The Impact of COVID 19 on the Ethiopian Private Banking System

Abstract

To explore the impacts of the COVID-19 pandemic on Ethiopia's Private Banking System and inform interventions and policy responses, the study employed the input-output framework. It has used ten years historical data from 2010 to 2019 of the aggregate private commercial banks in order to explore trends and examine the effect of pandemic on the past critical success factors. The result shows that the pandemic has effect on both balance sheet and income statement of banks. The effect is shadowed during the current year due to good performance record all through pre COVID period. Nevertheless, it won’t take much time to feel the effect of the pandemic in the private banking system as well.  Therefore, the notion of considering banks less vulnerable to the crisis should be swotted. The study identified immediate liquidity need of around Birr 17 billion to private banks so that they can comfortably meet the NBE’s liquidity requirement. This in fact will be challenged by less resource mobilization and reduced loan collection of Birr 10 billion per quarter. Early measures to improve the liquidity (infusing injection), capital position (setting dividend payout limit), asset quality (setting minimum provision level), earning (avoiding price pressure) and cost (controlling exchange losses) profile of banks will have paramount importance for sustainable soundness of the private banking system. In addition, the shock absorbing capability of each bank in the sector should be separately looked at for an effective remedial action. The banking business after Covid-19 shall be intensified with new sources of growth: advisory services, e-commerce, digitalization, e-banking services etc. Online and digitalization will be the way forward. Comprehensive reform and finance sector restructuring programs should be thought of in order to accommodate such changes and speed up the recovery process.

Keywords: COVID19, Private bank, Ethiopia

DOI: 10.7176/EJBM/12-16-06

Publication date:June 30th 2020