THE EFFECT OF MACROECONOMIC VARIABLES ON THE PERFORMANCE OF MORTGAGE-OFFERING BANKS IN TANZANIA

Abstract

This study investigates the effect of macroeconomic fluctuations on performance of mortgage market in Tanzania in terms of nonperforming loans (NPLs), with a focus on 10 commercial banks over the period 2014 to 2024. Employing panel data analysis, the study examines the impact of lending interest rates (LIs), GDP growth, inflation, and foreign exchange rates on NPLs of mortgage-offering banks while controlling for bank size, customer deposits, and net income. The study adopts Pedroni cointegration tests, panel ARDL models, and Hausman tests to ensure reliability and accuracy in the results. Insights from the analysis partially support the dual trigger hypothesis, emphasizing the interplay between borrower financial strain and broader economic stressors. The findings reveal that GDP and inflation have an insignificant effect on NPLs. However, a one percent appreciation of the Tanzanian shilling against the U.S. dollar is associated with approximately three times higher NPLs, and this exchange rate effect is statistically significant. Lending rate was the most influential factor on NPL with around 12 times higher NPL for each percentage increase in the lending rate. The research contributes to the broader discourse on financial stability by bridging gaps in the literature on emerging markets and suggests bolstering the resilience of Tanzania’s mortgage market amid economic fluctuations.