OPPORTUNITIES AND CHALLENGES OF LIBERALIZING THE BANKING SECTOR IN ETHIOPIA

Abstract

The aim of this study is to assess the opportunities and challenges of liberalizing the banking sector in Ethiopia. With this aim the research intends to identify the different opportunities that the banks would bring and their entry challenge on domestic banks. A qualitative research approach was followed and in-depth interview was conducted with 22 experts and professionals who were selected purposely. The finding of the study shows that foreign bank entry in Ethiopia could improve the financial infrastructural system and enuance credit access for different firms who run their business in the country whether they are small or large. Apart from this, the finding of the study indicated that the entrance of foreign banks enhance the efficiency of the local banks since the competition is going to be hard, and also allowing this financial institutions could transfer new banking technologies which could develop and promote the local financial systems. However, the potential and capacity of these international banks may also drive out the domestic banks from the market since they are highly capable in terms of experience, strategy and skill; also threaten as bringing instability in the financial system of the country. In addition to these, in some instances these banks may bring their international crises experience in to the host countries. As a policy recommendation the liberalization of the financial market should be done gradually, this is because letting the banks spontaneously may harm the domestic banks and make the condition difficult to control since there is no much know how about how these banks perform and work. Hence, letting them gradually allow the government to investigate and understand how they operate.