Tanzania Financial Intermediation Of Banks: Performance, Efficiency And Economic Growth

This dissertation thesis report was aimed to research the performances and efficiencies of financial intermediations of banks and economic growth in Tanzania. It was guided by three key questions; firstly what are the performances of the Tanzania financial intermediaries’ institutions? Second, do the financial intermediary’s institutions in Tanzania operate efficiently? The third and last one is there any causal relationship between the financial intermediaries performances and efficiency and the economic growth of the country? This study attempted to answer those three key questions in order to get in touch with at its objective.The sample size of fifteen financial intermediaries operating in Tanzania were developed/ fifteen financial intermediaries operating in Tanzania were developed and considered as enough sample size out of the 50 registered financial intermediaries in country. The sample consisted four main categories, eight financial intermediaries from the category of big banks, in size, capita size and number of branches, three commercial banks from the category of medium sized banks, three noncommercial banks financial institutions, and one from the category of community banks. This thesis used secondary data, collected from the central bank of Tanzania, published financial reports, international sources World Bank, IMF, Global economics websites, for the purpose of comparison and validation of the findings. However the descriptive analysis and inferential analysis were applied. With descriptive analysis helps us to describe the relevant aspects of the phenomena under consideration and provide detailed information about each relevant variable.On the assessing if the financial intermediaries are efficient, this study used panel data, for the period of 1999-2013. The Return on Equity,(ROE), Return on Assets(ROA) and Net Interest Margin we the proxies for performances. The panel data regression was opted due to the advantages the technique of panel data estimation takes care of the problem of heterogeneity also by combining time series of cross-section observation, panel data give more informative data, more variability, less co-linearity among the variables, more degree of freedom and more efficiency. The results indicated that the Tanzania financial intermediaries in Tanzania were profitable; the coefficients were strong and supportive to the theories and previous study in different countries. However the coefficients were small in magnitude which indicates low returns on shareholders equity, assets and profit.Data Envelopment Analysis(DEA) approach non parametric measure were used to measure the efficiency of the financial intermediaries in Tanzania. The DEA measure and compares each of the banks in that sample with the best practice in the sample. It tells the user which of the DMUs in the sample are efficient and which are not. Employed the two main approaches the CCR and BCC approaches, where the first ignore the returns to scale the later combine the variation on periods, the returns to scale, at last the two results to find the pure technical efficient bank we used. DEA windows slacks based system were used to analyze the efficiency, the window allow to analyze in period of time, we opted to use two years interval in order to catch the changes in financial markets, where by the sector is very sensitive with changes. Therefore every bank was assessed in period of interval of two years for the study period. The finding indicates when the CCR approach we used, NBFI and community bank rise on leading, with only one from big banks, meanwhile the results from BCC approach the top five were big banks. And lastly of pure technical efficient middle size bank and NBFIs lead, without any big bank in top five.The last part it was to determine whichever cause the other, the performance and efficiency of financial intermediaries and the economic growth. The econometric regression model based on vector autocorrelation model(VAR) was developed, by using the Toda- Yamamoto procedures to test the granger causality. ROE and NIM were used as proxies for financial intermediation performance while the deposits and credits to private sector were used as proxies for financial intermediation proxies. The finding results indicated the bidirectional causality between total deposits and economic growth. There one directional granger causality, moving from economics growth to performances of financial intermediaries, similarly the granger causality moving from the credit to private sector towards the economic growth.The finding concluded that, by supporting the demand follow view of finance-growth relationship(Apergis et al,(2007) the view is of the agreement that the financial sector responds a lot to changes in the economic growth of the country.