ASSESSMENT OF INTERNATIONAL BANKING SERVICE PRACTICES PROVIDED TO TRADERS: THE CASE OF PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

International business is a necessity in today’s world. The gains for greater awareness and knowledge of international business fare immense for nations, multi-national enterprises, trading companies, exporters and even individuals. 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 research has the objective of assessing the practices and challenges of international banking service provided to traders by private commercial banks in Ethiopia. It aims at identifying the problems, investigate any malpractices, indicate instances of non-compliance with international standard banking practices, shed light on risk areas, and identify conceptual gaps among the bank staff. A descriptive research design using the survey method of data collection was adopted. From the research it has been found out that, most of the banks do not automatically effect payment to the remitting bank after releasing the shipping documents sent on documentary collection basis. Secondly, banks are having difficulty in managing the level of approved purchase orders due to the fact that outstanding purchase orders are not considered as liabilities of banks under the Open Position directive of the National Bank of Ethiopia. In the study, it is recommended that the banks should carefully design and well manage internal controls over international banking service operation with regards to foreign exchange transaction, and also should properly manage their assets and liabilities in foreign exchange so that they will not face liquidity problems upon settlement of letters of credits and documentary collections.