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Customs - Individual Assignment - Foreign Banks in Ethiopia

International banks can provide both advantages and disadvantages for Ethiopia. The key advantages include stimulating competition in the banking sector, improving access to global markets, and increasing foreign investment. However, there are also risks such as capital outflows, foreign banks prioritizing large multinational firms over local SMEs, and increased financial instability. Overall, allowing foreign bank entry could modernize Ethiopia's banking industry but the government would need to strengthen regulatory oversight to manage the risks.

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452 views2 pages

Customs - Individual Assignment - Foreign Banks in Ethiopia

International banks can provide both advantages and disadvantages for Ethiopia. The key advantages include stimulating competition in the banking sector, improving access to global markets, and increasing foreign investment. However, there are also risks such as capital outflows, foreign banks prioritizing large multinational firms over local SMEs, and increased financial instability. Overall, allowing foreign bank entry could modernize Ethiopia's banking industry but the government would need to strengthen regulatory oversight to manage the risks.

Uploaded by

berhe2121
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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National Aviation College

Logistics and Supply Chain Management


Name: Berhe Gebrezgiabher Wekelle ID. No:GLSR/033/15

Customs and Freight Forwarding


Individual Assignment
1. Are international banks necessary for Ethiopia? Why? Describe the
advantages and disadvantages.

Nowadays, international trade in goods and financial services, technology has


become increasingly important, to facilitate such trade; many banking institutions
have also become internationalized. Thus countries allow entry of foreign banks to
gain the benefits that bring along them.

The IMF, along with other commentators, has for years encouraged Ethiopia to
liberalize the financial sector, arguing that such actions will make the banking and
financial sector dynamic, internationally competitive, efficient, and innovative
(https://www.thereporterethiopia.com/26765/).

Research finding (Direslign Dagnaw, 2019) also shows foreign banks entry in Ethiopia
has significant effect in Ethiopian banking sector. In addition, there entry has a
benefits and potential risks for the general economy of the country as well as for local
banks which are currently operating in this country.

The Ethiopian government has decided to open the country’s banking sector to
foreign investors with the aim of modernizing the industry and improving its global
competitiveness.

Advantage of foreign bank entry in Ethiopia?


Allowing foreign banks to operate in Ethiopia will mainly bring competitiveness in
the financial sector making the banks to introduce new services, improve services, and
service fees. So, it will stimulate the financial sector. Benefits of entering foreign
banks:

 Foreign banks will fill big market gap since they will bring knowledge,
competition, and professionalism.
 Foreign banks entry is likely to have better access to global financial markets
which improves the overall stability of the host country’s domestic banking
system.
 Potential impact of foreign bank entry on the development of the domestic
banking sector, access to and the allocation of credit, domestic savings
mobilization, and the ability of the central bank to supervise foreign banks and the
new products and services that they introduce into the market.
National Aviation College
Logistics and Supply Chain Management
Name: Berhe Gebrezgiabher Wekelle ID. No:GLSR/033/15

 Helps to build a domestic banking supervisory and legal framework, and enhance
the overall transparency and access to international capital.
 Allows external capital to flow into domestic banking sector, providing more
stable sources of credit, bring along their modern banking skills, advance banking
technology and recent system of banking operations.
 They will introduce new financial innovations,
 They accelerate the economies of scale,
 Solves the issue of foreign currency shortage, since these banks will increase the
country stock of foreign currency.
 Brings development in the financial market,
 Improvement in the financial system infrastructure and this all leads the
attraction of foreign direct investment (FDI)

Disadvantage of foreign bank entry in Ethiopia?


Foreign banks entry is has risks and challenges that encounter to domestic banks
financial performance by creating higher unbalanced competition especially in domestic
banks of less developed and developing countries. Some of the disadvantages ae:
 Capital outflow
 Foreign banks lack interest in mobilizing domestic saving capital,
 Domestic banks may out of the business since they are infant as compared to
those foreign banks which have high capital, experience and expertise.
 There is concern that foreign banks may serve as channels for the inward and
outward flows of capital. This may cause foreign exchange and/or liquidity
shortages, with potentially adverse effects on the country’s capital account.
 Foreign banks may increase financial instability by pulling out of host countries or
by contagion from problems in the home country.
 Since foreign banks have different priorities and business focus, their lending
pattern tends to ignore to work with domestic priorities of small and medium
enterprises,
 Lack of domestic strong supervisory body to control the activities of those foreign
banks, since NBE have a limited supervisory capacity that requires high capital
investment to have the required HR and technologies,
 Domestic bank (with inability to innovate, imitate and compete) face stiff
competition with those very giant international banks that may lead them to incur
high cost in the short run and decline in profit.
 Domestic banks may incur costs since they have to compete with large
international banks with better reputation; local entrepreneurs may receive less
access to financial services since foreign banks generally concentrate on
multinational firms; and governments may find their control of the economy
diminished since foreign banks tend to be less sensitive to their wishes

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