Evaluation of Financial Performance of Foreign and Domestic Banks Operating in Tanzania

Abstract

This study aimed at conducting a comparative analysis of the financial performance of foreign owned banks and domestic banks operating in Tanzanian banking sector for the period between 2009-2016 using DuPont model and the paired-sample t-test analysis. The model depicts that return on equity of banks is affected by three parameters namely; Profit margin (PM), Assets utilization AU and Equity Multiplier (EM). The results of the analysis show that both returns on equity (ROE) and return on assets (ROA) of foreign banks are higher than those of the domestic banks. The higher ratios of ROA and ROE observed in foreign banks may have been caused by reported higher interest margin (PM) and Equity Multiplier (EM) signifying a better cost management and use of large financial leverage by foreign banks than domestic banks.Based on the results portrayed by this study we may  conclude that foreign banks in Tanzania not only have higher return on assets ratio (ROA), but also higher return on equity (ROE) ratio  due to a larger use of financial leverage rather than the profitable use of assets. This implies that, compared to domestic banks, foreign banks manage their capital more efficiently than their domestic counterparts

Key words: Foreign, Domestic, Banks, Performance, DuPont