The Impacts of Private Banks on Economic Growth in Ethiopia

Abstract

An improvement in nation’s economic growth is contributed by major functions of private Banks such as deposit mobilization, giving credit to entrepreneurs, financing investment and foreign currency purchase and remittances. However, it is adversely affected due to an increasing amount of   Banks non-performing loans in the long run. The studies that had been conducted on the banking sector focused on the general policy, capacity, the Bank performance and quality of service on customer satisfaction. Hence the objectives the study was to examined the short and long run impact of private Banks on economic growth in Ethiopia. The time series data which covering 1994/95 to 2015/16 from National Bank of Ethiopia was analyzed by employing VECM by using e-views software. The result indicates that deposit mobilization, investment, foreign remittance and purchase have positive and significant relationship with GDP with the coefficients of 0.8096, 0.1052 and 0.0297 respectively. The coefficients imply that for one unit rise in deposit mobilization of private    Banks causes an increase of GDP by 0.8096 units, for one unit rise in investment of private Banks cause an increase in GDP by 0.1052 units and for one unit rise in foreign remittance and purchase of private Banks cause an increase in GDP by 0.0297 units respectively. Therefore, private Banks are playing indispensable role on the economic growth in Ethiopia by performing their primary functions in the economic activities. Hence, to accelerate economic growth, Banks should collect deposit from every corner of the country so as to finance larger investment projects.

Keywords: economic growth, private Banks, deposit, investment, VECM

DOI: 10.7176/JESD/10-11-06

Publication date:June 30^th 2019