ASSESEMENT OF PRACTICE AND CHALLENGES OF INTERNATIONAL TRADE FINANCING IN SELECTED PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

International trade exposes the trading partners to various difficulties and risks. Due to the physical distance between parties, different time zones and currencies, different legal rules applicable to the transaction as well as the fact that the parties may not generally know each other. Banks facilitate international commerce through a variety of products which include managing their international payments, mitigating the risks, and providing working capital. This study makes an assessment of the trade services practice and challenges of selected Ethiopian private commercial banks by employing descriptive research design with view to assess the practice of trade financing. A mixed approach research method was used to collect and analyze data relevant for the study. Questionnaire and in-depth interview were used to gather relevant data. The study collected data from 120 respondents using purposive sampling technique out of which 108 are found to be good for analysis. In-depth interview was conducted with international banking managers. Descriptive statistics is used to analysis the data. One item mean, frequency, and standard deviation were used according to objective. From the research it has been found out that, due to a relatively high staff turnover among the bank staff and inefficiency or in some cases the lack of periodic training, the level of the job knowledge is not well developed. The foreign currency shortage in the country nowadays is seriously affecting private commercial banks trade financing activities which also indirectly affects the other banking services such as deposit and credit. On the other hand, the fact that most banks are competing unfairly on those inadequate foreign currency resources, especially during export document negotiation, may expose themselves for highly risky activities. In addition, it can be concluded that foreign currency transaction in the black market significantly influencing the banks effective trade financing service. To curb the identified problems, Firstly it is recommended that banks should be beneficially competitive to their staffs in retaining them, provide regular training and gradually centralize the unit activities. Secondly, banks should totally avoid the practice of multiple advance payment to the same supplier at a time by complying with NBE directives. Thirdly, on export document negotiation banks should seriously and consistently have the exporter sign a personal guarantee.