A Study on the Determinants of Commercial Bank Performance in Tanzania : A Resource-Based View

According to the Resource-Based View, the possession and subsequent deployment of superior bank-specific intangible resources is a sure means of achieving a commercial bank's sustainable competitive advantage and superior performance. Drawing from the RBV, the current study develops a framework encompassing both intangible and tangible bank-specific resources and applies it to empirically examine the relative importance of each of these resources on commercial bank success in Tanzania. The approach involves the use of unbalanced financial data-set of 25 commercial banks for the period of 2005-2008 and a field survey of 17 commercial bank managers and executives in Tanzania. The study models various resource-based measures for relationship with bank profitability. The use of analytic hierarchy process (AHP), panel least square estimation and qualitative analysis methods allow the estimation of the impact of each category of resources on bank profitability. The results indicate that, combinations of capabilities and tangible assets have strong influence on bank profitability while intangible assets are found to have little contribution. The result also show that, three core capabilities for success of commercial banks in Tanzania are bound up in three factors: (1) more efficient credit risk management in asymmetric information environment; (2) providing low risk deposit services for a client made up of low-income people; (3) efficient management of operating expenses amid poor infrastructural environment. The results partially confirm the Resource-Based View in terms of strategic importance of capabilities. On the other hand, the results find no support of the effectiveness of intangible assets in creating economic benefits to the banks. The conclusion that, in the Tanzanian commercial bank market tangible assets have greater influence on bank performance than intangible assets represent the core contribution of this research. According to the Resource-Based View, the observed poor contribution of intangible assets to bank performance implies that commercial banks in Tanzania have not been able to harness and deploy these resources effectively. Ineffective deployment of intangible assets makes the banks vulnerable to competitor imitations