Regulatory Requirement Review and Financial Performance of Commercial Banks in Tanzania

Abstract

In 2014. Tanzania undertook regulatory requirements reviews (RRRs) on capital adequacy, liquidity management, credit risk management and information reporting and disclosure requirements. After regulatory reviews, some banks in Tanzania have shown good financial performance while others have shown unsatisfactory performance. For instance, in 2018, the BOT revoked the banking licences of five banks because their capitalization was below the prescribed capital adequacy level (CAR,2014). The banks included Covenant Bank, Efatha Bank, Njombe Community Bank, Meru Community Bank and Kagera Farmers' Cooperative Bank. In the same period, BOT took over the administration of Bank M Tanzania due to the bank's critical liquidity problems and merged it with Azania Bank. During the same year Twiga Bancorp Bank was also closed due to money laundering issues and was merged with TPB bank (BOT, 2018). This study was conducted purposely to assess the implications of the regulatory requirement amendments on bank financial performance. The study adopted both panel and cross-sectional research design and was conducted in Dar es Salaam region, Tanzania. The study applied purposive sampling technique to select 120 respondents from 24 specific commercial banks and 13 key informants. Qualitative data were analysed using thematic analysis while quantitative data were analysed using descriptive analysis, student paired t-test, random effect regression model, multiple linear regression models and Pearson correlation techniques. On first objective, findings showed that Return on Equity (ROE) and Saving Mobilization Ratio (SMR) increased positively after regulatory reviews and their amounts were significantly different at 1% level while ROA and NPL results showed increases and decline, respectively. On the second objective, the findings showed that after regulatory reviews; Tier I, Tier Il, GDP, and SIZE were observed to have higher significant influence on financial performance (ROE and SMR) of selected banks compared to the period before capital requirements reviews while liquidity ratio and cash reserve ratio had insignificant influence on banks' financial performance. In the third objective, findings show that there was high implementation of reviewed credit risk management strategies.