Comparative Analysis of Commercial Banks Liquidity Position: The Case of Tanzania
Xuezhi Qin1 & Dickson Pastory1
1 School of Business Management, Dalian University of Technology, Dalian, China Correspondence: Dickson Pastory, School of Business Management, Dalian University of Technology, Dalian 116024, China. Tel: 86-188-4268-6991. E-mail: firstname.lastname@example.org Received: February 11, 2012 Accepted: March 5, 2012 Online Published: May 16, 2012 doi:10.5539/ijbm.v7n10p134 URL: http://dx.doi.org/ijbm.v7n10p134 Abstract
This paper gives an overview picture of commercial banks liquidity position in Tanzania for the period of ten years (2000 to 2009). The study employed the liquidity measures of commercial banks, and on that basis the performance in terms of liquidity position was established. The paper used the casual research design as the methodology of the study since the casual design is best suited to determine cause and effects of the phenomenon. This paper utilizes secondary data from National Bank of Commerce (NBC), CRDB and National Microfinance Bank (NMB). The criteria used is total deposit to core funding, liquid asset to demand liabilities and Gross loans to total deposit Tanzania for the period of ten years, and finally the hypothesis was tested to know whether there is a significant difference in terms of liquidity position by using ANOVA test. The findings revealed that the commercial banks under study have strongest liquidity level although it varied over years and National Microfinance Bank maintained strongest liquid level compared to the other two banks. Keywords: liquidity measures; financial statements analysis, commercial banks, ANOVA test, financial statement analysis, Tanzania
Liquidity level refers to the ability to have enough funds to meet the long-term and shortem obligations. Liquidity problems of commercial banks started long time years ago before financial reforms, many commercial banks were witnessed undergoing insolvency due to higher level of non-performing loans (chijoriga, 1997). With those liquidity problems the government of Tanzania decided to make institutional and economic innovation towards the impediment of the financial systems. Among the measures adopted is the liberalization of the market forces so as to create the fair play ground to the economic system. The adopted liberization of economic system increased the efficiency, liquidity and enhance competition in the financial system (Aikaeli, 2008). The market liberalization increased the banking industry and shift the markets from the government owned banks to private owned banks. Recently there are about 43 banking institutions which do compete for the supply of the financial services (BOT, 2011).
Commercial banks are the most significant instrument in the economy and in most cases are viewed as the public goods, therefore the liquidity position need to be stable. In the context of Tanzania environment they carry more than 96% of the total assets of the banking assets (Timothy, 2010). The growth of any economy depends on the liquidity position of commercial banks as they provide in terms of loans to MFIs, the government and the people at large. The recent economic crisis in Europe and America give the world cautions to periodically review the financial structure in terms of assets, liquidity, capital adequacy etc. Moreover the functioning of the capital markets and money market depends much on the liquidity position of the commercial banks. To ensure the activities of commercial banks does not hampered there is a need to confirm on the liquidity position of commercial banks (BOT, 2009). The study adopted traditionally ratio analysis to measure the liquidity position of commercial banks.
Liquidity position of commercial banks is normally monitored and measured by liquidity ratio...