COMMERCIAL BANK LENDING IN ETHIOPIA

Abstract

Ethiopia is a bank-dominated economy.  Two public sector and sixteen private sector commercial banks cater to the financial needs of the businessmen in the country, with a branch network of 2,661 branches, and a capital of 1.45 billion US Dollars as of June 2015.  This paper on commercial bank lending in Ethiopia tries to analyze the trends in lending by public sector and private sector banks; evaluates the growth rates in advances as well as gross domestic credit; and correlates the deposits mobilized with the advances granted in the recent decade.  This study is fully secondary data based, from the official website and database of the central bank of the country.  It uses, in addition to descriptive statistical tools, trend analysis, compounded annual growth rates, as well as correlation measures for data analysis.  Findings are presented in the form of summary data tables, charts and graphs with appropriate explanations.  Major findings of the study include:    mixed trends are found in total advances by public and private sector commercial banks – with public banks dominating the lending scenario in the recent years; lending by private banks showed downward trend since 2010; very high positive correlation existing between deposits mobilized and advances disbursed by the Ethiopian banking industry; and a compounded annual growth rate of 22.7% is registered by all commercial banks in the recent decade.  The study is highly significant as it is a pioneer work on the commercial bank lending in Ethiopia.  It would be useful to the businessmen, banking industry as well as to the policymakers.  Since the industry is somewhat young and emerging, the study suffered with the limitation of analyzing data only for a decade or more, and as such future work with extended datasets could be a possibility.