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The banking industry is one of the significant sectors of the financial system in most countries. Banks play a crucial role of promoting the growth of an economy by mobilizing savings and using the mobilized savings in financing the most productive sectors of the economy. As such, commercial banks are important to the financial sector. The performance of a bank is usually measured by its profitability levels, which is essential to shareholders, customers as well as for the bank’s continued survival and expansion.
The aim of this study was to establish factors of banking industry profitability; a case of Tanzanian banks, using the CAMEL Framework approach. The study specifically investigated the determinants of banks’ profitability, and identifying the correlation between the variables in the CAMEL Framework and how they influence banks’ profitability (ROA). The study analysed and compared the profitability performance of two Tanzanian banks, CRDB Bank Plc and NMB Bank Plc over a period of seven years from 2011 to 2017.
The methodology and procedure for data collection employed in the field were based on qualitative and quantitative methodologies. The study used a regression model to establish relationships between the dependent variable and the independent variables which include capital adequacy, assets quality, operational efficiency, earnings and liquidity
The ratios used include the following: Return on Assets (ROA) which has been taken to represent profitability, the Capital Adequacy Ratio CAR, Assets Quality Ratio which is represented by the ratio of non-Performing Loans, Management Quality which has been measured by the level of operating expenses used in achieving the operating income of the bank, and the Earnings Ratio as measured by NIM, which is Net interest income to Average earning assets.
From the regression analysis, the results show that OER is significant and has a positive influence on the bank’s profitability for both CRDB and NMB banks, while LDR and NIM were observed to have significant influence on the profitability of CRDB Bank. On the other hand NPL and CAR had a significant influence on the profitability of NMB bank. |
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