The Effect of Global Financial Crisis on the Financial Performances of Commercial Banks of Ethiopia

Abstract

The 2007 financial crisis, triggered at the United States of America, affected many financial institutions around the world. In Ethiopia, some scholars argue that Commercial banks of Ethiopia (CBE) are not vulnerable for global financial crisis. Because, Commercial banks of Ethiopia are owned by state and domestic investors and the country does not allow foreign banks to operate in the country. In line with this argument,   this study sought to investigate the effect of global financial crisis on the financial performances of commercial Banks of Ethiopia. The study used judgmental sampling method, taking in to account the age and accessibility of complete audited financial statements. The sample size of the study was two state owned and five private commercial banks.  The study dominantly used secondary data. So as to triangulate results, the study also employed primary sources of data. To measure and analyze performance of commercial banks during the periods 2004-2010, CAMEL model and SPSS statistical tools were employed. The study found that the banks had had liquid and quality asset during the crisis.  But among the growth mean deference of six variables of international banking  related activities, only two variables (Deposit in Foreign Banks and Gain from Foreign Currency Translation and Exchange) had positive growth mean during the global financial crisis; the change was not statistically significant at 5% significance level.  Whereas loan dispersed for importers (LI), interest income from foreign deposit, ROA, total revenue from international banking actives had been decreased by 214%, 217%, 16% and 39% respectively. These changes were statistically significant at 5%. Thus the study concluded that, despite CBE were owned by state and domestic investors and international banks has been prohibited to operate in Ethiopia, the financial crisis significantly affected the financial performances of Ethiopia banking industry.

Keywords: Global Financial crisis, financial performance, commercial banks of Ethiopia, CAMEL

DOI: 10.7176/RJFA/10-22-01

Publication date: November 30^th 2019