Bank Of Ethiopia Research Articles

Embracing Special Branches for Banks in Ethiopia

Embracing Special Branches for Banks in Ethiopia

HRM as a strategic business partner: insights from selected private commercial banks in ethiopia

The HRM function is evolving from an administrative function that focuses on legal compliance to a strategic function that requires HR to be a strategic partner in improving business performance. However, there are still organizations that consider HRM merely a cost driver rather than a value-adding function. This study attempts to examine whether HRM is playing its strategic role to enhance competitive advantage in the selected private commercial banks and to assess the contributing factors for HRM to execute its function as a strategic partner. Data was collected by using a selfadministered questionnaire that was designed and distributed to employees of the HR department in the selected private commercial banks. The results of the study confirmed that HR involvement, mindset, competence, and role balance are enablers and contributors for HR to become a strategic partner. Furthermore, the finding indicates that mindset and competence can impact the role of HR as a strategic partner at large. It was further found out that the current status of HRM as a strategic partner is at its moderate level because its enablers do not exist at a higher level. Accordingly, the role of HRM as an administrative expert is still dominantly played as compared with that of a strategic partner, but it is observed that HRM is progressing towards a more strategic function than the administrative function. To realize the full strategic partnership of HRM therefore, HRM work units of private banks are recommended to exert more effort to continue with the current progress in shifting HRM function from routine administrative function towards strategic function by capitalizing on the enablers of HR strategic business partners such as mindset, competence, HR involvement, and role balance.

Dynamic Interaction between Saving, Investment and Economic Growth in Ethiopia

The purpose of this research is to inves-tigate the dynamic interaction between savings, investment and economic growth in a case of Ethiopia by using quarterly time series data of National Bank of Ethiopia (NBE) from the periods 1992/93 to 2019/20. Consequently, the Vector Error Correction Model (VECM) results showed that there was a positive long run relationship between savings, investment and economic growth in Ethiopia. Granger causality from domestic invest-ment and real GDP to domestic savings and domestic investment granger causes economic growth. The response of do-mestic investment to a positive shock of real GDP is positive. Investment and money supply reacts positively to shocks of domestic saving. Whereas, the ex-change rate responds adversely to the shock of investment. In the short run the reaction of saving to shocks of real GDP and investment was positive and negative respectively. Whereas, shocks of saving generate a negative effect in the short run and insignificant effect on economic growth in the long run. Real GDP re-sponds negatively to shocks of interest rate and exchange rate. Besides, the var-iance decomposition results show that the variation of economic growth is largely explained by shocks to itself and in-vestment. The variation in saving ema-nates from the money supply, domestic savings, real GDP and investment. In-vestment deviation is also emanating from Real GDP and saving. Thus, the govern-ment and stakeholders are supposed to practice macroeconomic policies that will promote economic growth and gross domestic investment and thus saving will increase.

Assessing Bank Performance Using Malmquist Productivity Index Approach and One-Step System GMM Dynamic Panel Data Model

This article evaluated the total factor productivity of Ethiopian banks from 2011 to 2020 using the DEA-based Malmquist productivity index and one-step system GMM dynamic data approaches. The study covered the 14 banks that were operational during the study period and examined the regressive, stable, and progressive nature of their productivity taking into account both the production and intermediary role of banks. We used constant returns to scale to compare the efficiency and productivity and establish a benchmark for bank performance. Interest expense, operating non-interest expense, and deposits were used as input variables and interest income, operating non-interest income, and loan and advances as output variables to analyze the productivity change of banks in their production role while deposits and loans were used as input and output variables, respectively to study productivity change of banks in their intermediation role. The study concludes nominal efficiency change both due to improved operations and management practices as well as increased economies of scale and deterioration in technological efficiency. We also conclude nominal regress in total bank factor productivity during the study period and a regressive, and progressive impact of technology, and improved management practices on the productivity of Ethiopian banks, respectively. Consequently, we suggest a thorough feasibility study in the technology choice of banks.

Assessing the Main Priorities Area and Opportunities for Banks Financing in Leather Industry in Ethiopia

This assessment is to identify the main opportunities of Ethiopian Banks for financing in leather sector. This can be done by analyzing data and drawn conclusions. The assessment also tries to identify comparative advantage of financing on leather sectors on banking performance. Also identified specific area of sub sectors to play significant roles in generating income from especially, exporting of the raw hides, skins, in leather sector. Also found from the assessment that Ethiopia have potential economy in the sectors because of the availability of such raw material, and high market supply of demand of leather from excess resource. Raw Hide and skin, and leather and finished leather sector has huge potential to achieve foreign exchange for Ethiopia, it is identified as one of the potential sectors that could play a crucial role in achieving long run the foreign currency earning of the country, expanding employment opportunities and attracting foreign direct investment (FDI) due to abundant labor and excess raw material. Then found, gain from the contribution of this sector to the country’s economy, highly significant and demanded in many international markets. The main export destination of Ethiopian leather and leather product are: China, Europe union’s countries (Italy, Germany, UK.), Japan, Hong Kong, United States of America, the main source of foreign exchange earner in each year. Keywords: Leather, Leather product, Benefit, export DOI: 10.7176/RJFA/13-1-01 Publication date: January 31 st 2022

Determinants of the Profitability of Commercial Banks in Ethiopia

Determinants of the Profitability of Commercial Banks in Ethiopia

The Effect of Financial Innovations on Financial Performance of Banks: The Case of Commercial Banks in Ethiopia

The Effect of Financial Innovations on Financial Performance of Banks: The Case of Commercial Banks in Ethiopia

Examining employees creativity in commercial bank of Ethiopia Woldia branches

Creativity is the ability to combine unique ideas, identifying new ways, systems and products in the organization. Creative workers in the organization can transform their organization to higher level by inventing new systems. This study tried to examine employees’ creativity in the bank at commercial bank of Ethiopia Woldia branches. The researcher used an institutional-based cross-sectional design and followed a mixed research approach. The researcher applied a census method to participate in respondents from four branches, which were on duty 182 employees in commercial bank of Ethiopia. The collected data were analyzed by using multiple regression method after proving the quality of the data. The study finding revealed that autonomy, supervisors’ support and role ambiguity significantly affects the creativity of employees in the workplace. The remaining variables self-efficacy and job complexity have no statistically significant effect on employees’ creativity in the bank.

Corporate Social Responsibility and Profitability in the Banking Sector: The Case of Selected Private Banks in Ethiopia

In this article, we explore the relationship between corporate social responsibility and profitability with particular reference to Ethiopian financial industry. In line with this, the paper investigated the practice of corporate social responsibility and its impact on profitability in two private banks in Ethiopia. The study used two sampling phases. The first one is to sample out the two banks among the sixteen private banks operated in the country and the second phase is to select number of respondents within the selected banks. According to National Bank of Ethiopia, (NBE, 2020) annual report among the sixteen private commercial banks operated in the country, six of them were operated in the industry for more than 20 years and two banks namely Dashen and United banks were randomly selected for the study. The study used questionnaires as an instrument for data collection and the Cronbach alpha test was used to test the reliability of the instrument. Correlation analysis was carried out to identify the nature of strength and direction of the relationship between the independent variables (philanthropic, ethical, legal and economic responsibilities) and the dependent variables (profitability), regression analysis was also employed to determine the degree in which the dependent variable can be predicated or explained from the independent variables. The finding reveals that ethical, philanthropic, legal and economic responsibilities of CSR dimension have a positive and significant impact on profitability of the banks. Furthermore, the overall finding of the study suggested that CSR practice of banks has a significant impact on the level of their profitability. The study recommends that banks should improve their efforts exerted towards their CSR practice in order to enhance their profitability.

Financial Performance Analysis of Selected Private Commercial Banks in Ethiopia: Using a CAMEL Rating Approach

This study analyzes the performance and financial credibility of Private Commercial banks in Ethiopia for the period of 2013-2019. This period is taken to consider the political instability and social unrest in the country. As one of the most popular methods for measuring banking performance, CAMELS method is used to analyze the performance of the banks. The good performance of the financial institutions must for the sustainable growth of economy Therefore, this research paper makes analysis of performance of selected private banks in Ethiopia under political instability. The finding indicates that performance of banks in 2016 were decreased than any other year in terms of profit, profit per employee, loan and net income. Cost to income ratio increased. The result implies employee productivity of banks were decreased in 2016, where there were high social and political unrest in the country. Therefore, banks should not concentrate in a single region and has diversify their operations across regions. Keywords: financial performance, CAMEL approach, Political instability, private banks DOI: 10.7176/RJFA/12-19-04 Publication date: October 31 st 2021

The Determinants of Deposit Growth in Case of Commercial Banks in Ethiopia

Deposits are the foundation upon which Banks prosper and grow. And deposit is engine to financial institution operations due to the fact maximum companies in rising markets depend closely on financial institution loans as a supply of financing. So, this study investigates bank-specific variables and macro-economic determinant of commercial banks deposit growth in Ethiopia. Macro-economic factors consider under this study were age dependency ratio, unemployment rate, population growth, broad money supply and Inflation. While bank specific variables included were branch expansion and bank size. Eight commercial banks have been the subject for the study by incorporating a 10 years’ data ranging from the period 2010 to 2019. A quantitative research approach and explanatory design were adopted in carrying out this research. The study had employed fixed effect panel data estimation techniques to analyse the influence of bank specific and macroeconomic factors on deposit growth using Eviews 10. The results of regression analysis showed that branch expansion, bank size, broad money supply and inflation have a positive and significant effect on deposit growth of commercial banks. On the other hand, Age dependency ratio and population growth have negative and statistically significant effect on deposit growth. Finally, the study recommends there should be stable inflation, a healthy money supply and population growth and branch expansion. Keywords: Deposit, Commercial banks and Fixed effect. DOI: 10.7176/RJFA/12-19-03 Publication date: October 31 st 2021

EMPIRICAL EVIDENCE OF THE SUITABILITY OF IFRS FOR BANKING SECTOR IN SUB-SAHARAN AFRICAN COUNTRIES

The reason for this investigation was to survey the appropriateness of International Financial Reporting Standards (IFRS) in sub-Saharan African nations banking sector like Ethiopia. The following research endeavors to acquire experiences into the benefits and detriments of IFRS execution in Ethiopian Banking sector depending on the view of banks financial directors, scholastics in accounting and external auditor. Examination is insightful of online overview, which intends to clarify the appropriateness of IFRS as opposed to depict a population. Along these lines, representativeness of the example to the population was not the objective of the examination; it endeavors rather to guarantee legitimacy of the information by applying purposive testing (Oppenheim, 1992). In such manner an aggregate of 30 surveys were conveyed to banks financial supervisors, scholastics and external auditors who have rich information and involvement with IFRS execution in financial sector in Ethiopia. Of the 26 answers (87 percent), 26 finished polls were broke down. The outcomes recommend that IFRS execution is appropriate for the banking sector of Ethiopia regardless of whether banks are causing extra significant expenses to carry out the standards. The selection of IFRS gives numerous benefits to the financial sector climate without logical inconsistency with Ethiopian financial laws and corporate duty. The advantages that the financial sector in Ethiopia will get from IFRS execution pertinently and dependably addresses the financial reports more than its execution cost.

Linking ethical leadership to administrative innovation in Ethiopian banks: the mediating role of knowledge process capabilities

PurposeThis paper aims to examine the mediating role of knowledge process capability (KPC) between ethical leadership (EL) and administrative innovation (AI) in the banking sector of Ethiopia.Design/methodology/approachThe study was conducted by a standardized questionnaire survey to collect the data from 266 employees of Commercial Bank of Ethiopia in 93 branches. The study employed structural equation modeling approach with Analyzing Moment of Structures 23.0 to test the hypothesized mediation model.FindingsThe results of this investigation disclose that EL has a significant and direct effect on AI and KPC. KPC also influences AI significantly.Originality/valueThe study revealed that KPC plays a partial mediating role in linking EL to AI, which is a new contribution to the existing literature of EL. This dimension can provide new dimensions to design organizational leadership which is based on sustainability paradigm. This can strengthen the organizational capabilities aiming to increasing innovative behaviors in order to have a deep-seated strategy.

Effects of intellectual capital efficiency on the financial performance of share companies; with the special reference of Ethiopian banks and insurance companies.

This study empirically examines the effect of intellectual capital on the financial performance of Ethiopian bank and insurance companies. Specifically, this study examined the effect of VAIC (HCE, SCE, CEE), liquidity, leverage and size on the financial performance of Ethiopian bank and insurance companies. To investigate the effect of such factors, panel data were used from national bank of Ethiopia and from private banks and insurance companies audited annual report. The samples of this study were ten banks and insurance companies covering the period of 2009-2013. To analyze the data, both descriptive and regression analysis were used through STAT version 13, and fixed effect panel data estimation technique is applied based on Hausman specification test results. Furthermore, this study finding suggests that intellectual capital has a positive and significant association with the financial performance of banks and insurance companies in Ethiopia. Subsequently, when the VAIC is segregated in to its three major components, we found that financial performance is positively associated with capital employed efficiency and human capital efficiency, but not with structural capital efficiency. Therefore, many stakeholders such as policy makers, regulators, shareholders, and managers of banks and insurance companies in Ethiopia may use the findings to attach different values to the three components of VAIC.

CAPITAL STRUCTURE AS DETERMINANT OF FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN ETHIOPIA (A CASE STUDY ON PRIVATE BANKS IN ETHIOPIA)

A lot of studies have actually been done by numerous researchers both in developed and developing countries such as Ethiopia to ascertain the empirical relationship existing between capital structure and firm performance with varying samples and period as well as application of several and divergent statistical estimation. This study is based on the identification of the impact that capital structure have on the financial performance of commercial banks in Ethiopia. In this regard, secondary data is collected from varied sources especially annual reports of the private commercial banks in Ethiopia. The literature review is done in the report, and it is identified operating, and the capital structure heavily affects net profit. Apart from this, return on equity, asset and capitals employed also affected by the capital structure of the banks. Regression analysis and descriptive analysis tools are used to analyse the data that is related to the sixteenprivate commercial banks in Ethiopia. On analysis of data, it is identified that operating and net profit is heavily affected by the capital structure. However, in the case of return on asset, return on equity, and return on capital employed, such kind of relationship is not observed. Thus, it is concluded on the basis of entire work that capital structure have the huge impact on the operating and net profit, but it does not put any large impact on the return on asset, return on equity and return on capital employed. The study recommended that banks follow a specific policy, in order to maintain a balance in the capital structure. It is also recommended that managers must keep a keen eye on the changes that are taking place in the capital structure.

Effects of Core Banking System on Customer Satisfaction in Commercial Bank of Ethiopia

The use of core banking System in the various banks is drastically changing the way banking activities are being organized. Almost all banks in Ethiopia are in the process of transforming their banking systems to the modern technology in which they can offer efficient and globally competent services to their customers and get customers satisfaction in return. This study aimed to assess the effects of core banking system on customer satisfaction in commercial bank of Ethiopia. Stratified and convenient sampling techniques were used in the selection of each respondent from the commercial bank of Ethiopia. Conveniently 400 customers were selected and structured questionnaire and interview was used to collect relevant data for the research. The data gathered through the questionnaire was analyzed by using Statistical Package for Social Science (SPSS). The result of the study indicated that core banking information technology system indeed has a positive significance impact on customer satisfaction of commercial bank of Ethiopia. The Multiple linear regression analysis also showed a positive coefficient and adjusted R 2 was 89.1%, which simply mean that there is significant and strong positive relationship between core banking system and customers’ satisfaction. In general, core banking Information Technology system has positively impacted on customer satisfaction of commercial bank of Ethiopia. Finally, it’s suggested that commercial banks in Ethiopia needs to continue to explore and implement sustainable business linkages and collaborations with core banking system. Keywords: Core banking system, customer satisfaction, Commercial Bank of Ethiopia, electronic service quality, electronic recovery service quality DOI: 10.7176/IKM/11-2-02 Publication date: March 31 st 2021

Bank Specific Determinants of Internal Audit Effectiveness: Evidence from Private Banks in Ethiopia

This study has examined factors that affect internal audit effectiveness in the Ethiopian private commercial banks. Five hypotheses were formulated based on a comprehensive review of past literature. The study used primary sources of data through questionnaires. A cross-sectional survey design was employed, purposive sampling method was used and data were collected using structured questionnaires, with total of 168 questionnaires were distributed to internal auditors of all Private commercial banks, and 147 (a 87.5% response rate) had collected. The data was analyzed through with SPSS version 20 and regression analyses were carried out to examine the attributes of internal audit effectiveness. All of independent variables are making 60% explained internal audit effectiveness. The study found that there are significant positive relationships between the factors (Independence and objectivity of internal auditors, Competency of internal audit staffs, Existence of audit committees) and internal audit effectiveness. However, Organizational Setting and Management support have no significant effect on internal audit effectiveness. But, private commercial banks should understand that the contributions of these variables were collectively significant to identify any non-compliance activities in their office and to add values for the internal audit effectiveness. This study provides useful information to practitioners and academics who are interested in identifying the determinants of internal auditing effectiveness. Keywords : Internal audit effectiveness, independence and objectivity, organizational setting and Audit committees. DOI: 10.7176/EJBM/13-5-04 Publication date: March 31 st 2021

An Empirical Analysis of Productivity Changes in the Ethiopian Commercial Banks: Using DEA- Based Malmquist Productivity Index Approach

The rationale of this paper is to measure the productivity change of commercial banks in Ethiopia based on DEA-based Malmquist productivity index approach. For this purpose, this study employed a balanced panel data of eight commercial banks operating from 2006 to 2017. The result shows that the banks under study were found to have reported a slight productivity progress of 0.4% over the whole study period. The productivity improvement is accredited to the technological progress (0.9%) rather than the efficiency loss (0.5%). Meanwhile, the finding suggests that the decline in the technical efficiency of the banks was caused both by pure technical efficiency and scale efficiency. Alternatively, the finding of the study indicates that the productivity performance of all the banks under study, with the exception of AIB and CBE, remain almost constant in spite of their size during the period. AIB and CBE have exhibit an average productivity progress of 2% and 1.4% respectively during the study period. In the study period, AIB was found to be the most inefficient (2.4%) and the most productive one (2%) comparing to other banks in the study due to retrogress in scale efficiency change (2.1%) as well as technical progress (4.5%) in that order. Further, the paper suggests that the productivity performance of the banks under study was not significantly different in the period. So, the banks have to move forwards their technology to increase productivity more and more, while improving the resource utilization efficiency by up grading their managerial practices and scale operations (optimum size)

The Determinants of Dividend Payout: Evidence from Private Banks in Ethiopia

The main objective of this study was investigating factors that determine the dividend payout of private commercial banks in Ethiopia under the study period covering from 2009 to 2017. A balanced panel data set from national bank of Ethiopia and ten private commercial banks annual report was used and analyzed through fixed effects panel data regression technique. Dividend payout was used as a dependent variable and the independent variables covered under this study were both bank specific (profitability, leverage, liquidity, size and last year dividend payout) and macroeconomic factors (inflation rate, real GDP growth rate and foreign exchange rate). The finding shows that from bank specific factor; profitability, liquidity, bank size and last year dividend payout have statistically significant positive effect on dividend payout while leverage shows insignificant positive effect for dividend payout. From macroeconomic variables inflation rate have a positive effect, but the real GDP growth rate, and foreign exchange rate have a negative effect and foreign exchange rate is the only significant macroeconomic factor for dividend payout.The results of this study have delivered some insights on the effects of both bank specific and macroeconomic factor for dividend payout of private commercial banks in Ethiopia and managements and board of directors of those banks need to consider these variables while designing their dividend payout. In addition, government body specially financial sector should have to consider the effct of macroeconomic variables on dividend payout when they are making a policy about macroeconomic issues. Keywords : Commercial Banks, Bank Specific determinant, dividend payout and macroeconomic determinants. DOI: 10.7176/RJFA/12-3-03 Publication date: February 28 th 2021

The Cyclicality of Loan Loss Provision and Income Smoothing Behavior of Commercial Banks Pre and Post IFRS: Evidence from Ethiopia

Loan loss provision is the significant accrual in the banking sector. This accrual is necessary to lessen the expected credit losses, but in some extent, these accruals would be used for earning management purpose. Thus, the main purpose of this paper is to examine the cyclicality of loan loss provisions and income smoothing behavior of Ethiopian commercial banks in comparison of pre and post IFRS. Explanatory type of research design applied in this research. The paper used unbalanced panel of Ethiopian commercial banks for the period 2010-2019. In order to examine the income smoothing behavior and the cyclicality loan loss provisioning system, pooled panel data regression model has been used following the appropriate test and the complete specification of the model. The result of this paper revealed that loan loss provision of commercial banks in Ethiopia follows a dynamic provisioning system. There is also an evidence that support the existence of income smoothing behavior after IFRS adoption but not before. Moreover, this paper supports the capital management hypothesis and the result shows that IFRS do not intervene for capital management behavior of Commercial banks. Thus, the paper concludes that IFRS adoption in Ethiopian commercial banks do not enhance the reporting quality of banks. These findings suggest that the regulatory body of commercial banks (National bank of Ethiopia) and the regulatory body (including councils) of financial reporting (Accounting and audit board of Ethiopia) should strictly follow-up the adoption of IFRS in the banking sector. DOI: 10.7176/RJFA/12-3-02 Publication date: February 28 th 2021