Bank Credit to the Agricultural Sector In Ethiopia: A Trend Analysis

Abstract

This study has to investigated the trend of all government and private bank credit to agricultural sector in Ethiopia using time series data from 1993 to 2015. Agricultural Creditto- Agricultural Gross Domestic Product obtained using the statistical Hodrick-Prescott (HP) filter and the maximum agricultural credit to agricultural GDP ratio is 7.7%. On aggregate, state owned banks constitutes 93.56% of the total agricultural credit. Whereas, the remaining 16 private banks share the remaining 6.44% of the total agricultural credit portfolio as at June 2015. The private banks constitute 35% of the total outstanding credit in the economy, in sectorial distribution share only less than 7% was showed the agricultural credit outstanding portfolio. The Key finding in this study is that agricultural credit growth positively and significantly affected agricultural GDP and commercial banks, especially private Banks doesn’t grant sufficient level of credit to agricultural sector when it compares to other sectors. Therefore, the study recommends that banks need to improve the agricultural banking products and services by providing timely and easily accessed medium to long term credit with lower interest policy and supervised credit facilities. Also the National bank of Ethiopia should adopt direct credit control, where preferred sectors like agriculture sector should be favored in terms of granting credits.