The Impact of Financial Liberalization on the Ownership Market Structure and Performance of the Ethiopian Banking Industry

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Date

2007-07

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A.A.U

Abstract

Ensuring the efficiency and stability of the banking system can play a vita l role for the successful implementation of the monetary and eco no mi c policies of a country. Yet, to ac hi eve such objective it would be essential to place financial reform measures that enhance the contribution of the banking system to wards economic development. An emblematic reform measure undertaken by the Ethiopian government commencing the year 1992 was "liberalizing " the financial sector. The aim of the study is to assess the impact of financial liberalization on the ownership structure, market concentration and profitability performance of the Ethiopian banking industry. The stud y found out that the reform ha s brought a lot of remarkable changes on the structure and performance of the banking sector as compared with the situations prevalent before the reform period. However, the reform ha s restricted the advantages that could be obtained from a diversified ownership structure via prohibiting operation of foreign banks and participation of the private sector to the ownership of government banks. Furthermore ,as tested by both two firm concentration ratio and HHI us in g total deposit s, loan s, ca pit a l and assets, the banking industry in Ethiopia can still be distinguished by it s mark et concentrate on toward s the big government owned commercial bank s and by a market characterized by little and insufficient competition. The profitability of the industry ha s also shown a tremendous improvement after the reform measure has bee n taken. However . the existing government bank s are enjoying having the higher share o f' relist from the industry and still the pattern of the industry profit is following the profitability structure of the giant bank, CBE. The study identified and recommended areas that need further liberalization measures so as to enhance the performance of the industry. Yet, it should be sec n as a first step , not the last word in this direction.

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Keywords

Banking Industry, Ethiopian Banking

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