Determinants of profitability in Tanzanian commercial banks

The objective of the study was to establish the determinants of profitability in Tanzania. Specifically, it assessed the effect of bank-specific, industry-specific and macroeconomic determinants of the commercial banks profitability. The study used secondary data from financial statements of the banks for the years 2010 to 2014 and measured profitability through ROA. The study findings of the bank specific factors has revealed capital adequacy has weak but positive contribution to the profitability of the commercial banks in Tanzania while operating costs and liquidity has negative contribution. On the industry specific factors bank size and industry growth have positive contribution to the profitability of the commercial banks in Tanzania while concentration is negative effect on profitability. The negative relationship is significant at 5% level when ROA is proxied for profitability. On the impact of banking industry growth and bank size, results show that it affects bank profitability positively. The results of the study have revealed interest rate, GDP and inflation rate have positive relationship with profitability of the commercial banks. The study findings have theoretical implications which suggest that commercial banks in Tanzania have not invested enough to generate returns on the investments. This is highly affected by the quality of loans and reduction in liquidity risks.This study recommends that the regulatory authority have a duty to make sure that the gains of the banking reforms processes are continued, Bank of Tanzania should take more crucial measures aimed at controlling the risk management structure of the banking sector as this will have a positive effect on the their profitability.