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Nathaniel Towo
Moshi Co-operative University
Economics, Econometrics & Finance Social Sciences

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Effect of Bank-Specific Factors on Non-performing Loans Among Commercial Banks in Tanzania George Thomas Budotela; Goodluck Mmarii; Nathaniel Towo
Journal of Accounting Research, Organization and Economics Vol 5, No 3 (2022): JAROE Vol. 5 No. 3 December 2022
Publisher : Universitas Syiah Kuala

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.24815/jaroe.v5i3.28702

Abstract

Objective –This paper examines the effect of bank-specific factors on non-performing loans in Tanzanian commercial banks (CBs).Design/methodology – Using annual data covering the period of 2011 -2020, a quantitative study methodology was employed. The authors used a one-step generalised method of moments (GMM) approach to estimate the effect of bank-specific factors on the percentage growth of NPLs in Tanzania.Results – According to the findings, increased return on assets, bank operating efficiency, income diversification, loan to-asset ratio in CBs reduces NPLs. In contrast, an increase in the deposit-to-asset ratio, capital adequacy, and age significantly increases the level of NPLs, which is consistent with the adverse selection theory. Conversely, decreased lag NPLs and raised bank operating efficiency will reduce the current year's NPL rate and vice versa.Research limitations/implications – Commercial banks should reduce the risk of defaulting borrowers by adjusting the contractual terms to the anticipated average quality of their applications. In addition, small banks should strive to maintain management efficiency to increase their profitability. Authorities should impose micro-prudential supervision on commercial banks' lending behaviour to reduce the number of NPLs.Novelty/Originality – The paper includes bank size (large and small banks) using both a one-step difference and a one-step system approach to measure the effect of bank-specific factors, which is usually not the case with most studies.
Board Composition and Non-Performing Loans among Commercial Banks in Tanzania George Budotela; Goodluck Mmari; Nathaniel Towo
Journal of Accounting Research, Organization and Economics Vol 6, No 1 (2023): JAROE Vol. 6 No. 1 April 2023
Publisher : Universitas Syiah Kuala

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.24815/jaroe.v6i1.31822

Abstract

Objective – This paper investigates the effect of board composition on non-performing loans (NPLs) for a sample of 31 commercial banks in Tanzania.Design/methodology – A quantitative study methodology was employed using annual data covering the period of 2011-2020. The authors used a one-step generalised method of moments (GMM) approach to estimate the effect of board composition on the percentage growth of NPLs in Tanzania.Results – The paper concludes that the number of board members with financial expertise, the board size, the audit committee, and the presence of female directors significantly negatively impact the bank’s NPLs and hence aid in lowering the bank’s NPLs. In contrast, an increase in board size, lagged NPLs, credit committees, independent directors, board meetings, and advances in deposit ratio significantly increases the level of NPLs, which is consistent with the agency theory.Research Limitations/Implications – Inconsistencies in the reported variables from various databases during the study and afterwards, as well as a lack of data for some banks in specific years. Shareholders should actively establish good corporate governance in the commercial banks (CBs) they own to reduce NPLs at an acceptable rate of less than 5%. Also, the Central Banks of Tanzania should encourage CBs to implement effective corporate governance practices by enacting rules and regulations to reduce NPLs. To minimize loan losses, authorities should impose micro-prudential supervision on commercial banks’ lending behavior. Novelty/Originality – The paper includes bank size and ownership using a one-step difference and one-step system (GMM) approach to measure the effect, which is usually not the case with most studies.
Co-Authors George Budotela George Thomas Budotela Goodluck Mmari Goodluck Mmarii