An Empirical Analysis of Factors Affecting Non-Performing Loans in Commercial Banks in Tanzania.

Mshana, Lina Joseph (2022) An Empirical Analysis of Factors Affecting Non-Performing Loans in Commercial Banks in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

This study analyzes the factors affecting non-performing loans in commercial banks in Tanzania. The experience of Tanzania shows gross non-performing loans have increased from 5.12 percent in 2013 to 9.8 percent in 2019. This indicates a huge risk in the financial sector and the national economy at large, such that solvency and liquidity of the banks affect negatively the liquidity position of the financial sector. This steers a need to explore the possible determinants of non-performing loans. This study used a quantitative approach and the quantitative analysis was done through multiple regression to examine the internal and external bank factors affecting nonperforming loans in commercial banks in Tanzania, whereas the sample comprised of ten commercial banks due to their seniority and satisfactory experience in lending activities. The findings show that log of tax paid has statistically positive significant effect on non-performing loans whereas log of total assets and number of employees have statistically negative significant impact on non-performing loans. Loan to deposit ratio and interest rate were found to have negative impact on non performing loans but their effect is not statistically significant. The study suggests that the government through fiscal policy need to smooth taxes to ensure reliable income for clients to make payment of their debts whereas the banks need to strengthen their supervision and management practices by establishing adequate collaterals and procedures in solving unclear loans. Furthermore, the banks should be strategic in providing collateral obligations such that they are at low risk of the company’s loss. Keywords: Non-performing loans and commercial banks

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