The Effect of Credit Risk Management on the Performance of Commercial Banks in Tanzania: Panel Data Modelling

Abstract

This study has objective of determining the effect of credit risk management on financial performance of commercial banks in Tanzania. The study covered the period between year 2015 and 2020 for the sample of five (5) commercial banks. Panel regression analysis (random effect model) applied as the estimation method. The result indicates that, Capital adequacy ratio (CAR) and Asset Management (AM) has a negative statistically significant effect on Return on capital employed while Liquidity (L) has a positive impact. On the other hand, the results of CAR and Equity (E) have a significant negative relationship with Profit Margin (PM) while AM and Liquidity (L) has no relationship with PM as a bank performance in Tanzania. Meanwhile, the credit risk management still remains a major challenge for the commercial banks in Tanzania because credit risk management is an important predictor of bank financial performance. The findings help the policy makers in setting better performance strategies and enable managers of the banks to allocate resources more efficiently.