The Influence of Regulatory, Political, and Market Environmental Factors on Liquidity Challenges in Tanzanian Commercial Banks
DOI:
https://doi.org/10.59645/abr.v17i1.565Keywords:
Liquidity Challenges, Regulatory Environment, Political Risk, Tanzanian Banking Sector, Digital Financial ServicesAbstract
The liquidity stability of commercial banks is critical to Tanzania’s financial system, especially amid recent shifts in fiscal and regulatory frameworks. This study investigates how specific components of the business environmental namely regulatory tightening, political unpredictability, and market disruptions from digital financial services affect liquidity challenges in Tanzanian commercial banks. The study is guided by Modern Money Theory, which explains how centralized government fiscal operations influence bank liquidity, and Social Intermediation Theory, which emphasizes the role of institutional and socio-political dynamics in financial intermediation. A pragmatic paradigm underpins this research, employing a mixed-methods approach. Quantitative data were collected via structured questionnaires from 94 participants using stratified sampling across three banks (NMB, CRDB, and Equity Bank), while qualitative data came from semi-structured interviews. Descriptive statistics, Chi-square tests, and multiple linear regression were used for analysis. Findings revealed that overdependence on government securities, political unpredictability, and competition from mobile money operators were statistically significant predictors of liquidity challenges (p < 0.05), jointly explaining 47% of the variance (Adjusted R² = 0.47). Chi-square tests also confirmed strong associations between restrictive policies and liquidity constraints. The study concludes that business environmental dynamics significantly influence liquidity risk in Tanzanian banks. It recommends diversification of investment portfolios, enhanced digital competitiveness, and a more balanced regulatory framework. Theoretically, the study affirms the relevance of MMT and Social Intermediation in explaining liquidity fragility under centralized public finance reforms. To enhance liquidity resilience, the study strongly recommends institutionalizing regular dialogue between banks, regulators, and policymakers to foster a more predictable and supportive financial ecosystem. With centralized public finance reforms.
Downloads
References
Ahmed, S., Khatun, M., & Zaman, M. (2016). Treasury Single Account: A catalyst for public financial management in developing economies. International Journal of Public Administration and Management Research, 3(4), 45–55.
Aikaeli, J. (2006). Determinants of commercial banks’ liquidity in Tanzania. Dar es Salaam: University of Dar es Salaam.
Allen, F., & Santomero, A. M. (1998). The theory of financial intermediation. Journal of Banking & F inance, 21(11-12), 1461–1485.
Bank of Tanzania. (2019). Annual report 2018/19. Dar es Salaam: BoT.
Bank of Tanzania. (2019). Financial stability report. Dar es Salaam: BoT.
Bank of Tanzania. (2020). Annual report 2019/20. Dar es Salaam: BoT.
Bank of Tanzania. (2020). Annual report 2020/21. Dar es Salaam: BoT.
Bank of Tanzania. (2021). Banking supervision annual report. Dar es Salaam: BoT.
Berg, B. L. (2009). Qualitative research methods for the social sciences (7th Ed.). Boston, MA: Allyn & Bacon.
Bhattacherjee, A. (2012). Social science research: Principles, methods, and practices. Tampa: University of South Florida.
Bryman, A. (2001). Social research methods. Oxford University Press.
Capital Markets and Securities Authority (CMSA). (2021). Market performance report. Dar es Salaam: CMSA.
Controller and Auditor General (CAG). (2020). Audit report on public authorities and other bodies. Dodoma: CAG.
Creswell, J. W. (2009). Research design: Qualitative, quantitative, and mixed methods approaches (3rd Ed.). Sage Publications.
David, M., & Pastory, D., (2022). Determinants of lending behaviour of commercial banks in Tanzania. International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, 11(2).
Ekubiat, L., & Ime, O. (2016). Adoption of Treasury Single Account and commercial banks liquidity crisis in Nigeria. International Journal of Economics and Financial Issues, 6(4), 131–137.
FSDT. (2020). Annual report 2019/20. Financial Sector Deepening Trust, Tanzania.
International Monetary Fund (2024). United Republic of Tanzania: Third Review Under the Extended Credit Facility Arrangement and Request for Extension of the Extended Credit Facility Arrangement and Rephasing of Access, and Request for an Arrangement Under the Resilience and Sustainability Facility. African Dept.
Ikya, L., Dickson, B., & Pastory, D. (2017). Treasury Single Account and its implications for liquidity management in African banking. International Journal of Finance and Accounting, 6(2), 45–58.
Kelton, S. (2020). The deficit myth: Modern monetary theory and the birth of the people's economy. Public Affairs.
Kothari, C. R. (2004). Research methodology: Methods and techniques (2nd Ed.). New Delhi: New Age International.
Makombe, I. A. M. (2006). An empirical investigation into microfinance institutions’ practices in Tanzania. The International Journal of Microfinance, 1(2), 25–38.
Michel, A. (2021). Liquidity management and economic stability: A comparative study. Journal of Financial Markets Research, 24(3), 210–227.
Mills, R. (2022). Liquidity risk and banking sector stability: A modern money perspective. Financial Regulation Review, 5(1), 50–65.
Morduch, J. (2008). Social intermediation and microfinance. World Development, 26(8), 1361–1371.
Morse, J. M., Barrett, M., Mayan, M., Olson, K., & Spiers, J. (2002). Verification strategies for establishing reliability and validity in qualitative research. International Journal of Qualitative Methods, 1(2), 13–22.
Pilkington, P. (2022). Modern money theory: A primer. Review of Political Economy, 34(2), 273–294.
Ross, K. (2002). Sample design for educational survey research. Paris: UNESCO International Institute for Educational Planning.
Shin, H. S. (2007). Risk and liquidity in a system context. Journal of Financial Intermediation, 16(3), 305–330.
Vodová, P. (2011). Determinants of commercial banks’ liquidity in the Czech Republic. Czech Journal of Economics and Finance, 61(3), 230–247.
Walliman, N. (2011). Research methods: The basics. Routledge.
Werner, R. A. (2014). Can banks individually create money out of nothing? — The theories and the empirical evidence. International Review of Financial Analysis, 36, 1–19.
Wrigley-Asante, C. (2011). Microfinance and livelihood empowerment of rural women in Ghana. African Journal of Social Sciences, 1(1), 36–45.
Xuezhi, D., & Dickson, L. (2012). The impact of political regime changes on banking sector performance: A case study of Tanzania. East African Business Journal, 4(1), 22–37.
Yamane, T. (1967). Statistics: An introductory analysis (2nd Ed.). New York: Harper and Row.
