Banks Lending Scenario and Financing Development Programs in Ethiopia
1. Introduction
Commercial banks are the most important savings mobilization and financial resource allocation institutions. Consequently, these roles make them an important phenomenon in economic growth and development especially in countries where capital markets lag behind and financing needs of the economy generally flows from the banking system.
It is interesting to note that the role of banks in saving mobilization and allocation of financial resources to various investment opportunities in the country dating back to the period of the establishment of the first bank, bank of Abyssinia in 1906. This bank introduced for the first time in Ethiopian financial systems history banking services and instruments such as deposits accounts and export financing (Getahun, 2008).
In pre 1974 Ethiopia, the financial system operated in a free market economic environment. However, in 1980s, the financial system was restructured and reorganized to serve centrally planned economic system which was created following the change of government in 1974. During this period, the Government nationalized all financial institutions in the country and created three specialized banks (excluding the central bank) and one insurance company. Private ownership of financial institutions was prohibited.
Among the specialized banks, the then Agricultural and Industrial Development Bank (the current Development Bank) was responsible for financing agricultural and industrial projects with medium and long gestation period, while the then Housing and Savings Bank (the current Construction and Business Bank) used to lend for construction of residential and commercial buildings. The third bank, Commercial Bank of Ethiopia, was the only bank engaged in trade and other short term financing activities.
In 1990s, as a result of the shift from socialist to market economic system, Ethiopia reformed its financial services industry. The reform measures included comprehensive restructuring of
Commercial banks are the most important savings mobilization and financial resource allocation institutions. Consequently, these roles make them an important phenomenon in economic growth and development especially in countries where capital markets lag behind and financing needs of the economy generally flows from the banking system.
It is interesting to note that the role of banks in saving mobilization and allocation of financial resources to various investment opportunities in the country dating back to the period of the establishment of the first bank, bank of Abyssinia in 1906. This bank introduced for the first time in Ethiopian financial systems history banking services and instruments such as deposits accounts and export financing (Getahun, 2008).
In pre 1974 Ethiopia, the financial system operated in a free market economic environment. However, in 1980s, the financial system was restructured and reorganized to serve centrally planned economic system which was created following the change of government in 1974. During this period, the Government nationalized all financial institutions in the country and created three specialized banks (excluding the central bank) and one insurance company. Private ownership of financial institutions was prohibited.
Among the specialized banks, the then Agricultural and Industrial Development Bank (the current Development Bank) was responsible for financing agricultural and industrial projects with medium and long gestation period, while the then Housing and Savings Bank (the current Construction and Business Bank) used to lend for construction of residential and commercial buildings. The third bank, Commercial Bank of Ethiopia, was the only bank engaged in trade and other short term financing activities.
In 1990s, as a result of the shift from socialist to market economic system, Ethiopia reformed its financial services industry. The reform measures included comprehensive restructuring of
References: ▪ Ashenafi B.Fanta (2012). “Banking reform and SME financing in Ethiopia: Evidence from the manufacturing sector.” African Journal of Business Management Vol.6 (19), PP.6057-6069. ▪ Felicia, O. Olokoyo (2011). “Determinants of Commercial Banks Lending Behavior in Nigeria.” International Journal of Financial Research, Vol. 2. ▪ Getahun Nana (2008). “Policy initiatives for improved financial service provision: the case of Ethiopia, BE. ▪ Habtu Dimtsu and Abraham Tesfaye (2008). “Expanding Outreach through Linkage Banking: The Case of the Commercial Bank of Ethiopia.” Paper to be presented at the AFRACA workshop July 22nd-24th Addis Ababa, Ethiopia ▪ K.Enders et.al (1998) ▪ “Macroeconomic developments in Ethiopia.” Presentation to the Japan business community, July, 2011, NBE, Addis Ababa, Ethiopia. ▪ MoFED (July 2002). “Sustainable Development and Poverty Reduction Program.” FDRE, Addis Ababa, Ethiopia ▪ MoFED (September 2006) ▪ MoFED (September 2010). “Growth and Transformation Plan.” draft document, FDRE, Addis Ababa, Ethiopia ▪ M