Prospects and Challenges of Foreign Bank Entry on Domestic Banks of Ethiopia
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Date
2024-06-30
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A.A.U
Abstract
Financial liberalization and the entry of foreign banks carry risks as well as benefits. For this reason, it is crucial that regulators manage the process carefully, addressing important cross-cutting issues like how to properly regulate the banking sector both before and after the entry of foreign banks. The main purpose of this study is to investigate the opportunities/benefits and hurdles of foreign entry banks on the domestic banks of Ethiopia. The paper used mixed research approach to address the research question and accomplish the study goal. It relies on only on primary data Descriptive statistics were used to examine the questionnaire data and thematic interpretation was done for the data obtained from interview. The respondents for the study were selected with purposive sampling from ten private banks and one state owned banks (CBE) based on the experience years, National Banks of Ethiopia, representative offices of foreign banks (Standard Bank, Commerz Bank and EXIM Bank of Tanzania) and two institutions (Ethiopian Economic Association and Ethiopian Professional Accountant and Auditor Association). The study finds that financial liberalization and allowing foreign entry banks will result in numerous benefits to financial institutions and overall economy by stimulating the existing domestic banks boosting efficiency, knowledge transfer, using advanced technology, create an opportunity for global market and reduces hard currency problem. On the contrary, the foreign banks are characterized by capital flight, targeting only potential customers and left the residue and engage in complex transaction. So, the study recommends the National Bank of Ethiopia to build its capacity by trainings and experience sharing with other African countries. Moreover, the National Bank of Ethiopia better to ensure which entry mode is optimum to Ethiopian context as it is recommended from the respondents Mergers and Joint venture since they create an opportunity for the knowledge transfer and technology imitation. The existing domestic banks had better merge with other domestic banks in order to boost their capital to compete with the coming foreign banks.