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The researcher was dealing with investigation and assessment the extent of loan portfolio diversification in financial Institutions in Tanzania concentrated in National Microfinance Bank (NMB). The study used Hirschman Herfindahl index methods of diversification in bank portfolios. The data collected in NMB banks in Arusha Region in the period of three years from 2010-2012. The source of data included various documents which are internal records of this bank, such as credit review reports, loan concentration for the bank, sample of loan product offered, and annual report obtained from credit department.
Data were collected from questionnaire which was sent to bank officers and data analyzed using descriptive statistical analysis techniques.
More diversified banks tend to have a lower magnitude value of Hirschman Herfindal Index (HHI) than less diversified banks which implies the higher portfolio diversification for small magnitude values of HHI and lower portfolio diversification for the higher magnitude values of HHI.
Diversification indeed lead to increase performance and therefore great safety on the part of the Bank as traditional portfolio and Banking theory, this study investigate the extent portfolio diversification in the aspect of Bank profitability and their portfolio diversification across different industries broader economic sectors and geographical region, the study revealed that the impact of diversification strongly depend on the risk level, good strategies and credit policy and management of risk. |
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