Determinants of Banks’ Profitability in a Developing Economy: Empirical Evidence from Tanzania

Abstract

This study investigates the effects of bank specific and macroeconomic factors on banks’ profitability in Tanzania. The fixed effects regression model was used on a panel data obtained from 23 banks from 2009 to 2013. The empirical results show that bank-specific factors (that are affected by bank-level management) significantly affect banks’ profitability in Tanzania. However, macroeconomic factors do not seem to significantly affect banks’ profitability. It can be argued that the profitability performance of banks in Tanzania is mainly influenced by management decisions, while macroeconomic factors have insignificant contribution. Thus Bank management must efficiently manage factors related to their management decisions in order to protect the long run interest of profit-making

Key Words: Bank profitability, ROA, Bank Specific Factors, Macroeconomic Variables