Government Securities Trading and Liquidity Dynamics of Commercial Banks in Tanzania
DOI:
https://doi.org/10.59645/abr.v17i1.570Keywords:
Government Securities Trading, Liquidity Challenges, Commercial Banks, Treasury Single Account (TSA), Modern Money Theory, Financial IntermediationAbstract
This study investigates the effect of government securities trading on the liquidity dynamics of commercial banks in Tanzania. Motivated by persistent liquidity challenges among banks and a growing shift toward government securities investment, the study is guided by Modern Money Theory and Social Intermediation Theory to explore how fiscal instruments influence liquidity and financial intermediation. Adopting a pragmatic research philosophy, the study used a mixed-methods approach with a cross-sectional design. The population included key financial stakeholders from NMB, CRDB, and Equity Bank, with a purposive sample of 94 respondents comprising bank managers, regulators, and academics. Data were collected through structured questionnaires, interviews, and documentary analysis. Quantitative analysis employed Chi-square tests, Pearson correlation, and multiple linear regression, while qualitative data were examined thematically. Findings revealed a statistically significant relationship between government securities investment and liquidity tightening (Chi-square p < 0.001). Regression analysis confirmed that government securities trading is a major predictor of liquidity challenges (R² = 0.510, β = 0.743, p < 0.001). Respondents consistently identified the Treasury Single Account, attractive government security yields, and limited access to public deposits as key drivers of liquidity constraints. The study concludes that excessive reliance on government securities has structurally weakened the private lending capacity of Tanzanian banks, undermining financial intermediation. Theoretically, the findings reinforce MMT's assertion that centralised fiscal operations impact liquidity supply and validate Social Intermediation Theory’s focus on risk-balancing by banks. Policymakers are advised to revise liquidity management frameworks, re-evaluate the operational impacts of the TSA, and introduce incentives for private-sector lending to ensure economic resilience and inclusive growth.
Downloads
References
Allen, F., & Santomero, A. M. (1998). The theory of financial intermediation. Journal of Banking & Finance, 21(11–12), 1461–1485.
Aikaeli, J. (2006). Determinants of commercial banks’ performance in Tanzania. University of Dar es Salaam.
Bank of Tanzania. (2020). Financial stability report.
Bank of Tanzania. (2021). Annual report 2020/2021.
Capital Markets and Securities Authority. (2021). Annual market report.
Capital Markets and Securities Authority. (2023). Annual market report.
Claus, I., & Grimes, A. (2003). Asymmetric information, financial intermediation and the monetary transmission mechanism: A critical review. New Zealand Treasury Working Paper, 03/19.
Controller and Auditor General. (2020). Annual general report on the audit of public authorities and other bodies for the financial year 2018/2019. National Audit Office of Tanzania.
Fichter, M. (2016). Liquidity management and the impact of Treasury Single Account. Public Financial Management Review, 24(2), 41–55.
Financial Sector Deepening Trust. (2020). FinScope Tanzania 2017 insights: The mobile money revolution and its impact on financial inclusion.
Gil-Jardón, J. A., Morganti, P. R., & Atristain-Suárez, C. (2024). The role of development and commercial banking in promoting economic growth in mexico: A sectoral analysis. Journal of Risk and Financial Management, 17(11), https://doi.org/10.3390/jrfm17110505
Hailu, T. (2024). Macroeconomic factors influencing deposit mobilization of commercial banks. International Journal of Finance and Banking Research, 10, 64-73. 10.11648/j.ijfbr.20241004.11.
Ikya, C. P., Pastory, D., & Xuezhi, Q. (2017). Impact of the Treasury Single Account on liquidity of Nigerian banks. International Journal of Finance and Accounting, 6(3), 89–97.
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. eISBN: 9798400278273
Kelton, S. (2020). The deficit myth: Modern Monetary Theory and the birth of the people's economy. PublicAffairs.
Kravchuk, R. (2020). Understanding Modern Money Theory. Public Administration Review, 80(4), 665–670.
Michel, C. (2021). Liquidity challenges and banking sector reforms. Journal of Financial Intermediation, 28(3), 112–126.
Mills, R. (2022). Treasury Single Account and liquidity challenges: A comparative analysis. Journal of Financial Regulation and Compliance, 30(1), 77–92.
Mosler, W. B. (2010). Seven deadly innocent frauds of economic policy. Valance Co.
Muyango, D. M. (2023). Factors contributing to liquidity challenges in commercial banks and retail lending pricing in Tanzania: A case of NMB, CRDB, and Equity Banks (Master’s dissertation, Institute of Accountancy Arusha).
Pilkington, P. (2022). Modern Money Theory and the liquidity cycle. Review of Keynesian Economics, 10(2), 181–199.
Victor, O., Sunday, A., & Adegbola, E. (2012). Treasury Single Account and commercial banks’ liquidity challenges. International Journal of Economic Policy Studies, 7(3), 55–72.
Vodová, P. (2011). Determinants of commercial banks’ liquidity in the Czech Republic. International Journal of Mathematical Models and Methods in Applied Sciences, 5(6), 1060–1067.
Wray, L. R. (2015). Modern Money Theory: A primer on macroeconomics for sovereign monetary systems (2nd ed.). Palgrave Macmillan.
