Are Regulatory Measures Influencing Bank Performances: The Ethiopian Case

Abstract

The study has explored the impact of selected regulatory variables on performances applying a panel regression on 18 commercial banks in Ethiopia for the period 1999-2015. The variables used in the model are directly derived from the extant regulatory approach used by the Central Bank to regulate the banking business. The literature review also shows that most of them are enacted in other countries with few exceptions and mainly related to bill purchase requirements. The model constructed, therefore, has established and finds a statistically significant relationship in some of the regulatory variables with performance measures. The most important findings of this study relate to the negative affect of some of the recent policy directions from the regulator on performances. For instance, branch growth and bill purchases have a statistically significant negative relationship with bank performances. This should be one of the areas requiring policy flexing from the regulatory side in the future. Nevertheless, other policy direction such as capital growth requirement remains a positive contributor to performances. More specifically, the study finds that exchange rate has a positive and statistically significant relationship with the profit models. Despite the benefit of a depreciating local currency and a stable foreign currency type to shield them from currency fluctuation, it allowed banks to earn a policy profit. The depreciation of Birr permitted banks to enjoy a profit from their foreign currency holdings in the form of daily asset revaluations. Nevertheless, many of the variables (prudential regulatory variables) used in this study (interest rate, reserve rate, number of new entrant banks, and level of entry capital) are not statistically significant to influence on bank performances.

Effect of Media Use on Aggressive Behavior and Family Relation among School Age Children

“…Exploratory research is conducted when there is limited knowledge about a specific phenomenon or when a problem has not been clearly defined, its objective to investigate the research topic at various levels of depth and acquire a more comprehensive understanding of it. Correlational research design involves the systematic investigation of relationships between or among variables, to do this the researcher measures the selected variable in a sample and then uses the correlational statistics to determine the relationship among the variables, to enable the researcher to determine the degree or strength (positive or negative) of a relationship between two variables (Burns& Grove, 2011;Lelissa, 2018).…”

Banking Sector in Ethiopia: Origin and Present State

“…Nevertheless, Eshete et al (2013) and Kiyota et al (2007) argued that opening the participation of foreign banks in Ethiopia would bring more contestability rather than merely legislative changes. Lelissa and Kuhil (2018) and Menza and Eshete (2018) also argued that despite the regulator's intention to foster competition in the banking sector by creating strong capital-based banks, it seems apparent that an entry capital increase may deter new banks to enter the sector and weaken competition. This claim is further strengthened by the fact that out of 24 new private banks that were under share subscription (share selling) before the release of SBB/78/2021, 13 failed as they were unable to fulfill the new minimum establishment capital requirement in the allotted time.…”