Determinants of Competition in the Commercial Banks of Ethiopia: An Empirical Evidence

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Addis Ababa University


The development of a financial sector can very well be improved by enhancing the level of competition which can be achieved by improving the determinant factors. It is pertinent, therefore, to measure the level of competition and determine what factor affect the magnitude of the competition in the financial sector. This study provides an empirical evidence on the commercial banks of Ethiopia over the budget years, from 2000-2015. It measures the level of competition among the commercial banks of Ethiopia by taking a sample of the seven private commercial banks, i.e. Awash International Bank, Bank of Abyssinia, Dashen Bank, United Bank, Wegagen Bank and Nib International Bank, and Commercial bank of Ethiopia by using the Panzar-Rosse approach. I further tries to gauge what variable determine the level of competition in the commercial banks by using the contestability of market, financial liberation and economic factors. The results of the research show that the commercial banks of Ethiopia are in monopolistic competition which is a midway between perfect competition and monopoly; the market is in a long run equilibrium. The determinants of competition are found to have a joint statistically significant effect on the level of competition. The study suggest enhancing better access to financial services with in the country and also decrement of NBE’s regulatory power. Key words; commercial bank competition, determinants



commercial bank competition, determinants