S z research article

 
 
 
 
 
 
Copyright © 2020,
 
Wakara Ibrahimu Nyabakora et al. This is an open access article distributed under the Creative Commons Attribution License, which permits 
unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 
 
 
 
 
 
 
 
INTRODUCTION 
 
Banking sector in Tanzania plays a big role in the economic 
development. This is due to the performance of the capital 
market which does not fulfill the need. Investors could get 
their capital from the capital market, which is contrary to 
Tanzania context that, currently, there are only 27 firms listed 
in the Dar es salaam stock exchange all over the country. 
When the 27 firm have their source of capital at DSE, other 
investors (firms) in Tanzania have no sources other than 
financial institutions like banks. Regardless the expensiveness 
of short term loans, the investors use them for their 
fulfillments. Sometimes banking sector due to the risk attached 
to their roles, meets the nonperforming loans as a stumbling 
block to their performance. Nonperforming loans disturb the 
banks’ liquidity and performance.
*Corresponding author: Wakara Ibrahimu Nyabakora, 
Local Government Training Institute (LGTI), P. O. Box 1125, 
Dodoma, Tanzania. 
 
However, investors and other customers still use banks as their 
intermediaries in various business activities. According to 
Rousseau and Sylla (2001), security markets with good 
performance encourage the country’s economic growth. Due to 
the infancy of the capital market in Tanzania, the banks as the 
investors’ resort would be protected from the other external 
factors that could harm the liquidity and profitability. The 
factors are known as macroeconomic factors or forces. Among 
others are inflation, exchange rate fluctuation, interest rates, 
government debts, and the growth rate of gross domestic 
product. These forces are beyond the banking sectors’ 
capacity. Although they are beyond the banks capacity, they 
affect the banks performance. Example interest rate is used by 
the government as the open market operation tool for 
redressing the economy whenever the needs arise ie. during the 
(boom) inflation, the government employ them to play the 
contractionary role to cure the economy, and also during the 
recession, the government employs the factors to play 
expansionary role to redress the economy.