Although a substantial body of empirical research supports the notion that stateowned banks do not perform as well as privately-owned banks (for an overview see Megginson, 2005a),<sup>3</sup> entrenched interests could conceivably derail the privatization process entirely or produce transactions with terms that render post-privatization performance improvement impossible. And, in fact, not all bank privatizations have resulted in improved performance. There is, however, an emerging pattern to the results from developing countries. Performance improvements have tended to be more pronounced when (1) government fully relinquishes control, preferably fully divesting its shareholding; (2) a bank is sold to a strategic investor, instead of via share issue privatization, which often results in dispersed shareholding; and (3) bidding is open to all, including foreign-owned banks (Clarke, Cull, and Shirley, 2005; Megginson, 2005a). These conditions were met in the sale to ABSA, and thus we would have expected the new NBC to have a reasonable chance for post-privatization performance improvement.

However, it is unlikely that the NBC privatization could have occurred had not NMB been created to help mobilize public support sufficient to overcome opposition from the entrenched interests that benefited from the original NBC. There have been other studies of bank privatizations in developing countries in which the authorities have pursued both efficiency and outreach objectives.<sup>4</sup> But to our knowledge, this is the first case to be studied in which the access and efficiency objectives reside in separate postprivatization institutions. For these reasons, our narrative explaining the difficulties of achieving privatization when mandates are split, and the empirical analysis benchmarking NBC and NMB performance relative to other banks in Tanzania is of potentially broader

> 3 Using cross-level data, La Porta, Lopez-de-Silanes, and Shleifer (2002) find that the level of state ownership in banking in 1970 is negatively associated with financial development, real growth, and productivity in 1995. Barth, Caprio, and Levine (2001a, b; 2004) find that greater state ownership is associated with reduced bank portfolio quality and profitability, and with lower levels of financial sector development. Using bank-level data from over 1600 banks in 100 emerging economies, Mian (forthcoming) confirms that state-owned banks are significantly less profitable and have higher loan default rates than private banks, despite the fact that their deposit costs are substantially lower than private banks. There is also some evidence that state ownership is linked to higher probabilities of crisis, though the results are not highly robust (Beck, Demirguc-Kunt, and Levine, forthcoming).  Significant or not, those results do not support the idea that state ownership fosters greater banking sector stability, a rationale that some proponents of state banks have relied upon.

> 4 For examples, see the analyses of the privatization of Uganda Commercial Bank (UCB) by Clarke, Cull and Fuchs (2007) and of the Agricultural Bank of Mongolia (now named Khan Bank) by Dyer, Morrow and Young (2004).

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