Potential Effects of Opening the Ethiopian Banking Sector to Foreign Banks

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Addis Ababa University


In theory, foreign bank entry could significantly reduce the cost of credit by bringing capital, technical skills, and product innovation to host countries, which increases competition and leads to improvements in the efficiency of the banking sector, ultimately benefitting customers of the banking system, including small and new enterprises. The main objective of this study is to evaluate the potential impact of foreign bank entry in Ethiopian banking sector and analyses how far the domestic banking sectors are ready to compete with the new technology and modern management system. The quantitative research method was adopted to collect data based on the pre-design survey questionnaires and the result of 134 survey questionnaires were distributed and the analysis done using descriptive statistics like graphical presentation, average, standard deviation, frequency, percentage etc. A cross-sectional design was employed for a data collected and analyzed more than one case at a single time. Only quantitative research approach was also implemented. Out of the total respondents, the indicate samples were selected under the consideration of both purposive and random sampling techniques. The key findings revealed that if foreign banks were entered in the country, the domestic banks would be benefited in all the four dimensions such as potential benefit, potential efficiency, macro-economic and social indicators and potential costs. Therefore, the permeation of foreign bank would improve the domestic banks economic potential, additionally different macroeconomic and social indicators show that the country would be benefited if the foreign bank were permitted. Finally the government should adopt from neighboring country like Kenya and Egypt , those have a long period of experience in supervising foreign bank and revise the investment proclamation that prohibited Foreign bank entry. Key words: Foreign Bank, Entry, Macro-economic indicators, Domestic Bank



Foreign bank, Entry, Macro-economic indicators, Domestic bank