Government Policy and Liberalization Being Practiced in Ethiopian Banking Industry

ABSTRACT Ensuring the efficiency and stability of the banking system can play a vital role for the successful implementation of the monetary and economic policies of a country. Yet, to achieve such objective it would be essential to place financial reform measures that enhance the contribution of the banking system towards economic development. An emblematic reform measure undertaken by the Ethiopian government commencing the year 1992 was “liberalizing “the financial sector. The aim of the study is to assess the Ethiopian Government policy and liberalization of the Ethiopian banking industry. The study was performed under descriptive research design. Key data were gathered using study of document and questionnaires administered to employee of the bank. The targeted employees were involved in credit, domestic banking, foreign banking, marketing and business development, human resource management, branch operations and risk management. The study found out that the reform has brought a lot of remarkable changes on the structure and performance of the banking sector as compared with the situations prevalent before the reform period. However, the reform has restricted the advantages that could be obtained from a diversified ownership structure via prohibiting operation of foreign banks and participation of the private sector to the ownership of government banks. Furthermore, as tested by both two firm concentration ratio and HHI using total deposits, loans, capital and assets, the banking industry in Ethiopia can still be distinguished by its market concentration towards the big government owned commercial banks and by a market characterized by little and insufficient competition. The study suggested that allowing the entry of foreign banks and participation of the private ownership in the government owned banks should be a concern of the Ethiopian banking industry. The capacity as well as the independence of the regulatory body has to be improved so as to posiuvely contribute to the growth of the banking industry

TABLE OF CONTENT

Declaration A H

Declaration B iii

Approval Sheet iv

Dedication v

Acknowledgement vi

Abstract vU

Table of Content vfli

LJst of Tables xi

List of Figures xU

List of Acronyms xfli

CHAPTER page

One THE PROBLEM AND ITS SCOPE 1

Background of the study 1

Statement of the problem 3

Purpose of the study 4

Research objective 4

Research question S

Scope of the study 5

Significance of the study 6

Operational Definition of Key Terms 7

Two REVIEW OF RELATED LITERATURE 8

Concepts, opinions and ideas from experts/authors 8

Theoretical Perspective 12

Related studies 15

VIII

Three METHODOLOGY 22

Research Design 22

Research Population 22

Sample Size 23

Sampling Procedure 23

Research Instrument 23

Validity and Reliability of the Instrument 24

Data Gathering 24

Data Analysis 25

Ethical Consideration 25

Limitation of the Study 25

Four PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA 27

Data from secondary sources 27

Ownership structure of the Ethiopian banking system 27

Market concentration of the Ethiopian banking system 33

Profitability of the Ethiopian banking industry 43

Data from primary source 46

Background information of the respondent 47

Liberalization on the ownership structure 50

Liberalization on market concentration 58

Liberalization on profitability 63

Five FINDING, CONCLUSION AND RECOMMENDATION 70

Findings 70

Conclusion 71

Recommendation 73

Suggested further study 75

REFERENCES 76

APPENDICES 80

Appendix I: Instruments 80

Appendix II: Researcher Curriculum Vitae 87

Appendix III: Informed consent 89

Appendix IV: Transmital Letter 90