Financial performance of Commercial Banks and the Camel model. A case of National Microfinance Bank and Cooperative Rural Development Bank in Tanzania.

Abstract

The study focused on evaluating the financial performance of two major banks in Tanzania namely National Microfinance Bank (NMB) and Cooperative and Rural Development Bank (CRDB) and a CAMEL model was fully applied to assess these banks financial soundness. CAMEL parameters used entails (Capital adequacy, asset quality, Management efficiency, Earning quality and liquidity). Secondary data was sourced from the annual reports from 2012-2019.For analysis of the data, the study used both descriptive analysis (to show the financial soundness of the two banks via Microsoft excel) and a fixed effect Panel regression analysis (on the components of CAMEL model). Fixed Effect Panel . Regression was used to ascertain the relationship between CAMEL parameters and financial performance (ROE) of these selected banks via SPSS version 23. The findings reveals that, commercial banks in Tanzania are mostly affected by earning capacity and liquidity position. The other three factors are not consistently affecting ROE as a measure of financial performance. The study recommends that the Bank of Tanzania (BOT) should not focus on revoking the licenses of least performing banks as this act can harm the well-being of the economy rather the latter should support and advice the commercial banks on the best ways of being financial sound by improving banks internal factors (CAMEL).