Tanzania. Three identified predicting variables representing liquidity are tested to determine financial performance of commercial banks measured through return on asset (ROA). The core deposit to total funding (CDTF), liquid assets to total demand liabilities (LADL) and gross loans to total deposits (GLTD) are the tested predicting variables. The study employed an explanatory design which studies the causal relationship by testing the relationship between study variables. The study analyzes secondary data spanning from 2012-2021 obtained from the selected eight commercial banks. By the use of E-view software version 9, the collected secondary data was computed statistically to obtain the anticipated findings. Following this analysis, the researcher discovers that core deposit to total funding (CDTF), liquid assets to total demand liabilities (LADL) and gross loans to total deposits (GLTD) all significantly impact financial performance of commercial banks in Tanzania with all variables scoring a value below than the significant level (p<0.05). Such findings infer that financial performance of commercial banks [measured by return on asset (ROA)] if a function of core deposit to total funding (CDTF), liquid assets to total demand liabilities (LADL) and gross loans to total deposits (GLTD) respectively.