Assessment of Correspondent Banking Relationship: The Case of Commercial Banks in Ethiopia.
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Date
2024-07-03
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A.A.U
Abstract
The study aimed to assess the assessment of correspondent banking relationships of Ethiopian
commercial banks with their foreign correspondents. A purposive sampling method was used to
select four representatives from each commercial bank, resulting in a total of 120 respondents.
Additionally, two national bank experts were interviewed. The study employed both qualitative
and quantitative data and applied descriptive and inferential analysis.
The findings revealed that Ethiopian commercial banks face significant challenges in establishing
and maintaining correspondent banking relationships, which impacts their ability to provide
comprehensive international banking services and efficiently meet customer demands. Addressing
these challenges requires proactive measures from both Ethiopian banks and regulatory
authorities like the National Bank of Ethiopia (NBE) to enhance trust, compliance, and efficiency
in correspondent banking operations. The NBE's approach to correspondent banking
relationships appears to be passive and lacking in proactive measures to support local banks. The
absence of clear directives, limited involvement, and lack of supportive mechanisms highlight
areas where the NBE could enhance its role in facilitating and regulating correspondent banking
activities for the benefit of Ethiopian banks and the broader financial system.
To resolve the identified problems, the researcher recommends the following:
Strengthen relationships with existing African correspondent banks while exploring new
opportunities within the continent to enhance transaction efficiency, Proactively seek to establish
more correspondent banking relationships in North America and Europe to diversify the network
and reduce reliance on intermediary banks, Enhance compliance with international regulations
to mitigate the risk of relationship terminations by foreign banks, Establish regular communication
channels with foreign banks to understand their concerns and demonstrate proactive measures
taken to address them, Negotiate for more favorable terms and reduced fees with correspondent
banks to lower transaction costs, Implement automated systems for compliance to ensure
continuous and accurate adherence to international regulations, The NBE should take a more
active role in supporting local banks in establishing and maintaining correspondent banking
relationships, Foster trust and confidence among foreign banks through transparency, reliability,
and consistent performance and Advocate for sound policy solutions that address the
consequences of de-risking and support sustainable correspondent banking relationships.