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.