The Development of Core Banking System in Ethiopia: Challenges and Prospects (Case Study on Ethiopian Commercial Banks)

Abstract

The purpose of this study was to: examine the development of core banking system in Ethiopia; establish the challenges that commercial banks in Ethiopia encounter in the process of core banking systems development; and determine opportunities that Commercial banks in Ethiopia would get from the implementation of core banking.This research was carried out using a descriptive survey design. The target population of this study was all the 18 commercial banks in Ethiopia. No sampling was done since the population was small (N=18). The research instrument for this study was a questionnaire. Data was collected from General Manager, Customer service officers and IT directors of the 18 operational commercial banks in Ethiopia. This data was analyzed using SPSS Version 16 and manipulated through descriptive statistics such as frequency, percentages, range and mean scores. Presentation of data was through tables.Study results indicated that there are various opportunities that the banks would get from the implementation of core banking. Reduce in cost and improve efficiency, enabling adoption of new customer centric strategies, enhancing business banking and personalized service and incorporating new and increased business.Challenges faced in the process of core banking system development include agreeing on what are actually necessary, security issues, empowering employees to use the new system, vendor capabilities and credentials, risk of the software capability to meet requirements and expectations, unavailability of the diverse skills required and data migration. Lack of suitable legal and regulatory framework for Core banking and electronic payment is another impediment for the adoption of new technology in the Ethiopia banking industry Findings also indicated that implementing modern core systems has a contribution to the modernization of banking industry in Ethiopia in particular and to the economic development of the country in general.Based on the above findings, the following recommendations were made. First, banks need to be mindful of the challenges associated with core banking deployments. These challenges, once understood should be mitigated properly and perfectly managed. Secondly, the small and medium banks must appreciate that technology is an enabler and should adapt to change that make the technology transformation. Lastly, banks that have not implemented their core systems should have plans to do so and should learn from the leaders on the benefits and challenges

Keywords: Core Banking, Commercial Banks of Ethiopia,