Assessment of ‘Why Private Commercial Banks in Ethiopia Neglected the Agriculture?’ Evidence from 10 Selected Private Banks

Abstract

The study used ten selected private banks to investigate the reasons why private banks in Ethiopia neglected agriculture. The private banks that have been serving at least four years in the banking business were purposively selected for the study. To achieve the desired objectives, primary data- using questionnaire and semi structured interview and secondary data were used. The collected data were analyzed the by OLS regression model. Accordingly, the result of the regression reveals that; size, profitability, capital efficiency, competition with the public owned banks and backed collateral were the most significant factors for the reason why private banks in Ethiopia neglected agriculture. Credit utilizing capability of the borrower is also a moderately significant factor.Since,agriculture is the largest lion share sector in contributing to GDP growth and priority sector in Ethiopia, keeping the other indicators of creditworthiness constant, it is enviable if private banks consider the ecological characteristics around borrowers’ business than to be generally reluctant toward the sector. Improving their profit generating or capital appreciation strategies than hushed for the sector is the other better assignment of Ethiopian private banks. Under developed crop and weather index insurance is also one of the major reasons. Therefore,it is also advisable if the government encourages the insurance companies, to extend their insurance products or services to agriculture sector.

Keywords: OLS, Agricultural loan, Private Banks, Ethiopia, Bank’s; liquidity, profit, size, backed collateral, competition, economic growth and credit utilization capability