Bank-Specific and Macroeconomic Determinants of Non-Performing Loans in Tanzania: A Panel Data Analysis

The aim of the study is to investigate the bank-specific and macroeconomic determinants of non-performing loans (NPLs) in Tanzanian banks. NPLs are red flag, providing signal of jeopardize for a country's economic performance. The NPLs problem has become an alarming issue for bank's sustainability globally. This study collects data from 10 sampled commercial banks in Tanzania over the period from 2019 to 2024, thus yielding 60 bank-year observations. The study performs random effect and fixed effect regression models to get the robust and significant result. Based on random effects regressions results variable Liquidity, GDP and Inflation Rate were found to be statistically significant at 1% level. Liquidity and NPLs had a positive relationship, which means the larger the liquidity bank has the higher NPLs bank will have. On the other hand, real GDP and NPLs were found to be negatively related. Inflation Rate and NPLs were found to have positive relationship, which implies that the higher the Inflation Rate the larger NPLs will be for the banks as customers are struggling to keep up with the cost of living. The study concludes that commercial banks in Tanzania should operate its activities more efficiently and avoid reckless lending along with mandatory capital requirement in order to reduce NPLs and to ensure profit for their shareholders. The findings of the study would provide insight guidelines regarding bank's credit risk management procedures and systems to country's regulatory body in order to design and adopt required prudential regulations in credit policy.