Abstract:
While the issue of bank stability is being given more emphasis by most of banks’ stakeholders worldwide, many developing countries are busy promoting policies which aim at increasing the level of banking inclusion in their economies. The main objective of this study was therefore to investigate the influence of banking inclusion on bank stability using 30 commercial banks (CBs) in Tanzania for the period 2006-2015. Banking inclusion was measured using the Index of Financial Inclusion (IFI) and bank stability was measured using Z-score and the ratio of Non-Performing to total loans (NPL/TL). Six control variables namely size, capital, liquidity, mix, Gross Domestic Product (GDP) and inflation were included in order to increase the predictability and to reduce the model bias. Method of analysis applied was Random-effects GLS regression model. Findings revealed that the degree of banking inclusion was negative but statistically insignificant influencing Z-score of both small and large CBs. Findings also revealed that the degree of banking inclusion was positive but statistically insignificant influencing the ratio of NPL/TL of both small and large CBs. These findings contradict the financial intermediation theory which impliedly suggests that greater banking inclusion causes credit and insolvency risk to decrease, thus improve bank stability. Since the study has concluded that a degree of banking inclusion has no influence on stability of CBs in Tanzania; the study therefore recommends to banks’ management to increase their outreach in order to reap the advantages of banking inclusion such as poverty alleviation as this will not endanger their stability provided that the increase in inclusion is well planned and does not aim to compromise their credit evaluation standard.
