Bank Specific Factors and Non-Performing Loans: Evidence from Listed Banks in Tanzania.

Abstract

The study aims to investigate the bank-specific determinants of non-performing loans (NPLs) for listed banks at the Dar es Salaam Stock Exchange (DSE). The study employed an explanatory research design to determine the impact of capital adequacy, bank operational efficiency and liquidity on NPLs of Tanzanian listed banks. By using 35 firm year observations of 7 listed banks over a 5-year period (2016-2020). Non-performing loans to gross loans ratio was used as the response variable. The study uses regression model to test the hypotheses. The empirical results reveal that capital adequacy and liquidity in general have significant impact on the NPLs of 7 listed banks in Tanzania. Bank operational efficiency had an insignificant impact to NPLs. This study was restricted to one category of financial firm that is listed banks at DSE. Future research should focus on a much broader scope by incorporating both listed and non-listed banks across East African region, more years, and the addition of both bank and industry-specific characteristics. If this will be done then a more inclusive and broader outcome will be achieved. Finally, the study recommends that listed banks should focus on maintaining adequate capital because the latter measures the bank‟s soundness level. Similarly, bank managers should focus on maintaining a reasonable liquidity position so as to safeguard the bank‟s reputation in the eyes of its customers.