The Legal and Regulatory Framework on Merger of Banks in Ethiopia: The Reality on the Ground and the Prospects in the Future
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Date
2019-01
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Addis Ababa University
Abstract
Merger of banks may be happen due to voluntarily or involuntarily grounds. When banks
merge by considering it as a strategy for business diversity and growth/synergy, it‘s based on
voluntary ground. On the other hand; it‘s due to involuntary grounds when banks are
compelled to merge due to external factors like capital and other regulatory requirements set
by the regulator mainly for efficiency of the sector and the protection of depositors. Hence;
merger in banking sector has got much attention in most jurisdictions currently.
At present; there are sufficient reasons that drive commercial banks in Ethiopia to be merged.
And the process of bank merger; be it voluntary or involuntary , is complex and needs strict
legal and strong regulatory supervision as it may adversely affect the financial growth and
stability of the country‘s economy. Poorly conceived or badly executed bank mergers can
present risks to the participating banks, to the banking system and to other economic sectors
including that of depositors.
Therefore; having adequate laws and prudential supervisory procedures regarding bank
mergers is timely and important.
This paper explores the adequacy of the legal and regulatory framework governing the
merger of commercial banks in Ethiopia. The finding of the study indicated that there are
some legal and regulatory loops on and accordingly the study recommends issuance and
amendment of laws and directives.
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Keywords
Legal and Regulatory Framework,Regulatory Framework