The determinants of banking sector performance in Tanzania: A pre-post Treasury Single Account analysis

Figures & data

Table 1. Banking institutions in Tanzania as of December 31 2020

	Ownership Concentration (Dom, For, Priv & State)						Bank Size
	Domestic	Foreign	State-Owned Banks			Private Banks	Large Banks	Small Banks
	Banks	Banks	CB	DB.	Total
Industry size	16	30	2	2	4	43	10	36
Percentage	35%	65%	4.35%	4.35%	8.70%	93.48%	19%	19%
Total Industry Size	46	46	46	46	46	46	46	46
Sample Banks	14	16	4	-	4	26	8	22
% of Industry	47%	53%	13%		13%	87%	27%	73%
Total Sample	30	30	30	30	30	30	30	30

Source: BOT, Directorate of Financial Sector Supervision Annual Report 2020. Note: CB implies commercial banks, whereas DB implies development banks. It has been noted that Before 2018, the industry had 53 CB banks, but mergers of 3 state-owned banks and the closure of 5 private banks (all small and domestic banks) dropped the number to 46 banks in 2020 as shown above.

Table 2. Description of variables used

Category	Variable	Formula
Dependent variable (Profitability Indicators)	Return on Asset (ROA)	Net Profit Before Tax to Average Asset
	Return on Equity (ROE)	Net Profit After Tax to Average Equity
	Net Interest Margin (NIM)	Net Interest Income to Earning Assets
Independent Variables Category 1 (Ownership and Size)	Foreign Banks (FB)	Dummy Variable Taking The Value 1 if the Bank is Foreign
	Domestic Banks (DB)	Dummy Variable Taking The Value 0 if the Bank is Domestic
	Private Banks (PB)	Dummy Variable Taking the Value 1 if the Bank is Private
	State-Owned Banks (SB)	Dummy Variable Taking the Value 0 if the Bank is State-Owned
	Bank size -Asset size (AS)	Categorized in Terms of Total Assets
Independent Variables Category 2 (Macroeconomic Variables)	GDP Growth Rate (GDP GRW)	Quarterly GDP Growth Rate
	Inflation Rate	Quarterly Inflation Rate
	Interest Rate	Quarterly Lending rate
	Exchange Rate	Quarterly Average Exchange Rate
	Firm Specific:
Control Variables	Loan-To-Deposit Ratio (LDR)	Loans/Total Deposits
	Non-Performing Loans (NPL)	Non-Performing Loans/Gross Loans
	Market Structure Variables
	Concentration Ratio	Total Assets of Large Banks)/Total Assets of All Banks
	Asset Market Share Ratio	Bank’s Total Assets/Total Assets of All Banks In the Market
Moderating Variable	Treasury Single Account (TSA)	Dummy Variable taking the value 1 after TSA adoption and 0 otherwise

Source: Researcher’s compilation from the literature.

Table 3. Descriptive statistics

Variables	Obs	Mean	Std. Dev.	Min	Max
Interest Rate	1320	0.15	0.02	0.13	0.19
Inflation Rate	1320	6.95	4.26	3.02	19.36
GDP Growth Rate	1320	0.04	0.09	−0.09	0.19
Exchange Rate	1320	1910.31	343.10	1323.78	2297.74
Asset Size	1320	6.880e+11	1.160e+12	4.55E+09	7.255e+12
ROA	1320	0.01	0.02	−0.23	0.06
ROE	1320	0.09	2.78	−23.75	1.16
NIM	1320	0.04	0.03	0	0.25

Source: Authors’ summarization from STATA computations. Table 2 above defines all the variables.

Table 4. Linear relationship between ownership concentration, bank size, macroeconomic variables and the overall banking sector’s performance (static models)

	Fixed Effects		Random Effects
	ROA		ROE		NIM
Variable	β	t	β	t	β	t
FB	0	0	−0.012	-0.50 (0.616)	−0.037	−1.92* (0.055)
PB	0	0	−0.004	−0.10 (0.920)	0.004	0.15 (0.883)
AS	1.55E–08	2.64** (0.013)	8.00E–08	3.86*** (0.000)	5.29E–09	0.33 (0.741)
GDP	0.0267	4.17*** (0.000)	0.156	4.05*** (0.000)	0.346	19.60*** (0.000)
INT	0.241	2.61** (0.014)	2.305	3.05*** (0.000)	0.263	1.62 (0.106)
ER	7.72E–06	2.20** (0.036)	1.58E–05	0.80 (0.424)	8.78E–05	8.24*** (0.000)
INF	0.003	0.32 (0.751)	0.035	0.57 (0.572)	−0.07832	−2.74*** (0.000)
1. TSA#1.FB	0.002	0.66 0.513	0.013	0.93 (0.354)	0.017	1.90* (0.058)
1. TSA#1.PB	−0.003	−1.08 (0.288)	−0.037	−2.13** (0.933)	0.027	1.43 (0.151)
1. TSA#AS	−4.68E–09	−2.22** (0.035)	−2.69E–08	−2.28** (0.023)	1.30E–08	1.46 (0.143)
1. TSA#GDP	−0.013	−2.39** (0.023)	−0.106***	−3.05 (0.000)	−0.052	−3.68*** (0.000)
1. TSA#INT	−0.2933	−2.87*** (0.000)	−2.441***	−2.91*** (0.000)	0.022	0.12 (0.907)
1. TSA#ER	−2.9E–05	-1.24 (0.225)	−0.0002	−1.29 (0.196)	−0.001	−537*** (0.000)
1. TSA#INF	−0.0005	-0.04 (0.972)	−0.009	−0.09 (0.931)	0.467	9.31*** (0.000)
LDR	0.0013	0.56 (0.580)	0.018	1.53 (0.125)	0.0501	1.39 (0.166)
NPL	−0.018	-3.05*** (0.000)	−0.111***	−2.97*** (0.000)	0.076	2.00** (0.046)
CONC	−0.017	−3.23*** (0.000)	−0.095***	−3.02 (0.000)	−0.154	−10.28*** (0.000)
MSHARE	−0.064	-1.30 (0.205)	−0.054	−0.36 (0.717)	0.063	0.52 (0.602)

Note: *, **, and *** indicate the level of statistical significance at 10%, 5%, and 1%, respectively; β implies the coefficient; and t is the test statistic: FB=Foreign banks, PB=Private banks, AS=Asset size, GDP=GDP Growth rate, INT=Interest rate, ER=Exchange rate, INF=Inflation, 1. TSA =Dummy variable used as a moderator, LDR=Loans to deposits ratio used as a control variable, NPL=Non-Performing Loans used as a control variable, MSHARE=Market share used as a control variable. (L.ROI, L.ROE & L.NIM) =Lag variables. loans to deposits ratio (LDR) was winsorized at the 5th and 95th percentiles, while NPL, ROA, and ROE, were winsorized at the 7.5th and 92.5th percentiles

Table 5. Linear relationship between ownership concentration, bank size, macroeconomic variables and the overall banking sector’s performance (dynamic model)

	System GMM
	ROA		ROE		NIM
Variable	β	t	β	t	β	t
FB	−0.090	−2.83*** (0.000)	−0.051	−0.36 (0.724)	−0.318	2.30** (0.029)
PB	0.059	2.65** (0.013)	0.114	1.11 (0.276)	0.261	1.09 (0.286)
AS	2.21E–08	1.71* (0.098)	7.86E–08	1.46 (0.156)	4.16E–09	0.05 (0.962)
GDP	0.022	−0.87 (0.390)	0.331	7.27*** (0.000)	−0.244	−3.13*** (0.004)
INT	−0.912	0.93 (0.362)	4.714	1.61 (0.117)	0.459	0.58 (0.568)
ER	4.21E–06	−0.04 (0.965)	−1.3E–05	−0.56 (0.578)	−6.8E–05	−1.39 (0.174)
INF	−0.0004	−0.40 (0.695)	−0.022	−0.50 (0.618)	−0.064	−1.07 (0.296)
1. TSA#1.FB	0.174	−2.08** (0.046)	−0.078	−0.24 (0.813)	0.123	0.77 (0.445)
1. TSA#1.PB	−0.102	−0.45** (0.653)	0.116	0.51 (0.611)	−0.004	−0.03 (0.973)
1. TSA#AS	−1.00E–08	−0.69 (0.495)	−1.70E–07	−1.93* (0.063)	−9.32E–08	−1.29 (0.206)
1. TSA#GDP	−0.007	0.78 (0.442)	−0.164	−4.44*** (0.000)	0.042	1.18 (0.247)
1. TSA#INT	0.855	−0.09 (0.929)	−5.430	−1.76* (0.089)	0.701	0.86 (0.399)
1. TSA#ER	−1.1E–05	−0.13 (0.899)	0.001	1.72* (0.095)	−0.001	−3.71*** (0.000)
1. TSA#INF	−0.009	−1.25 (0.222)	−0.544	−1.43 (0.163)	0.427	2.12** (0.042)
LDR	−0.021	0.14 (0.889)	0.062	0.93 (0.360)	0.401	2.67** (0.012)
NPL	0.006	−0.91 (0.372)	−0.229	−1.37 (0.180)	−0.138	−0.74 (0.463)
CONC	−0.035	−2.02 (0.053)	−0.587	−3.90*** (0.001)	2.124	7.00*** (0.000)
MSHARE	−1.634	0.96* (0.346)	−12.354	−2.76** (0.010)	−46.228	−2.19** (0.037)
L. (ROI/ROE/NIM)	0.044	0.23 (0.817)	0.476	5.11*** (0.000)	−1.57	−10.56*** (0.000)

Note: *, **, and *** indicate the level of statistical significance at 10%, 5%, and 1%, respectively; β implies the coefficient; and t is the test statistic: FB=Foreign banks, PB=Private banks, AS=Asset size, GDP=GDP Growth rate, INT=Interest rate, ER=Exchange rate, INF=Inflation, 1. TSA =Dummy variable used as a moderator, LDR=Loans to deposits ratio used as a control variable, NPL=Non-Performing Loans used as a control variable, MSHARE=Market share used as a control variable. (L.ROI, L.ROE & L.NIM) =Lag variables. loans to deposits ratio (LDR) was winsorized at the 5th and 95th percentiles, while NPL, ROA, and ROE, were winsorized at the 7.5th and 92.5th percentiles.

Table 6. Trend of banks’ financial performance in terms of ownership structure

	Pre TSA							Post TSA
	2010	2011	2012	2013	2014	2015	Average	2016	2017	2018	2019	2020	Average
ROA(DB)	−0.4	0.61	0.69	1.14	1.61	1.62	0.88	1.25	0	0.34	0.77	0.75	0.62
ROA(FB)	0.97	0.88	0.71	0.71	0.85	1.12	0.87	0.99	0.95	0.5	0.35	0.15	0.59
ROA(I)	2.16	2.53	2.58	2.55	2.51	2.49	2.47	2.09	1.15	1.04	1.86	1.94	1.62
ROE(DB)	2.83	4.43	4.12	5.54	11.3	4.99	5.54	3.5	0.31	0.14	1.04	0.9	1.18
ROE(FB)	5.94	6.25	3.64	1.74	5.07	7.78	5.07	2.67	3.79	1.62	1.15	0.42	1.93
ROE(I)	12.1	14.5	13.9	13.1	12.6	12.2	13.1	9.26	4.67	2.88	7.13	7.61	6.31
NIM(DB)	4.14	4.95	5.29	5.46	5.77	5.76	5.23	5.65	5.48	5.14	4.75	4.08	5.02
NIM(FB)	3.14	3.15	3.7	3.8	3.84	4	3.6	4.17	4.17	4.08	3.79	3.49	3.94
NIM(I)	6.46	7.17	7.81	8.25	8.37	8.19	7.71	8.12	7.42	7.01	6.21	5.85	6.92
ROA(PB)	0.47	0.85	0.9	0.97	1.33	0.81	0.89	0.83	0.72	0.41	0.42	0.35	0.55
ROA(SB)	−0.62	0.14	0.31	0.61	0.83	1.98	0.54	−0.01	−0.68	0.6	1.2	0.85	0.39
ROA(I)	2.16	2.53	2.58	2.55	2.51	2.49	2.47	2.09	1.15	1.04	1.86	1.94	1.62
ROE(PB)	5.3	6.14	5.04	3.75	4.44	1.95	4.44	1.67	2.57	0.65	−0.15	0.13	0.97
ROE(SB)	−0.02	1.22	2.16	−1.62	2.03	2.73	1.08	−1.7	0.53	1.83	6.33	4.13	2.22
ROE(I)	12.1	14.5	13.9	13.1	12.6	12.2	13.1	9.26	4.67	2.88	7.13	7.61	6.31
NIM(PB)	3.9	4.2	3.95	4.83	5.01	4.08	4.33	4.96	5	5.12	4.8	4.3	4.84
NIM(SB)	3.37	4.69	4.92	5.26	5.49	5.87	4.93	5.01	5.65	3.58	2.83	2.23	3.86
NIM(I)	6.46	7.17	7.81	8.25	8.37	8.19	7.71	8.12	7.42	7.01	6.21	5.85	6.92

Note: ROA=Return on Assets, ROE = Return on Equity, NIM = Net Interest Margin, where DB =Domestic Banks, FB = foreign banks, PB = private banks, SB = state-owned banks, I = Industry-average ratio

Table 7. Trend of large and small banks’ financial performance

	Pre TSA							Post TSA
	2010	2011	2012	2013	2014	2015	Average	2016	2017	2018	2019	2020	Average
ROA(LB)	1.73	1.85	1.68	1.49	1.95	1.69	1.73	0.81	1.46	1.11	1.31	1.19	1.18
ROA(SB)	2.61	3.16	2.66	3.03	4.03	4.1	3.27	2.19	2.03	2.01	1.94	2.13	2.06
ROA(I)	2.16	2.53	2.58	2.55	2.51	2.49	2.47	2.09	1.15	1.04	1.86	1.94	1.62
ROE(LB)	9.51	11.7	8.96	8.02	10.5	8.16	9.48	0.94	6.59	4.86	6.08	4.84	4.66
ROE(SB)	19.2	20.9	16.5	−10.9	17.8	21.4	14.3	7.44	9.74	7.5	2.63	3.83	6.23
ROE(I)	12.1	14.5	13.9	13.1	12.6	12.2	13.1	9.26	4.67	2.88	7.13	7.61	6.31
NIM(LB)	3.11	3.2	3.63	3.77	3.97	3.75	3.57	3.72	4.02	3.69	3.6	3.59	3.73
NIM(SB)	10.9	11.9	13.7	14.2	14.5	14.5	13.3	12.9	13.3	13.7	12.9	11.39	12.8
NIM(IB)	6.46	7.17	7.81	8.25	8.37	8.19	7.71	8.12	7.42	7.01	6.21	5.85	6.92

Note: ROA=Return on Asset, ROE = Return on Equity, NIM = Net Interest Margin, where LB = Large Banks, SB = Small Banks, I B= Industry Average Ratio.

Table 8. Trend of macroeconomic variables (industry-specific and country-wide variables)

	Pre TSA							Post TSA
	2010	2011	2012	2013	2014	2015	Average	2016	2017	2018	2019	2020	Average
ER	1396	1557	1572	1599	1653	1985	1627	2177	2229	2264	2288	2294	2250
GDP	20.7	20.4	13.7	17.1	13.2	14.2	16.6	14.9	9.6	8.7	8.4	8.1	9.9
INF	7.2	12.7	16.1	7.9	6.1	5.6	9.3	5.2	5.3	3.5	3.4	3.3	4.1
INT	14.6	15.0	15.6	15.8	16.3	16.1	15.6	16.0	17.8	17.4	17.0	16.7	17.0

Note: ER= Average Exchange Rate, GDP =GDP Growth Rate, INF = Inflation Rate, INT=Lending Interest Rate.

Table 9. Trend of NPLs and loans to deposits

	Pre TSA								Post TSA
	2010	2011	2012	2013	2014	2015	Average	2016	2017	2018	2019	2020	Average
NPL(DB)	4.9	7.0	7.4	6.1	6.7	6.6	6.5	9.3	17.6	15.0	12.2	12.3	13.3
NPL(FB)	3.3	21.1	5.0	5.0	7.1	7.0	8.1	7.9	8.4	8.0	8.2	9.3	8.4
NPL (PB)	5.0	5.9	5.6	6.0	6.5	6.5	5.9	8.1	11.0	11.0	11.6	11.9	10.7
NPL (SB)	3.5	7.4	9.8	6.3	8.6	8.5	7.3	11.9	23.5	11.8	3.1	4.4	10.9
NPL(LB)	7.1	7.0	6.6	7.5	8.2	6.5	7.1	8.1	8.5	6.3	5.7	6.4	7.0
NPL(SB)	4.0	5.0	6.0	5.5	6.4	7.0	5.6	8.8	14.2	13.0	12.2	12.6	12.2
NPL(I)	7.9	8.2	7.8	7.5	7.8	7.0	7.7	9.1	11.5	10.6	10.7	10.5	10.5
LDR(DB)	53.7	60.4	65.5	64.9	70.3	74.5	64.9	81.0	77.3	76.1	78.5	81.6	78.9
LDR(FB)	60.2	58.9	62.7	64.0	63.1	64.9	62.3	70.2	68.2	68.1	71.5	71.2	69.9
LDR(PB)	73.2	72.9	72.8	72.5	72.3	73.8	72.9	73.6	74.0	74.9	74.0	73.5	74.0
LDR(SB)	46.5	52.1	57.1	63.7	66.5	71.2	59.5	70.6	75.9	77.6	78.1	81.6	76.7
LDR(LB)	56.0	58.8	62.3	62.3	65.4	68.2	62.2	76.0	71.5	70.9	71.6	73.9	72.8
LDR(SB)	60.2	62.9	71.1	73.4	72.5	80.8	70.1	77.8	79.2	78.3	88.0	88.1	82.3
LDR(IB)	58.3	61.0	65.3	66.8	68.4	72.2	65.3	74.9	74.3	74.3	76.9	78.3	75.8
LDR(A)	80	80	80	80	80	80	80	80	80	80	80	80	80

Note: NPL = Non-Performing loans, LDR = loans to total deposits, DB = domestic banks, FB = foreign banks, (PB) = Private Banks, (SB) = State-Owned Banks, LB = Large Banks, SB = Small Banks, I = Industry Average, A =Average regulatory threshold.

Data availability statement

A request for data can be made to the authors if need be.