S z research article

12407 Wakara Ibrahimu Nyabakora et al. How macroeconomic variables affect banks’ performance in Tanzania
 

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Our finding is in line with Sangeetha Moorarka Chinu (2019), 
Emase, (2017), Konadu, (2016), Hamid, Ghosh, (2019) 
results. Therefore, we accept the null hypothesis. The study 
reports that, interest rate affects negatively the banks’ 
performance and statistically insignificant. The result 
demonstrate that when banks rise real interest rates, 
discourages the bank customers like borrowers and the 
increase is the non-performing loans that affects liquidity and 
profitability of banks. Therefore, we accept the null hypothesis 
that, interest rate has negative effects on banks’ performance. 
Debt holders charge high interest due to the increase debt-GDP 
ratio to the extent of claiming the compensation for the 
marginal risk they won't be repaid. This increase in interest 
rates results to slow the economic growth. 
Also, some of the debts were not used for development 
projects that could produce the liquidity to pay for the loans. 
So any action of repaying the loans reduces the purchasing 
power of the country and disturbs the economy. Supporting the 
above notion, 
Eze, Onyebuchi Michael; Nweke, Abraham 
Mbam, and Atuma Emeka (2019) assert that, the government 
debt has negative effect on the economic performance. 
Conclusion 
 
Investigating on how the macroeconomic variable proxies 
(GDP growth rate, inflation rates, exchange rate, Government 
Debts, and interest rate) affect banks’ performance proxy 
(Return on Assets) for the period 2011 to 2019 in Tanzania 
economy, the study employed multiple regression analysis 
using Pooled Ordinary Least Square Regression Model. The 
findings reveal that, economic growth (GDP) has an 
insignificant positive relationship with bank performances 
(ROA) at 10 % level of significance.
Therefore it does not reject the null hypothesis that, GDP has 
positive effect on banks’ performance. However the results 
denote that, inflation has a negative and insignificant effect on 
bank performance at 10 % level of significance. Thus, the 
study does not reject null hypothesis that inflation affects 
negatively the banks’ performance. Not only that, but also, the 
results indicate that exchange rate has an insignificant and 
negative effect on banks’ performance at 10 % level of 
significance. The study also does not reject the null hypothesis 
that exchange rate has negative effect on banks’ performance. 
Moreover, it is revealed that, the Government Debt has 
statistically significant and negative effect on banks’ 
performance at 10 % level of significance, consistence with the 
null hypothesis. Therefore, as the results indicate that banks’ 
performance (ROA), economic growth (GDP), inflation rate, 
interest rate, and Government debts do not deviate much from 
the mean (the variables have smaller standard deviation), thus 
the more accurate are the future predictions. The economic 
regulators and policy makers have to concentrate on 
adjustment of macroeconomic factors like inflation, exchange 
rates, interest rates, government debts, and GDP which have an 
impact on the performance of banks.