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MZUMBE UNIVERSITY

BUSINESS SCHOOL

A proposal on

A comparative analysis of financial performance of commercial banks.

NAME: Jafar

CHAPTER ONE

1.0 INTRODUCTION

This chapter provides a summary on background information that leads to the research problem, research objectives, significance of the study, definition of terms, justification of the study as well as conceptual framework.

1.1 BACKGROUND INFORMATION

Bank is an important instrument to the success of the economy by bringing together the surplus spending and deficit spending unit as the means of satisfying the two, It acts as an intermediaries by transferring funds from the surplus spending unit such as households, government, and business unit.Normaly this financial system lead to the growth of the economy ( Baisi 2005)

The banking system shift funds either directly or indirectly from the savers (surplus spending unit to deficit spending unit (users)

Baisi (2005)

With direct placement, there is no financial intermediation process as the users (deficit spending unit) get funds directly from the savers. With the indirect placements, the financial markets play the role of financial intermediation whereby they act as a link between the users (deficit spending unit) and the savers (surplus spending unit). There is no direct contact between the savers and the users. The surplus spending unit places their deposits with the different financial markets which then package them and provide different credit and other financial facilities to the deficit spending unit. On getting funds the deficit spending unit pledge securities to the financial institutions. The repayment are channeled though banks. (ibid)

The evolution of the banks in Tanzania is categorized into five sections, during the Germany rule, British rule, Post independence before arusha declaration, post Arusha declaration and after arusha declaration to present ( www.bot.ac.tz.)

The commercial banks began in 1905 when the bank of Berlin known as Deutsch-ostafricanische open-ended their branch in Dar es Salaam. The bank was authorized to perform the central bank functions such as the issue of currency and bank of the government (kimei, 1987), the second bank was Handles bank which was opened in Tanga in 1911, Tanga was the strategic area where it was possible for the bank to mobilize savings due to higher economic activities performed along the region.

However after the defeat of Germany in the First World War, Germany lost the control of Tanganyika as a result its banks collapsed and other British bank were established The national and Grind lays bank which was the combinations of the lays bank, National bank of India, and south Asia Lloyd bank, The standard bank and the Barclays bank which was the combination of british colonial bank, Anglo Egyptian bank and the national bank of south Africa. Also the bank of india was established in 1953 and bank of Baroda in 1954.

Later on the ottoman bank and commercial bank of Africa was established in 1958 and 1961 respectively. These banks operated in DSM, Moshi, mwanza, kigoma and lindi.These all banks were established to save the interest of the owners and their derive motives were profit maximizations. East African currency board was established to control the supply and control of currency.

After the attainment of independence the operations of the bank remained to be the same such as the rules and regulations were maintained from their home countries, however these rules, regulations were not compatible with the economic growth of the nation since more directives and supervision comes from their home countries. ( nyirabu 1980), Following that weakness the central government of east African countries invited an experts from Germany federal...
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