S z research article

Correlation 
Analysis: 
The 
relationship 
between 
macroeconomic variables and bank performance (ROA) was 
established by using a Pearson correlation analysis.
Table 2. Descriptive Statistics Analysis 
 
WQ 
Observation Mean Std Deviation Min Max 
ROA 
GDP Rates 
INFR 
INTR 
EXCRTsh/usd 
Govt Debts 
45 0.0284356 0.0157851 0 0.6 
45 0.0631111 0.009101 0.045 0.77 
45 0.0720111 0.041948 0.345 0.16 
45 0.776556 0.0364948 0.246 0.1452 
45 1934.669 308.8865 1574.349 2290.42 
45 0.3597778 0.014846 0.336 0.39
Source: Authors’ Computations using STATA 12 Package 
 
This study involved identifying the existence of correlation 
between bank performance (ROA) and macroeconomic 
variables (GDP, inflation, interest rate, Government Debts and 
exchange rate) using correlation coefficients obtained from the 
correlation matrix. The relationship between the dependent 
variables and independent variables shown in the table (4) 
below, The findings reveal that, the independent variables 
(GDP Rates, INTR, EXCR Tshs/Usd and Govt Debts ) have 
the negative impact on ROA but EXCR Tshs/Usd and 
Government Debts are statistically significant at 90% while 
Inflation having positive impact on ROA but is statistically 
insignificant and on bank performance (ROA) at 90%. 
Discussion of Findings 
 
The results in Table 3 indicate that the annual real GDP growth 
rate has a major influence on non performing loans rate. Its 
coefficient of the variable is statistically insignificant having 
positive relationship with ROA, which is consistence with our 
hypothesis. This means, the improvement of Tanzanian 
economy, improve the income of banks’ customers and their 
decision on investing and saving that may end up leaving their 
money with banks and the same can be used by banks 
efficiently and effectively to make profit. Our results match 
with the empirical finding by Kanwal, S., Nadeem, M., (2013).
While studying the inflation rate (INFR), the projected 
coefficient 
is 
statistically 
insignificant 
and 
negative 
relationship with ROA, so, we accept the hypothesis. This 
means, the raise in the inflation rate makes the general price 
level of all goods and services to increase and that, reduce 
savings the same to investments. The finding is in line with the 
findings of Sanusi, M., Zulaikha, S. (2019). When the inflation 
is unanticipated one, banks fail to adjust the rates timely, while 
having general price rise that lowers profit and sometimes get 
loss. For the case of Tanzania, the economy with infant 
financial markets faces unanticipated inflation that ends to 
negative effects.
The increase in the exchange rate makes it harder to sell 
overseas due to the rise in relative prices. Reduction in 
exportation, leads to lower level of bank loans because the 
product have no market abroad, so reduction in profit, even 
those having bank loans, are unable to repay the installments 
and become bad loans that affects liquidity and profitability. 
Also, a fall in a value of the currency reduces the general price 
level of goods and services in the economy. This action attracts 
more investors from abroad, invest and provide employment to 
local people who in turn become banks’ customers and 
contribute in profit making. Not only that, but also, a cheaper 
currency in the sense of positive multiplier effect, boosts the 
economy. However, it negatively affects the banks’ 
performance.