Descriptive Analysis of the portfolio behaviour of De Novo Commercial Banks in Tanzania

Tobias A. Swai


The purpose of this paper is to examine portfolio behavior of newly established
banks in Tanzania based on the ownership structure i.e. foreign vs local
commercial banking firms. A total of 8 banks were observed with 216 data
buckets for the period of their first 16 consecutive quarters of operations.
Published financial statements of the banks investigated were drawn,
summarized and analyzed. A descriptive analysis approach. The study reveals
that de novo banks do maintain just the required regulatory capital in their start
up and that they do not engage into lending activities in the beginning. On
average, banks engage into serious lending on their sixth quarter. However,
local banks engage into lending as early as second quarter of their market entry.  

Foreign banks suffer more losses in non-performing loans than the local banks
during their first 16 quarters of their operations. In terms of capital investment,
local banks operate with lower capital base than foreign banks. Foreign banks
seem to attract fewer deposits as compared to the local banks though they seem
to provide more attractive interest on deposits. The study provides significant
contribution on the portfolio behavior of the de novo banks and comparison on
ownership creates added value for foreign entry to the commercial banks in
Tanzania.The paper also provides managerial insights on how to manage newly
established banks and might guide investors on the return on their investment in
newly established banks.

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