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

Abstract

Ensuriing tthe effiiciiency and sttabiilliitty of tthe bankiing systtem can pllay a viittall rolle for tthe successfull iimpllementtattiion of tthe monettary and economiic polliiciies of a counttry. Yett,, tto achiieve such objjecttiive iitt woulld be essenttiiall tto pllace fiinanciiall reform measures tthatt enhance tthe conttriibuttiion of tthe bankiing systtem ttowards economiic devellopmentt. An embllemattiic reform measure underttaken by tthe Etthiiopiian governmentt commenciing tthe year 1992 was "lliiberalliiziing "tthe fiinanciiall secttor. The aiim of tthe sttudy iis tto assess tthe iimpactt of fiinanciiall lliiberalliizattiion on tthe ownershiip sttructture,, markett concenttrattiion and profiittabiilliitty performance of tthe Etthiiopiian bankiing iindusttry. The sttudy found outt tthatt tthe reform has broughtt a llott of remarkablle changes on tthe sttructture and performance of tthe bankiing secttor as compared wiitth tthe siittuattiions prevallentt before tthe reform periiod. However,, tthe reform has resttriictted tthe advanttages tthatt coulld be obttaiined from a diiversiifiied ownershiip sttructture viia prohiibiittiing operattiion of foreiign banks and parttiiciipattiion of tthe priivatte secttor tto tthe ownershiip of governmentt banks. Furtthermore ,,as ttestted by botth ttwo fiirm concenttrattiion rattiio and HHI usiing ttottall deposiitts,, lloans,, capiittall and assetts,, tthe bankiing iindusttry iin Etthiiopiia can sttiillll be diisttiinguiished by iitts markett concenttrattiion ttowards tthe biig governmentt owned commerciiall banks and by a markett charactteriized by lliittttlle and iinsuffiiciientt compettiittiion. The profiittabiilliitty of tthe iindusttry has allso shown a ttremendous iimprovementt aftter tthe reform measure has been ttaken. However,, tthe exiisttiing governmentt banks are enjjoyiing haviing tthe hiigher share of profiitt from tthe iindusttry and sttiillll tthe pattttern of tthe iindusttry profiitt iis follllowiing tthe profiittabiilliitty sttructture of tthe giiantt bank,, CBE. The sttudy iidenttiifiied and recommended areas tthatt need furtther lliiberalliizattiion measures so as tto enhance tthe performance of tthe iindusttry. Yett,, iitt shoulld be seen as a fiirstt sttep,, nott tthe llastt word iin tthiis diirecttiion.