Effects of the Ethiopian Financial Sector Reform on the Performance of Banks and the Market Share Dynamics
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Date
2009-10
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A.A.U
Abstract
This paper examined the effects of the 1994 financial sector reform on the performance of banks
using descriptive analyses. It also estimated the determinants of market share in the Ethiopian
banking industry by employing the standard fixed effect panel data model. The model allows
explanatory variables to vary over two dimensions (firms and time), which helps to have accurate
estimators in cases where there are only few firm s and the time period is short. As the banking
business dominates the Ethiopian financial sector, the paper is focused on studying the banking
sector performance whil e gleani ng through rather briefly the financial sector performance as a
whole. The descriptive part of the study analyzed the pre- and post-reform data of public and
private banks by applying standard financial ratio and comparative trend analyses.
The results of the study suggest that the sector has gained progress in terms of profitability, asset
quality and efficiency after the reform, as expected. However, considering the intermediation
effect to the larger economy, contribution of the financial sector is not substantial. The major
problems include confining banking service to trade and service financing, weak fiscal stance and
ineffective economic policy of the government and lack of strategic planning and program
development by the central bank. Resource reallocation of banks towards production and
manufacturing sector of the economy does not show significant improvement following the
financial sector reform. The government's redundant involvement in the economy is crowding
out the private sector, which would have been the efficient sector. The recently tightening
. financial regulation and absence of long term financial development program of the central bank
has also endangered the prospects for effective intermediation role of banks in Ethiopia.
Description
A thesis submitted to the School of Graduate Studies of Addis Ababa
University in partial fulfillment ofthe requirements for the degree of
Masters of Science in Economics
Keywords
Financial Sector, Market Share Dynamics