ASSESSMENT OF OPPORTUNITY AND CHALLENGES OF FOREIGN BANK ENTRY TO ETHIOPIAN BANKING SECTOR

Abstract

Based on the Ethiopian government's significant policy change in 2018 to partially privatize important state-owned firms Like ethiotelecom is an indication to help expect the possibility of allowing foreign banks to operate in Ethiopia in the future.. The state-owned and private commercial banks in particular will have both opportunities and challenge if foreign banks are permitted to conduct business in Ethiopia. The study's primary objectives is to analyze the possible opportunity and challenges of foreign banks entering Ethiopia's banking industry using descriptive study and a mixed approach. The data were collected from all commercial banks operating during the study period through questionnaires by deploying a purposive sampling technique. Furthermore, both primary and secondary sources of data were used and collected data were analyzed by using descriptive analysis techniques such as percentage mean and standard deviation using SPSS software. The finding of the study shows that foreign bank entry in Ethiopia could introduce new banking technologies, financial innovation and promote financial development; On the other hand, the stiff competition with foreign banks may threaten the survival of domestic banks that may lead them to incur high cost in the short run and decline in profit. In addition, it may bring shocks from other country, destabilize domestic credit and may serve more productive sectors only.. As recommendations allowing foreign bank entry in Ethiopia step by step is advantageous with extensive capacity building to all stakeholders and implementation of modern banking technologies. Merger form of entry may be essential for knowledge transfer and entry via joint venture preferable to resource mobilization and enhancing access to finance for the majority.