Increased product-mix in the Commercial banking Industry in Tanzania: analysis of Reasons Influencing Commercial Banks Portfolio Allocation Decisions

Over the last 12 years (from 1991 to 2003), Tanzania has witnessed a strong and ongoing shift in the condition surrounding their banking industry. Deregulation, technological innovation, removal of entry barriers and internalization of the economies are some of the outstanding features of such transformations, all of which markedly affected banking industry, which have been impelled to modify their competitive strategies in a wider context for products and markets. In these circumstances, one of the most important components of such strategies turns out to be the choice of products and or services and preferences to certain allocations of financial resources. This study reports empirical evidence on the similarities and differences in banks' product mixes along with their portfolio trends between the majorities of smallest banks (10) occupying 8% share of industry assets, medium-sized banks (2) occupying 14 % industry assets and large banks (5) dominating the industry (about 78 %). The empirical findings suggest, under ceteris peribus, that banks imitate each other in their product mix, serve diversified or semi diversified industries and there have been a shift from channeling funds to the productive sectors of economy to investments in unproductive sectors in buying government securities and bonds. _ Lack of government commitments, lack of information about potential borrowers, collateral insufficiency and lack of long term relationship between banks and borrowers has been cited as a major contributor which hinders smooth flow of funds to productive sectors of the economy.