Background: Banking sector plays an important role in stimulating the economy of the country especially where the capital market of that country is infant. According to Rousseau and Sylla (2001), security markets with good performance encourage the country’s economic growth. Due to that fact, commercial banks have to evaluate whether their performance is stable or it is just for the short run. In this case, both external and internal factors are to be scrutinized due to their effect on the banks’ performance. However, few studies have done on the impact of external forces affecting the banks’ performance. With this regard, banks have to examine the factors surrounding the business environment mainly the external forces we now call macroeconomic variables such as the inflation rates, exchange rate, government debts, interest rates and the rate of growth of GDP. Our study aims on assessing the impact of macroeconomic variables proxied by Exchange rate, Inflation rate, Interest Rate, money supply, government debts, and GDP growth rate; on performance of Tanzanian banking sector from 2011 to 2019. Materials and Methods: The study uses secondary data collected from central bank of Tanzania, Tanzania bureau of Statistics, and World Bank databases. In data analysis, the study employs correlation and multiple regression analysis using Pooled Ordinary Least Square Regression Model. Results: The results show that, GDP growth rate has an insignificant positive relationship with Banks performance, while the Interest Rate has a negative and insignificant impact on banks performance. The Inflation rate has a negative and insignificant effect on bank performance at 10% level of significance. Furthermore, the results indicate that the exchange rate has an insignificant negative effect on bank performance at 10% level of significance. Conclusion: Economic regulators and policy makers have to concentrate on adjustment of external factors like inflation, exchange rates, interest rates, government debts, and GDP which found to have impacts on banks’ performance, while improving the capital market operations in the country.
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