Accounting and Finance

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Assessment of the Determinants of Non-performing Loans the Case of Commercial Banks in Ethiopia
(Addis Ababa University, 2017-05) Atomsa, Yonas; Abate, Sewale (PhD)
The paper investigated the determinants of non-performing loans (NPLs) in commercial banks in Ethiopia in the period of 2007–2016. This study sought to explain the significance of interest rate, growth in GDP, inflation rate, exchange rate, real interest rate, ROA, ROE and loan growth rate on nonperforming loans in commercial banks in Ethiopia.. Explanatory research is conducted in order to identify the extent and nature of cause-effect relationships between dependent and independent variables. The study used secondary data collected from eight purposively selected commercial banks in Ethiopia. Econometric regression analysis was used in establishing the significance of the relationship. The paper found that the level of NPLs can be attributed to both macroeconomic conditions and banks’ specific factors, though the former set of factors was found to have a relatively low explanatory power. From the macro determinants, Real interest rate has positive relationship with NPL which are statistically significant at 1% level of confidence. ROA and ROE from bank specific factors have negative and significant relationship with the NPLs in commercial banks in Ethiopia. The outcome of this project firstly would enable commercial banks adopt workable strategies, benefit to the Ethiopian banking and non-banking financial sectors as a whole, and serve as a source of reference for other related research works in the future. Government Expenditure, Import & export of the country, foreign currencies availability, political stability, and competition in banking industry are recommended for further studies. Key words: Nonperforming loan, Return on asset, Ethiopian commercial Banks, Real GDP, crossectional data, Inflation.
Challenges and Prospects of E-payment Service: In the Case of Selected Ethiopian Commercial Banks.
(A.A.U, 2020-12) Mulatu Wakgari, Geda; Abate, Sewale (PhD)
In Ethiopia cash is still the most dominant medium of exchange and electronic payment systems are at an embryonic stage. This study is aimed to assess the challenges and prospects of E-payment in Ethiopian commercial banks. The study was conducted based on the data gathered from five banks in Ethiopia; four private banks (Dashen bank, Zemen bank, Nib International bank and Awash bank) and one state owned bank (commercial bank of Ethiopia). Qualitative and quantitative research approach were used to answer the research questions that emerge through the review of existing literature and the experiences of the researcher in respect of the E-payment system in Ethiopia. The study statistically analyses data obtained from the survey questionnaire and interview. The study used descriptive statistics and Data was analyzed using a statistical package for social sciences (SPSS). The study identified basic benefits of E-payment for the customers and banks, which helps to enhance other banks to engage in such activity. It also indicated that the major challenges Ethiopian banking industry faces in the practice E-payment system are, Organizational related problems (lack of awareness creation and public confidence, lack of system readiness, lack of trust and lack of responsiveness), infrastructure related (lack of network penetration, power disruption and lack of alternative power and network) and socio-cultural challenges include (fear of risk, society perception to emerging technology). Prospects of E-payment system in Ethiopia; Digital Economic policy is the most important opportunity in Ethiopian e-payment system, liberalization of telecom sector, competitive e-payment channel, emerging need and innovation. The study suggests recommendation: the banks should run campaigns, promotions and adverts, which aim at educating their customers on the need to adopt electronic payment services deeply into technical areas to develop confidence and public awareness. Banks also should make their e-payment instruments ready, motivating e-payment support staffs to immediate e-payment users’ support and make clear the limit of daily e-payment transaction limit. To overcome network and power challenges, the banks should create better strategic partnership with telecom sector and electric power providers, installing 4G network and generators for e-payment users where e-payment instruments locate. To use the prospects (opportunities), the banks should being prepared for digital economy policy of Ethiopia, emerging need, restructuring of network infrastructure provider (ethiotelecom) and competitive e-payment channels. By drafting bank based (modified) digital policy, identifying and hiring emerging (prospect) e-payment customers, developing criteria to select network provider and e-payment channel provider based on latest e-payment owners and users’ criteria
Challenges and Prospects of International Financial Reporting Standards (IFRS) Implementation in Ethiopia
(Addis Ababa University, 2017-01) Teshome, Firdawok; Abate, Sewale (PhD)
One of the foremost requirements to operate a Business successfully is to have a good financial reporting system in place. This study examines implementation of International Financial Reporting Standards (IFRS) In Ethiopia in accordance with financial reporting proclamation # 847/2014. The study investigates the challenges faced in implementing, International Financial Reporting Standards (IFRS) by Ethiopian firms The paper provides insight into the IFRS adoption process based on a questionnaire sent to Authorised Accounting and Auditing professionals in Ethiopia. 95 responses received out of 116 and it indicate: (1) a majority of respondents have indicated IFRS Enforcement capacity will be a key challenge for transition; (2) the process is costly, complex, and burdensome; (3) Institutional readiness require more attention for transition to IFRS; (4) the more comprehensive the approach to conversion, the more respondents tend to agree with the factors influencing the transition; (5) the complexity of IFRS as well as the lack of Implementation guidance and uniform interpretation are also key challenges in technical capacity area; the results of the questionnaire and interviews confirmed that, the transition to IFRS in Ethiopia will be challenging. The study also discusses the prospect of IFRS implementation in Ethiopia and the result showed that the transition plan to IFRS and its implications for preparers, users, educators and other stakeholder has to be effectively coordinated and communicated. In the conclusion part, the study brings out the ways through which these challenges can be addressed. Keywords: IFRS; Proclamation; Challenge; Enforcement Capacity, Institutional readiness; Technical Capacity
Determinants of Commercial Banks Profitability: An Empirical Study on Private Commercial Banks in Ethiopia
(Addis Ababa University, 2017-02) Belete, Dawit; Abate, Sewale (PhD)
Both internal and external determinants of Bank profitability affect the profitability of Private Commercial Banks in Ethiopia. This study identifies bank specific, industry specific and macroeconomic factors that determine the profitability of Ethiopian private commercial banks. Six private commercial banks have been the subject for the study ranging from 2004/2005 to 2014/2015. 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 and the panel analysis has been carried out to obtain the result for this empirical study. The study used ROA as a Dependent variable and capital adequacy, operational efficiency, liquidity, income diversification, concentration, GDP, inflation and money supply as independent variables. The empirical results showed that capital, operational efficiency, income diversification, concentration and money supply have significant relationship with profitability of Ethiopian private commercial banks. However the result shows insignificant relationship between profitability of Ethiopian private commercial banks with liquidity, GDP and inflation. Keywords: Profitability, Private Commercial Banks
Determinants of Deposit in Ethiopian Private Commercial Banks
(Addis Ababa University, 2017-01) Hailemariam, Dereje; Abate, Sewale (PhD)
Understanding the nature of national savings behavior is critical in designing policies to promote savings and investment which in turn enhance economic growth through capital formation. This paper empirically examines the determinants of savings in private commercial banks of Ethiopia for the 2001-2015 periods. From total of sixteen private Banks which are engaged in commercial activities, six selected based on the historical time formation of banks. The conceptual framework for this study is originally derived from Life-Cycle model and appropriately modified to accommodate the peculiarities of a developing country and builds on the existing cross-country literature on determinant of saving mobilization. The researcher adopted Quantitative research approach. Bank specific and macroeconomic variables were analyzed by using the balanced panel fixed effect regression model. Different diagnostic tests (test for assumption of Homoscedasticity, Autocorrelation, Normality, average value of the error is zero and independent variables are non-stochastic) were conducted to check the appropriateness of the model. The results reveal that disposable income, real GDP growth, branch expansion, are positively and statistically significant on bank deposit growth; whereas, loan to deposit ratio (bank’s liquidity)influence is negatively and statistically significant on bank deposit growth. Deposit rate and profitability had insignificant positive influence on bank deposit growth. Whereas population growth and capital to loan ratio (capital adequacy) had insignificant negative influence on bank deposit growth. The study implies that stimulation of economic growth is most important factors that affect bank deposit growth. The research recommends that private commercial banks should have to intensify branch expansion to areas where there are potential deposit sources even to remote locations .moreover, private commercial banks required to have enough liquid assets to meet the demand for cash outflows so as to generate and sustain public confidence of the depositors. Keywords: Private commercial Banks, Bank deposit, Regression Analysis
Determinants of Financial Risks of Private Commercial Banks In Ethiopia
(Addis Ababa University, 2017-02) Tona, Emawayih; Abate, Sewale (PhD)
While financial risk is one of the major risks of banks that can affect the development of financial system, identifying the determinants of this risk is crucial for the soundness of financial sector. The main objective of this study is to find out determinants of financial risk in Ethiopian private commercial banks covering a period of fifteen years (2001-2015) on six sample private commercial banks using quantitative research approach. This study directly examined indicators of financial risk in terms of credit risk and liquidity risk in an objective manner from a wide range of variables. Bank specific and macroeconomic variables were tested for the two dependent variables credit and liquidity risk models by using the balanced panel fixed effect regression model. The findings of the study for credit risk model revealed that Loan to deposit ratio (Liquidity), income diversification, non performing loan, real GDP growth rate and inflation have significant positive impact on credit risk whereas return on asset found significant negative impact on credit risk of Ethiopian private banks. The rest three bank specific variables Loan growth, bank size and operating inefficiency had no significant effect on credit risk of Ethiopian private banks during the test period 2001 to 2015.The regression result of the second financial risk indicator liquidity risk revealed that capital adequacy ratio and Real GDP growth rate have significant positive impact on liquidity risk whereas Banks age and Average Nominal lending interest rate have significant negative impact on liquidity risk. Finally the result indicates that return on asset, Tangibility and impaired loan have negative but insignificant relationship with liquidity risk. Key words: Financial risk, credit risk, Liquidity risk, Ethiopian Private Commercial Banks
Determinants of Foreign Direct Investment Flows in Ethiopia
(Addis Ababa University, 2017-01) Shebu, Dereje; Abate, Sewale (PhD)
This paper attempts to examine the determinants of Foreign Direct Investment flow in Ethiopia. The study applies multivariate ordinary least square regression by using time series data covering over the period 1974 to 2015. In order to point out the main factors that can highly affect the inflow of FDI in Ethiopia and to know how much these factors affect FDI leading to an oscillating trend, the study took the determinant of FDI in Ethiopia such as infrastructure development, the domestic market size and growth potential, macroeconomic stability, human capital development, openness, and external debt and evaluate as to how they affect the inflow of FDI. In the analysis there are findings. Firstly, I found that the explanatory variable such as macroeconomic stability measured by inflation rate, and openness have significant and negatively related to FDI. Second, exchange rate and school enrollment rate proxy of macroeconomic stability and human capital development respectively are found positively related and statistically significant to the inflow of FDI. Thread, gross fixed capital formation and real GDP growth rate proxy of infrastructures and market size respectively have statistically significant and positively related to FDI. Last, foreign debt has negative and insignificant effect on FDI. These findings imply that inflation and trade openness should be controlled and improved by giving special attention. Key words: FDI, FDI determinants, time series, ordinary least square regression
Determinants of Lending Decision and their Impact on Financial Performance: Empirical Study on Private Commercial Banks In Ethiopia
(Addis Ababa University, 2016-05) Abebie, Berhanu; Abate, Sewale (PhD)
he objective of the study is to investigate the determinants of lending decision of private commercial banks in Ethiopia and the impact of those factors that significantly affects the lending decision on the financial performance of the banks. Panel data was collected from audited annual financial report of each bank, publications of National Bank of Ethiopia (NBE) and Ministry of Finance and Economic Development (MoFED) and used to analyse the bank-specific determinants as well as the macroeconomic determinants. The collected panel data was analyzed using descriptive statistics, and multiple linear regression analysis. Random effect panel regression was used for the data of six private commercial banks in Ethiopia for the sample covered the period from 2001 to 2015. Eight variables that affect banks’ lending decision were selected and analyzed with E-view 9 econometrics software. The results of panel data regression analysis showed that Liquidity ratio(LIQ), Capital adequacy ratio (CAR), Inflation rate (INF) and gross domestic product (GDP) had positive and statistically significant effect on banks’ lending .Nonperforming loans (NPLs) Cash reserve requirement (CRR) and lending interest rate (INT) had negative and statistically significant effect on banks’ lending. Volume of deposit (VoD) had positive but insignificant effect on banks’ lending. Among factors that statistically significantly affecting banks’ lending; liquidity (LIQ), Lending interest rate (INT) and GDP had positive and significant impact on financial performance whereas, non-performing loans and Cash reserve requirement had negative impact on financial performance. Capital adequacy ratio had positive and inflation rate had negative but, insignificant impact on financial performance. Therefore, banks’ lending had an impact on the financial performance of private commercial banks in Ethiopia. The study suggests that Ethiopian commercial banks should/need to work more to improve their liquidity and capitalization, to reduce their nonperforming loans and consider macroeconomic environment when extend loans. Moreover, banks should exert additional effort to properly manage their loan portfolio in order to enhance their profitability. Key Words: Banks, Bank Lending, Loans and Advances, Financial Performance
The Effects of Risk Management on Financial Performance of Ethiopian Insurance Companies
(Addis Ababa University, 2017-02) Woldemichael, Zinaye; Abate, Sewale (PhD)
The study focuses on the investigation of the risk management factors that affect the financial performance of the Ethiopian insurance industry. Managing risks is an important factor which insurers must attend to achieve their financial performance. From this perspective, risk management becomes one of the most important practices to be used in insurers in order to get higher returns. Therefore, this study is attempted to ascertain the relationship between risk management and financial performance of insurers in Ethiopia. In order to achieve this objective, the study used explanatory research design, mixed research approach. Panel data covering eleven-years (2005–2015) are analyzed for nine insurers in Ethiopia. Also in-depth interview is conducted with the NBE officers. The results of the fixed effect regression model revealed that technical reserve and liquidity risks have negative & significant impact on ROA (proxy measure for financial performance) of non-life insurers in Ethiopia, whereas company size and reinsurance risk have positive & significant effect on ROA. The study led to the conclusion that technical reserve, size of a company, reinsurance risks and liquidity risk are the pull factors for the financial performance of insurers. On the basis of these findings, the study recommends that there is greater need for Ethiopia insurers to manage the risks particularly technical reserve risk, reinsurance risk and liquidity risk more integrally. The study also recommends Ethiopian insurers to increase their size by enhancing their assets base. Keywords: risk management, financial performance, insurance companies
Enterprise Resource Planning (ERP) System Implementation: Evidence From Ethio- Telecom
(Addis Ababa University, 2016-05) Gazu, Hailemeskel; Abate, Sewale (PhD)
This research work finds challenge and constraint of an Enterprise Resource Planning (ERP) system implementation with particular reference to Ethio telecom. An Enterprise Resource Planning system is a corporate wide information system which is used to integrate the business processes and resources of a company. When the business environment of a company increases and becomes complex, it is difficult to continue with the traditional decentralized information systems for timely decision making and other activities. In today‟s competitive business environment, ERP systems are found to be essential for companies to get competitive and strategic advantages. Therefore, the major objective of this study is to assess the implementation challenge of Enterprise resources planning in ethio telecom and to recommend possible solutions for the gap created during the implementation. As result, the researcher has tested the implementation effectiveness by selecting major challenge and other related concepts. This research has a exploratory nature which elaborates the existing phenomenon as it exists. The data was collected using questionnaires from ERP user. The collected data was analyzed using mainly by computer such as SPSS (Statistical Package for the Social Sciences) version 23 Furthermore, the units/strata have been selected since these work units are the major owner of the modules in the system, accordingly the total of 38 employees select randomly among ERP user as a sample by using stratified random sampling technique and questionnaires were distributed accordingly Consequently, results shows that the deploy ERP system is not properly implemented and practiced on the basis of the selected effectiveness variables; it is observed that the ERP system is not effective across the divisions the system is implemented. In addition, problems which hinder the practice of the system were identified. As a result, lack of top management support, the rate of training, documentation and knowledge transfer, compatibility issues with ERP module were found major challenges in ERP implementation in Ethio-telecom. However, the priori criteria “stepwise implementation” was not considered as putting the challenge and constraint in the implementation of ERP in Ethio-telecom. Hence, the researcher has recommended that the company should re-consider its system with regard to the support of top management in assisting successful implementation of ERP in Ethio- telecom. Moreover, user interface of the system should easily be understandable, there should be mechanism so that users can work on the system without any challenge . Finally, the company should give emphasis for the reporting formats so that any decision maker or external stakeholder can the reporting formats should be easily understandable
Factors that Identify the Effectiveness of Internal Audit in Oromia Special Zone Surrounding Finfinne Administration Finance and Economic Development Offices, Ethiopia
(Addis Ababa University, 2016-01) Aliyi, Hawa; Abate, Sewale (PhD)
The establishment of IA function is important as an essential internal assurance mechanism in public financial controls and as a tool for monitoring and evaluating financial management activities in private, government agencies and other sectors. The general objective of the study is to investigate factors that affect the effectiveness of internal audit in Oromia Special Zone Surrounding Finfinne Administration Finance and Economic Development office, Ethiopia. A cross-sectional design is employed for a data collection and analysis purpose. The sample was selected by purposive sampling selection techniques. Findings indicate that the four factors such as: independence, management support, competence and organization setting do have an impact on the effectives of internal audit. Thus the following recommendation was made: the Finance and Economic Development Offices found in the study areas, other concerned government body and stake holders should work to make effective independence/objective, the management support, the competence, and the organizational setting of internal audit to help them to perform their professional obligations and duties Keywords: Internal Audit, competence, organizational setting, independence, management Support, internal audit effectiveness
The Impact of Information and Communication Technology on Performance of Commercial Banks in Ethiopia
(Addis Ababa University, 2016-06) Abebe, Girma; Abate, Sewale (PhD)
Information and communication technology has become the heInformation and communication technology has become the heart of banking industry, while the banking industry is the heart of the economy. This research has considered a critical literature review of previous researchers with the objective to examine the impact of Information and Communication Technology on banks performance. Business organizations, especially the banking industry is operating in a complex and competitive environment characterized by the changing conditions and highly unpredictable economic climate with Information and Communication Technology (ICT) is at the center of the change curve. This study assessed the impact of ICT on the performance of Ethiopian banking industry using secondary data over the period 2010 – 2014 published annual reports by the banks. Data analysis is carried out in panel environment. The study employed purposive sampling technique to select the required sample of banks from commercial banks in Ethiopia. The results were affirmed by cointegration regression analysis. Six banks, out of the 18 commercial banks as of June 2014, were selected for the study. The dependent variable used in this study in order to measure the sample commercial banks performance is ROA whereas the explanatory variables are ICT investment, ATM, POS, INF, BRAN and GDP. The study empirically analyzed the impact of information and communication technology in commercial banks performance in Ethiopia by constructing an econometric model to study the effect of various factors such as ICT investment, ATM, POS, INF, BRAN and GDP. Accordingly, the impacts of ICT on return on asset in commercial banks in Ethiopia were analyzed using the OLS technique. The regression result showed that the ICT, ATM and POS have no statistically significant effect on return on asset on commercial banks in Ethiopia. Based on the research findings and conclusions the researcher recommended for commercial banks in Ethiopia to improve return on asset, the banks should improve more on its information and communication technology so as to enhance their performance, enlightenment has to be given to the general public through the various media on how to use some of the information technology, ATM and POS. Finally, banks should put more effort in advertising these products in Ethiopia. Key words: Bank’s Performance, Banking Industry, ICT and Return on Asset.art of banking industry, while the banking industry is the heart of the economy. This research has considered a critical literature review of previous researchers with the objective to examine the impact of Information and Communication Technology on banks performance. Business organizations, especially the banking industry is operating in a complex and competitive environment characterized by the changing conditions and highly unpredictable economic climate with Information and Communication Technology (ICT) is at the center of the change curve. This study assessed the impact of ICT on the performance of Ethiopian banking industry using secondary data over the period 2010 – 2014 published annual reports by the banks. Data analysis is carried out in panel environment. The study employed purposive sampling technique to select the required sample of banks from commercial banks in Ethiopia. The results were affirmed by cointegration regression analysis. Six banks, out of the 18 commercial banks as of June 2014, were selected for the study. The dependent variable used in this study in order to measure the sample commercial banks performance is ROA whereas the explanatory variables are ICT investment, ATM, POS, INF, BRAN and GDP. The study empirically analyzed the impact of information and communication technology in commercial banks performance in Ethiopia by constructing an econometric model to study the effect of various factors such as ICT investment, ATM, POS, INF, BRAN and GDP. Accordingly, the impacts of ICT on return on asset in commercial banks in Ethiopia were analyzed using the OLS technique. The regression result showed that the ICT, ATM and POS have no statistically significant effect on return on asset on commercial banks in Ethiopia. Based on the research findings and conclusions the researcher recommended for commercial banks in Ethiopia to improve return on asset, the banks should improve more on its information and communication technology so as to enhance their performance, enlightenment has to be given to the general public through the various media on how to use some of the information technology, ATM and POS. Finally, banks should put more effort in advertising these products in Ethiopia. Key words: Bank’s Performance, Banking Industry, ICT and Return on Asset
Institutional Factors Affecting Loan Collection Performance of Development Bank of Ethiopia: The Case of Addis Ababa, Head Office
(A.A.U, 2021-06) Terefe, Kidist; Abate, Sewale (PhD)
This study assesses the institutional factors affecting loan collection performance of Development Bank of Ethiopia. The institutional factors are categorized as Staff-related Factors, Policy-related factors and Management Information System-related factors. The study employs Descriptive Research Design and applies quantitative research approach to analyze and interpret the findings. In addition to reviewing the annual report of the bank as a secondary data, 50 questionnaires were completed by respondents who are staff members in different departments. As a result, Development Bank of Ethiopia's loan collection performance has been assessed to have significantly higher loan default rates. Based on the findings of the study, the major institutional factors affecting loan collection Performance of Development Bank of Ethiopia are Poor credit scoring and poor valuation of collaterals, ineffective monitoring and controlling of debtors, policy ineffectiveness in creating improved loan collection, restricting loan concentration and favoring loan diversification, , inefficiency of Management Information System in making ease of administrative tasks, improving the Bank’s loan collection performance, aiding operating efficiency, aiding controlling task of problem loans and lack of supervision schemes. It is recommended that Development Bank of Ethiopia should focus on upgrading its Management Information System so as to improve its loan collection performance. It is also suggested that DBE's Management Information System should include a problem loan management system.

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