Bank Of Ethiopia Research Articles

Liquidity Requirements, Bank Deposits and Financial Development

In the presence of low trust in the banking system, liquidity requirements can stimulate bank deposits and financial development by enhancing depositor repayment in bad states. We study an unannounced and unexpected policy that increased the liquid assets of Ethiopian banks by 33% in one quarter of 2011, and present three findings consistent with this hypothesis. First, a panel of depositors shows deposit growth among wealthy individuals. Second, a survey reports higher bank deposits in branches opened after the policy in high‐income cities. Third, bank balance sheets and two sources of bank exposure highlight an increase in deposits, loans and branches.

Customers' choice of the bank during the Covid-19 pandemic: the moderating effect of different banks in Bangladesh

PurposeThe study aims to examine the factors affecting the customers' choice of Bangladeshi banks during the Covid-19 pandemic and the moderating effects of private and public banks on this association.Design/methodology/approachThis study is based on explanatory research, where significant factors have been explored to evaluate the customers' perception of private and public banks in Bangladesh. Primary data are accumulated through an online survey from customers who have an account in a private or public bank in Bangladesh during the past four months, where 318 (non-probability convenience sampling) are usable, and secondary data are collected from various sources. Descriptive statistics, multiple and hierarchical multiple regressions have been conducted.FindingsThe results revealed that customers consider safe and secure websites, infrastructural facilities, technological know-how, service, price, time, payment, administrative and psychological factors in choosing Bangladeshi banks during Covid-19. Moreover, the results show that private and public banks have moderated these associations.Originality/valueDuring Covid-19, few studies were conducted on Pakistani, Sri Lankan and Ethiopian banking customers, where different factors are significant; however, this study is unique because all factors are significant for Bangladeshi banking customers. The findings will originate the value with several theoretical implications and managerial guidelines.

Resource-based productivity in the closed banking sector: the case of Ethiopian banks

PurposeThe current paper's goal is to examine the productivity of the closed banking sector evidenced from Ethiopia. In addition, the inclusion of intangibles on productivity was examined in the current paper.Design/methodology/approachFirst, the standard Malmquist Productivity Index (MPI) was employed for 13 commercial banks for both stages. Second, by excluding the state-owned commercial bank, the analysis employed a bootstrapped MPI for the robust and comprehensive conclusion. Furthermore, from 2010 to 2019, the fixed effect Ordinary Least Square (OLS) regression with balanced panel data was used.FindingsThe standard MPI in both stages shows that the productivity of Ethiopian commercial banks is declining. The technological shock was the main reason for the loss. The catch-up in both stages scored above unity, mainly due to the pure efficiency change. Besides, when combined with tangible resources, the inclusion of resource-based view (RBV) proxy variables reduces technological shock regress and ultimately improves productivity change. The bootstrapped MPI also reveals that technological shock is the primary source of the productivity decline. However, efficiency change also contributes to the productivity decline based on this estimation.Research limitations/implicationsFuture research could examine the more extensive productivity analysis by considering the primary sources of data collections for resource-based variables.Practical implicationsAccording to the study's results, banking regulatory authorities and bank management, including the shareholders, should continue to invest in cutting-edge technology to improve the productivity of the banking sector.Originality/valueThis is the first comprehensive study of productivity for Ethiopian commercial banks based on the standard MPI, bootstrapped MPI, and OLS by incorporating all resources into the analysis.

The Mediating Role of Self-Efficacy on the Relationship between Work Stressors and Counterproductive Work Behavior in Ethiopian banking sector

The Mediating Role of Self-Efficacy on the Relationship between Work Stressors and Counterproductive Work Behavior in Ethiopian banking sector

Deposit mobilization and its determinants: evidence from commercial banks in Ethiopia

Deposit mobilization is the most important service and an integral part of banking operations. In Ethiopia, mobilizing savings through intense deposit collection has been regarded as the major task of banking. However, managing deposits is impossible without understanding and controlling the factors that influence them. Thus, this study examined the bank-specific and macroeconomic determinants of deposit mobilization in Ethiopian banking sectors using balanced panel data of 14 commercial banks from 2011 to 2020. Secondary data sources from sampled commercial bank audited financial statements were used to achieve the stated objective. A quantitative approach and explanatory design were employed. The model result demonstrated that loan to deposit ratio, capital adequacy, economic growth, inflation, population growth, and political stability have a negative and statistically significant effect on commercial bank deposit mobilization. On the other hand, the bank's profitability has a positive and statistically significant impact on commercial bank deposit growth. The study suggests that Ethiopian commercial banks need to improve deposit mobilization by paying more attention to internal factors controlled by management, while keeping in mind the influence of the overall economic and political dynamic. This study provides useful insights for bank managers, owners, analysts, policymakers, depositors, and other stakeholders on the deposit growth of commercial banks and its determinants. Meanwhile, academic researchers and students may use the findings and suggestions to conduct a study in the banking area. Unlike the previous studies, the present study examined the effect of population growth and political stability on deposit mobilization and contributes to the limited stock of existing knowledge in the area.

Does intangible assets affect the financial performance and policy of commercial banks' in the emerging market?

In a digital and knowledge based economy, intangible assets are predominant and their role along with age and knowledge has become key success factors for firms. However, a very little attention was given to the intangible assets in the banking sectors’ in Ethiopia and the effect still not studied yet. Therefore, the aim of this study is to empirically examine the effect of intangible assets on the financial performance and policy of 17 commercial banks in Ethiopia from the year 2017 to 2020. Return on asset and equity were used to measure the financial performance and debt as a measure of financial policy. The intangible asset is used as the main explanatory variable and asset size and liquidity as control variables. Random effect estimation technique for panel data was used. The result revealed that intangible asset has positive effect on the financial performance measured both by ROA and ROE at 5% significance level while, negative effect on the financial policy of commercial banks in Ethiopia at 1% significance level. Moreover, the study found asset size has significant and positive effect on ROA and ROE at 1% and 5% significance level respectively. Liquidity ratio has also significant positive effect on the financial performance measured both by ROA and ROE at 5% significance level. Finally, the finding revealed asset size and liquidity ratio has significant positive effect on the financial policy of commercial banks in Ethiopia at 10% and 1% significance level respectively. Therefore, the study concludes that financial performance and policy is achieved not only by using physical assets but also using intangible assets. Thus, the boards and mangers of commercial banks’ ought to plan and maintain the appropriate ratio of intangible assets to total assets for securing sustainable development in achieving the maximization of shareholders wealth and to have optimum debt.

User Perception on Disclosure: A Comparative Analysis of Public and Private Banks in Ethiopia

This study investigates the views and perceptions of users on disclosure and the extent of disclosure by the Ethiopian banking sector. The data collected from 509 respondents in different groups of information users were analyzed using percentage, mean and kruskal-wallis H test. The result shows that most of the user groups regard annual reports as the most important source of information and income statements as an important section of annual reports. The majority of the user groups attached the highest ranking for the relevant attribute for the annual reports and delay in publishing annual reports as the most serious problems. The users of information perceive that a public bank discloses more information with better quality than private banks and the analysis of annual reports also disclose the same results. The Kruskal-wallis H test shows that there was a significant difference among user groups on the frequency of annual report usage, purposes of annual reports, sources of information, the significance of the problems, and sections of annual reports.

EFFICIENCY OF ISLAMIC BANKS: EVIDENCE FROM ISLAMIC WINDOWS OF CONVENTIONAL BANKS IN ETHIOPIA

The study examines the cost and technical efficiency of selected Islamic banking windows of conventional banks in Ethiopia during the period of 2016-2020. The parametric method, stochastic frontier approach (SFA) was employed to measure both cost and technical efficiency of the banks. The efficiency scores of the sampled banks can be measured based on their performance in utilizing inputs to successfully generate output during the study period. It gauges the service quality of the banks taking loans and deposits as well as operating income and expenses into consideration. The study uses time series data from four conventional banks which provide Islamic banking widow in Ethiopia. The statistical findings show that the conventional banks have fairly better technical efficiency individually and collectively; however, the cost efficiency scores indicate that the banks are not efficient enough in terms of minimizing costs for a given scale and mix of outputs. Similarly, the results of the stochastic technical frontier estimates uncovers that there is positive significant relationship between the input variables namely total deposits and total operating expenses and output variables namely total financing and total operating income. The outputs remain an essential contributor to the cost efficiency in Islamic windows conventional banks in Ethiopia.

The Mediation Role of Employee Engagement on the Relationship between Aspects of Human Capital Management and Employee Job Performance

This study examined the mediation role of employee engagement on the relationship between the aspects of human capital management and employee job performance in the Ethiopian banking sector. This study reports the responses of 426 respondents from twelve banking institutions in Addis Ababa, Ethiopia, drawing on the social exchange theory and the resource-based view theory. This study is structured on a quantitative approach, with stratified and simple random sampling techniques. Exploratory and confirmatory factor analyses were applied to test the factors and verify the factor structure of a set of observed variables. The scales were tested for reliability and validity. Structural equation modeling (SEM) with AMOS was used to test the hypothesized relationships. The results revealed that the aspects of human capital management, namely knowledge accessibility, learning capacity, workforce optimization, leadership practice, and career advancement, positively relate to employee job performance. Moreover, the results of bias-corrected bootstrapping iteration revealed that employee engagement partially mediates this relationship between aspects of human capital management and employee job performance. Finally, the limitations and future research implications are discussed. Keywords: human capital management, employee engagement, employee job performance DOI: 10.7176/EJBM/14-13-02 Publication date: July 31 st 2022

Determinants of Credit Risk in Ethiopian Banking Industry: Does Political Stability Matter?

The continued political instability in Ethiopia’s Tigray Region has made it tough for bankers to recover loan repayments, triggering banks’ nonperforming assets to rise. Beyond the bank industry-specific and macroeconomic determinants, the article aims to understand the relationship between political stability and credit risk. The article focuses on 16 Ethiopian banks to understand the mentioned relationship in developing countries. From 2010 to 2020, data are obtained from the World Governance Indicators, World Development Indicators database and Ethiopia’s National Bank. Based on a two-step dynamic panel estimator, the results suggest that political stability is negatively correlated with credit risk, while political instability does have a positive impact on bank credit risk. Credit risk was inversely related to increased operating efficiency, diversified earnings and national currency appreciation. In contrast, greater bank size, rising inflation and economic expansion all contribute to a high level of credit risk. The loan-to-asset ratio and profitability were shown to have a minor influence on nonperforming loans (NPLs). Thus, this study provides a better understanding of the effects of political stability on the factors that determine levels of NPLs in developing economies.

Determinants of Commercial Banks Profitability: The Case of Commercial Banks in Ethiopia

Banks are the most crucial financial intermediaries in our country and the economy that have profitable banking industry are better able to withstand negative shock and contribute to the stability of the whole economy. Both internal and external determinants of Bank profitability affect the profitability of Commercial Banks in Ethiopia. The purpose of this study is to investigate determinants of commercial banks profitability in Ethiopia by using panel data of eleven commercial banks from year 2009 to 2018. The bank's Audited financial statement, National Bank of Ethiopia and Ministry of finance and Economic Cooperation has been the main source for the study. The study had a population of 18 commercial banks in Ethiopia and out of the total population only 11 commercial banks were included by using judgmental sampling technique. The study used quantitative research approach and secondary financial data were analyzed by using panel regressions models for the bank profitability measure, Return on Asset (ROA). Random effect regression model was applied by using stata13 software. The findings of the study show that bank size, capital adequacy, liquidity risk, operational efficiency, gross domestic product and income diversification have statistically significant and positive effect on bank’s profitability. On the other hand, variables like liquidity risk and operational efficiency, banking sector development have a negative and statistically effect on banks’ profitability .However, funding cost, inflation, and foreign exchange rate are found to be statistically insignificant. The study suggests that focusing and reengineering the banks alongside the key internal and external drivers could enhance the profitability as well as the performance of the commercial banks in Ethiopia Keywords: profitability, Return on Asset, Bank size, Capital Adequacy, Liquidity risk, operational efficiency, Funding cost, RGDP, Inflation rate , Foreign exchange rate, income diversification, and commercial banks. DOI: 10.7176/RJFA/13-11-04 Publication date: June 30 th 2022

Determinants of Bank Liquidity: Empirical Evidence on Ethiopian Commercial Banks

Liquidity management is considered as one of the top priorities in banks to ensure their ability to reach funds when needed in order to meet their customers' demands and meet their obligations at time. Therefore, this study aims to identify determinants of liquidity for commercial banks in Ethiopia. In order to achieve this aim, banks’ balance sheets and income statements was analyzed in order to compute study variables. Liquidity, which is the dependent variable of study, expressed by two liquidity ratios as: liquid assets to total deposit (L1), and loans to deposits (L2).Therefore, the purpose of this research was to identify the factors determine Ethiopian commercial banks liquidity. The study has categorized the independent factors into bank specific factors and macro-economic factors. The bank specific factors include management efficiency, deposit, Bank Size, Capital adequacy, Profitability, asset quality, and loan growth. While, the macroeconomic factors include short term interest rate, interest rate spread, interest rate, Gross Domestic Product (GDP), general inflation and unemployment rate. The panel data was used for the sample of nine commercial banks in Ethiopia from 2007 to 2017 year and estimated using Fixed Effect Model (FEM), data was present by using descriptive statistics and the balanced correlation and regression analysis for liquidity ratios was conducted. The findings of the study show that, asset quality, GDP, and loan growth had statistically significant and negative relationship with banks’ liquidity. profit and unemployment rate had statically positive significant impact on liquidity measured by variable L1.whereas interest rate spread and bank size had statically negative significant impact on L1 On the other hand capital adequacy had statistically significant and positive relationship with banks’ liquidity measured by variable L2. While, inflation rate, and management efficiency had no statistically effect on bank liquidity. The study generally stresses the importance of internal management of liquidity risk of banks on a continuous basis, and specifically recommends balancing the bank's deposit taking and lending structure on the one hand and maintaining liquidity on the other. It also recommends to strengthening banks capital structure and control over operating expenses. Moreover, banks in Ethiopia should not only be concerned about internal structures and policies, but they must consider both the government regulation and the macroeconomic environment together in developing strategies to improve the liquidity position of the banks. Key w ords: Liquidity, Commercial banks, assets, loan DOI: 10.7176/RJFA/13-11-03 Publication date: June 30 th 2022

Assessment of Asset Management Practice in Commercial Bank of Ethiopia in Case Study of Kebri Dehar Branch

Banking in Ethiopia has a hundred years of history that back the Ethiopia economic environment through various mechanisms. One of the mechanisms is through asset management, which is helpful for planning and controlling of the bank to maintain its liquidity. As far as the information and knowledge of the researcher is concerned, no further study was conducted on asset management practice in the Commercial Bank of Ethiopia Kebridehar Branch. Thus, there are literature gaps. Thus the study focused on asset management practice in the Commercial Bank of Ethiopia, Kebridehar Branch. The study was organized into five chapters. The research design is of the descriptive type and the researcher will use a qualitative research approach to assess asset management of CBE Kebridehar branch. The study used primary and secondary data. In terms of primary data, the research was used 12samples distributed for the bank manager, vice-managers and officers. Besides, the secondary data such as annual reports and manuals of the bank and NBE, Journal articles and books were reviewed. The data collected via primary and secondary sources were analyzed critically. In addition to this the internal control system of asset management and saving campaigns should get high priority in order to enhance asset management. In addition to this, the bank should employ by far asset exploitation (use of the asset to meet some corporate objective. The findings of the study revealed that there is no uniform (standardized) asset management policy and procedure in the banking industry which is in commercial banks in Ethiopia, kebri dehar branch. The directives issued by NBE have no significant impact that will affect the performance of commercial banks instead they are important for the normal operations of banks and the industry in general. Keywords: Asset management, cash, inventory DOI: 10.7176/RJFA/13-11-02 Publication date: June 30 th 2022

Effect of Credit Risk Management on Business Performance of Banks Operating in Ethiopia

The main aim of this study was to identify the effect of credit risk management on profitability (business performance) of selected commercial banks of Ethiopia based on secondary data sources over the period of 2010-2021 G.C. The study employed a quantitative research approach with an explanatory research design. The result of regression analysis of the random effect model was applied to investigate the effect of explanatory variables on profitability.The finding of this study showed that capital adequacy has a positive and statistically significant effect on the financial performance of commercial banks in Ethiopia. Besides, variables like a loan to deposit ratio and loan provision ratio have a positive and statistically significant effect on the profitability of commercial banks. In opposite direction, non-performing loans, loan to total asset ratio, and cost per loan have a negative and statistically significant effect on ROA respectively.Apart from contributing to the body of existing literature on the effect of credit risk management on the financial performance of the banking sector, the study gives a guideline to both public and private banks in the world in general and Ethiopia in particular. It indicated that the financial performance of commercial banks can be improved by improving the credit risk management system.This study contributes by supporting that credit risk parameters such as loan to deposit ratio, loan provision, non-performing loan, loan to total asset ratio and cost per loan have a statistically significant effect on ROA respectively. Keywords: Credit Risk, Risk Management, Commercial Banks, Sidama ,Furra college DOI: 10.7176/RJFA/13-9-02 Publication date: May 31 st 2022

Determinants of Banks Liquidity: In Case of Commercial Banks in Ethiopia

This study examined the bank specific, regulatory and macro-economic factors that affect liquidity of Ethiopian commercial banks. The data covered the period from 2010-2019 GC for the sample of selected seven commercial banks. Quantitative research approach and explanatory design adopted in carrying out this research. Secondary data was collected from the selected seven commercial banks using purposive sampling technique. The fixed effect regression technique used by econometric package EViews10. The variables are from three factors that, Bank size, Capital adequacy ratio, Profitability and Deposit growth are from bank specific factors, Reserve requirement and NBE bill purchase are from regulatory factors and GDP is from macro-economic factors is selected by researcher. The results of balanced fixed effect panel data regression analysis showed that deposit growth, capital adequacy, bank size and NBE bill purchase had positive effect on liquidity at different significance level. On the other hand, profitability, reserve requirement and gross domestic product affect liquidity of commercial banks in Ethiopia negatively. Keywords: Ethiopian commercial banks, factors of liquidity, fixed effect regression, purposive sampling. DOI: 10.7176/RJFA/13-8-06 Publication date: April 30 th 2022

Structure Conduct and Performance Analaysis in Ethiopian Banking Industry

The General objective of the study was to analyze the Structure, Conduct and Performance of Banking Sector in Ethiopia by using balanced panel data for 10 years (2009-2018) annual audited financial statements of 12 banks and macroeconomic data. The Random effect model was used for the Return on Asset (ROA) model, and fixed effect for Return on Equity (ROE) based on the Hausman model specification test.Market concentration measure reveled that there was more concentration ratio in terms of asset, deposit and loan and advance in Ethiopia banking sector..The study result revealed that bank specific factors such as Bank size, Capital adequacy, Loan to Deposit Ratio, Income Diversification and growth deposit are statistically positively significant in determining profitability of banks. The cost income ratio is negatively affect bank profitability. From industry specific factor positive significant associations between Concentration (HHI) and Banking sector Development with profitability. The positive sign of concentration characterized the nature of Ethiopian banking sector may need for more competition and more entry into the banking market and confirm the structure–conduct–performance hypothesis which stipulates that higher market power submit monopoly profits. In general, the overall empirical findings provide evidence that the profitability of banks are mainly dominated by bank-specific factors which are on the hands of the management of the banks. So, the study suggests to the banks’ managers and policy makers to give high concern on the internal factors of profitability and set direction to manage the most dominant factors of performance. Keywords: Structure, Conduct, Bank Performance, Market Concentration, Profitability DOI: 10.7176/RJFA/13-7-01 Publication date: April 30 th 2022

Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia

Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia

Balance sheet and income statement effect on dividend policy of private commercial banks in Ethiopia

Balance sheet and income statement effect on dividend policy of private commercial banks in Ethiopia

Financial performance of commercial banks in the emerging markets

In the economic growth of a country, the banking sector plays a significant role (Alam, Rabbani, Tausif, & Abey, 2021). The overall objective of the study is to investigate the financial performance of commercial banks in emerging markets. The study tried to see the impact of governance, exchange rate volatility, trade openness, and internet access on the financial performance of commercial banks in Ethiopia during the years from 2014 to 2019. The study employed a random-effects model using balanced panel data. The result indicated that composite governance index, trade openness, and internet access have a positive and statistically significant effect on the financial performance of commercial banks as measured by their return on assets. However, the exchange rate volatility has a negative and statistically significant effect on the financial performance of commercial banks. On the other hand, the result of bank-specific variables considered in the study such as profit margin, asset utilization, net interest margin, overhead efficiency, and numbers of branches have a positive and statistically significant effect on the financial performance of commercial banks. Contrarily, the equity multiplier ratio has a negative and significant effect on the financial performance of commercial banks

Determinants of Deposit Mobilization of Commercial Banks in Ethiopia

The aim of this study is to assess the determinant of deposit mobilization in reference to Commercial banks in Ethiopia. The study adopts explanatory research type. The study was also guide by pure quantitative research approach. The necessary data required for this study was secondary data. The secondary data was the audited financial statement for the period of 2005 to 2017. The data was collected from the National Bank of Ethiopia and ministry of finance and economic development (MOFED). The study used non probability sampling, through purposive method in order to take sample size. Currently, there are 18 Commercial banks with their respective branch operation in Ethiopia. The researcher base on their year of establishment considering that, the bank that operates long life expected to have large number of customer and deposit amount than that of new one. Thus, seven Commercial Banks was taken as sample namely, Commercial bank of Ethiopia, Awash International Bank S.C, Bank of Abyssinia S.C, Wegagen Bank S.C, United Bank S.C, Nib International Bank S.C, and Dashen Bank S.C . Data was analyzed using descriptive statistical techniques like mean, standard deviation, minimum and maximum. The correlation analysis is also used. Fixed effect Econometric model was adopted. The result shows that number of branch (NOBR) had positive and significant effect on deposit mobilization (DM) of Commercial banks in Ethiopia. This result may indicate that increase in number of branch was increase the accessibility of bank service, therefore the more banks accessible the more customers was access and as the same time the more deposits was collected. Saving Deposit Interest Rate (IR) had positive and significant effect on DM of Commercial banks in Ethiopia. Loan to Deposit Ratio (LDR) had positive and significant effect on deposit of Commercial banks in Ethiopia. This result implies that when the amount of loan is high there is high amount of money is circulated in the country. Inflation Rate (INF) had a negative and insignificant effect on DM of Commercial banks in Ethiopia. Gross Domestic Product (GDP) had a negative and insignificant effect on DM of Commercial banks in Ethiopia. This is because of the absence of favorable economic conditions in our country. And also inconsistent increase of GDP in the country during the study period was negatively affect Commercial bank deposit in Ethiopia. Keywords: Deposit Mobilization, Commercial Banks Operating in Ethiopia DOI: 10.7176/RJFA/13-1-02 Publication date: January 31 st 2022