Credit risk management strategies reviews and performance of commercial banks in Tanzania

Abstract

The Government of Tanzania has undergone various reviews on credit risk management strategies at different periods of time including 2008 and 2014 for the purpose of ensuring bank stability and good performance. Despite all these reviews, performance and stability of most commercial banks in Tanzania has become a challenge. This study, therefore, assessed empirically the level at which commercial banks in Tanzania implement new credit risk management strategies and then whether the reviews made on these strategies reduced or increased the non-performing loans (NPL) and profits respectively. The study applied a cross sectional design. Purposive sampling technique was used to obtain a sample size of 120 respondents based on their position and status. Primary data were collected using a self-administered questionnaire while secondary data were collected using audited financial statements. The primary data were analysed descriptively and inferentially by computing descriptive statistics and using a multiple linear regression model respectively. Results showed that there was high implementation on reviewed credit risk management strategies by commercial banks. Findings from regression analysis showed that risk control and risk monitoring strategies had negative and positive significant effects on NPL and return on equity (ROE) respectively. More efforts should be put in place to ensure that all commercial banks continuously implement reviewed credit risk management strategies, especially risk control and monitoring strategies. The limitation of this study is that it concentrated more on commercial banks and ignored other financial institutions which were also affected by regulatory reviews of 2014. Thus, similar studies should be conducted using other regulatory requirements reviews not captured in this study.