FACTORS AFFECTING THE ROLE OF COMMERCIAL BANK OF ETHIOPIA

ON THE ECONOMIC DEVELOPMENT: THE CASE OF DILLA BRANCH

RESEARCH SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE DEGREE OF BACHELOR OF ARTS IN
ACCOUNTING AND FINANCE

BY: GIRMAYE TAYE ID NO –R-ACFN-091/10

ADVISOR: AGUMAS ALAMIREW (MSC)

DEPARTMENT OF ACCOUNTING AND FINANCE

COLLEGE OF BUSINESS AND ECONOMICS

DILLA UNIVERSITY

APRIL,2013

DILLA ,ETHIOPIA
 Acknowledgment

First of all I would like to thanks the almightily God who has helped me to pass
the most difficult challenging time of my campus life.

Next to God I would like to express my deepest sincerity and great full gratitude
to my advisor AGUMAS ALAMIREW (Msc) for his extensive scholarly and
knowledgeable advise as well as for his patience assistance support throughout
my work.

Thirdly I would like to thanks may families for their support in providing all the
financial and moral support during in all educational life time.

Fourthly I would like to thanks KALKIDAN MEKONNEN

Who had taken her time and type this paper in a short period of time.

Lastly but not least, my gratitude all quest to all my friends and dormitory
members those who take part in one way or the other in the preparation of this
paper.
 Abstract

The main aim of this research is to assess factors affecting the role of
commercial bank of Ethiopia on economic development in Dilla branch. And
the study examines the impact of this factors overall economic development
and that seriously hamper the banking activity. For identified problem feasible
solutions would be recommended. Primary sources of data are going to be
analyzed out of which the data would be interpreted. The data would be carried
by collecting primary data. The primary data were collected through
questionnaires and structured interview. And the data analysis would be
carried out based on tabulation and percentage (descriptive statistics ) method.

Net carefull interpretation of the analyzed information would be come up with

reasonable results that could help management in taking reasonable decision
for their future operation. Based on the finding of the research, conclusion and
recommendation are drawn.

Table of content
 Content page

Acknowledgement....................................................................................

Abstract .................................................................................................

Table of content............................................................................................

List of acronyms ....................................................................................

List of tables ..........................................................................................

CHAPTER ONE:

1. INTRODUCTION
1.1.1 Background Of The Study ......................................................
1.1.2 Background Of The Organization ............................................
1.2 Statement Of The Problem ..............................................................
1.3 Objective Of The Study ...................................................................
1.3.1 General Objective ...................................................................
1.3.2 Specific Objective ...................................................................
1.4 Research Question ..........................................................................
1.5 Research Methodology ....................................................................
1.5.1 Target Population ...................................................................
1.5.2 Sampling Technique ...............................................................
1.5.3 Types And Source Of Data ......................................................
1.5.4 Methods Of Data Collection ....................................................
1.5.5 Methods Of Data Analysis ......................................................
1.6 Significance Of The Study ...............................................................
1.7 Scope Of The Study ........................................................................
1.8 Limitation of the study.....................................................................
1.9 Definition of terms ..........................................................................
1.10 Organization Of The Study ..............................................................

CHAPTER TWO :

2. RELATED LITERATURE REVIEW

 2.1 Definition Of Bank Role, Bank, Commercial Bank And Economic
development ..........................................................................
2.2 characteristics of banking activity..........................................
2.3 The functions and services of commercial banks ................
2.3.1 Function of commercial banks......................................
2.3.2 Services of commercial banks ......................................
2.4 Framework of banking ..........................................................
2.4.1 objectives of banking framework...................................
2.4.2 Role of banking Framework .........................................
2.5 Factors affecting the role of commercial bank of Ethiopia ......
2.5.1 challenges of E-payment in commercial bank of Ethiopia
.....................................................................................
2.5.2 problem of Inflation......................................................
2.5.3 Institutional capacity ...................................................
2.6 bank regulation .....................................................................
2.6.1 objective of bank Regulation ........................................
2.6.2 General principle of bank Regulation ...........................
2.6.3 Instrument and Requirement of bank Regulation ........

CHAPTER THREE

3. Data Analysis And Discussions

3.3.1 Primary Data Analysis...........................................................

3.3.2 Interview Analysis ................................................................

CHAPTER FOUR

4 conclusion and Recommendation .....................................................

4.3 conclusion .................................................................................
4.4 Recommendation .......................................................................

References

Appendix
 List of Acronyms

CBE- Commercial Bank Ethiopia

ATM – Auto metod teller Machine

E -Payment –Electronic payment.

E-banking –Electronic banking

 List of Tables

Table 3.1 Overview of the sample population

Table 3.2 Background of the respondents

Table 3.3 Main problems in running banking activities

Table 3.4 The main reason for the problems in running activity
Table 3.5 Shows communication between manager and Employees

Table 3.6 Shows responses of respondents about free conflicting duties

Table 3.7 Shows about job training

Table 3.8 Shows the quality of banking activity provided by the branch

Table 3.9 Shows network and power failure

Table 3.10 Shows saving culture between customer

Table 3.11 Problems that affect E-Payment services

Table 3.12 Shows problems in relation to Bank regulation

 CHAPTER ONE

INTRODUCTION

1.1 Background Of The Study

The commercial bank is a bank that provide transactional saving and money
market accounts, and that accept time deposit. This institution offers the
public both deposit and credit services as well as a growing list of anewer and
more innovative services, such as investment advice, security underwriting,
insurance and financial planning. Some uses the term commercial bank to
refer to a bank or division of a bank that mostly deals with deposit and loans
from corporation or large business (peter S.Rose and Milton H.Marquise , 2006,
pp, 421)

The study identify the main cause of the factors in Dilla branch and describe in
detail the factors which affects the role of commercial bank of Ethiopia on the
economic development.

There are several factors faced by the commercial bank of Ethiopia. These are
common in many branches of the country; to mention them:

- Inconsistency in service quality

- Lack of balanced focus on major targets
- Lack of team spirit
- Shortage of skilled manpower
- Inflation
- Poor saving culture frequent network and power failures
(http://www.combanketh.com/news/index.php pid:67and84)

In general, based on the above listed factors the research concern will deal the
way in which the bank can operate to solve (minimize) the factors.
1.1.2 Background of the organization

The forerunner of commercial bank of Ethiopia was the state bank of Ethiopia
which received its charter by decree on Nov.30.1943 in Addis Ababa. The bank
was established with capital one million Maria Theresa Dollar
(http://www.combanketh.et)

The bank acted as the country’s center bank with power of issuing bank notes
and paper money on behalf of the ministry of finance
(http://www.combanketh.et)

In May 1945, the bank was granted the sole right of issuing currency and after
the legal proclamation of 1945, an issue department was established in July of
that year, (http://www.combanketh.et)

Later in July 1949, the bank was made the sole authority to deal in foreign
exchange. The bank was also engaged in wide range of commercial activities,
and introduced saving accounts in January 1946.
(http://www.combanketc.etc)

The state bank of Ethiopia during its two decades of existence opened 21
branches in country, as well as branch office in Khartoum and Djibouti. It
started operations with a staff of only about 40 persons, but this had grown
twenty years later to little short of monetary sectors
(http://www.combanketh.et)

During these periods, the bank played dominant role in the industrial credit
and business finance, and had significantly assisted the growth of industry
and extension of monetary sector (http://www.combanketh.et)

Up on the declaration of the new banking proclamation issued on July 23 of

1963, all previous regulation which governed the banking and monetary sector
were replaced and consequently the function of central and commercial
banking separated (http://www.combanketh.et)

Accordingly the split of the previous state bank of Ethiopia in to National Bank
of Ethiopia and Commercial Bank of Ethiopia new chapter in the history of
commercial bank of Ethiopia (http://www.combanketh.et)

The bank has started to deploy banking technology recently. ATM (Automated
Teller Machine) has been installed in Addis Baba. Also some city branches have
been committed in on line banking. Commercial bank of Ethiopia annual
report for the 2011 shows total assets of 86.5 billon birr. It has about 547
branches (2011)(http://enwikipedia).

At present board of management and five executive management authorizes the

bank. The number of workers has reached over thirteen thousand (from
manager of the bank)

Commercial bank of Ethiopia extended its branch to many district of the

country. One of the biggest branch of these was Dilla main branch. (from
manger of the organization).

Dilla main branch was established in 1966 with 3 employees. At present this
branch is one of the biggest branches of commercial bank of Ethiopia. It has 50
employees. The branch is rendering demand deposit, saving deposit, VISA
branded debit card, credit services, Trade services which facilitate international
trade, local transfer and foreign exchange service including western union
planer transfer, and other in bond and out bond foreign services (Manual of the
organization)

1.2 Statement of the problem

The role of the commercial bank of Ethiopia, by virtue of its size is enormous.
The economic development started 1991, when the command economy was
abandoned and replaced by an open market system. Since then the commercial
bank of Ethiopia has great role for the economic development. It allows
investors to participate in their own name and allows foreign exchange
retention skims for exports. Commercial bank of Ethiopia helps in increasing
the rate of capital formation. It also provide the facility of transferring funds
from one place to another which leads to the growth of trade
(http://www.winna.com/ethiopia to02.htm/)

However there are many factors which can adversely affect the role of
commercial bank of Ethiopia: to mention them: inconsistency in service
quality, lack of balanced focus on major target, lack of team spirit and shortage
of skilled manpower, inflation, poor saving culture, frequent network and
power failure (http://www.combank etc.com/news index.php pid, 67 and 84

In light of the above facts, this study would come up with reliable facts for the
points about the problems that Dilla branch has faced. Besides to what extent
the bank has know how major factors affecting the banking activity and the
reason behind those factors. The obstacles the bank faces in its activity and
the measure the bank shall do in order to alleviate the impact of ht obstacles
would be investigated in this study.

1.3 Objective Of The Study

1.3.1 General Objectives

The general objective of this study is to assess factors affecting the role of
commercial bank of Ethiopia on the economic development.

1.3.2 Specific Objectives

1. To identify factor that affects the role of commercial bank of Ethiopia in
Dilla branch
2. To assess the impact of factor overall economic development.
3. To indicate the way of solving the factor of banking activity.
4. To suggest some solution as to enhance banking activity in the branch.
1.4 Research Question
1. What are the factors that affect the role of commercial bank of Ethiopia
on economic development in Dilla branch?
2. To what extent major factors affect commercial bank of Ethiopia in DIlla
branch?
3. What are the possible measure to alleviate the factors that affect the
banking activity?
4. How can enhance banking activity in DIlla branch?
1.5 Research Methodology
1.5.1 Target population

The study focus on the accounting department in commercial bank of Ethiopia

Dilla main branch by selecting Some personnel like; supervisor, Auditor, and
cashier (Teller).

1.5.2 Sampling Techniques

From the target population of the study that is managers, auditors, and Tellers
of commercial bank of Ethiopia. Dilla branch, the researcher used non-
probability sampling technique especially purposive sampling techniques. This
sampling techniques would be taken, because the number of workers in this
branch is not too large. Hence, among 50 employees, the bank manager and 15
employees were taken as sample.

1.5.3 Types And Sources Of Data

The study would be conducted using primary sources of data to achieve

objective. The primary data would be questionnaires and structured interviews.

1.5.4 Methods Of Data Collection

In this study closed and opened questionnaires would be distributed to the

employee of the bank. Personal interview to be hold with the manger of the
organization in order to strength the reliability of the information collected.
Methods of Data Analysis

After the relevant raw data collected from sources using data collection
method, processing including editing, classifying, and summarizing the
collected raw data was undertaken by the researcher. The data would be
analyzed by using descriptive statistics such as tables and percentage.

Significance of the study

This study will contribute a lot to encourage the banking activity in Dilla
branch. It also provides the bank with brief information about its activity.
Besides, the weakness and strength of the bank is commented to support
accounting staff. This study has also a significance of giving highlights about
the entire banking activity. And this study will give guideline to the concerned
manager of the bank with regard to how they properly address the need of the
customer. Further more, the study will be used as a reference materials for
those who want to conduct their research on the same issue.

1.6 Scope of the study

The commercial bank of Ethiopia as a lot in number now around 641 branches
in the country. So it is difficult to cover all braches. Therefore, this study
covers the Dilla branch only major factors affecting the role of commercial bank
of Ethiopia on economic development and used data from 2011 up 2012.

1.7 Limitation of the study

In the process of conducting this study, there are certain constraints which
limits the scope of the study. Some of these constants are the following:

- Because of the restricted supply of data, the researcher unable to get all
the needed data from the bank.
 - The researcher was unable to get all the staff members of accounting
department of the bank during the period of data collection.
- Shortage of sufficient reference materials
- Unwillingness of some responders to give full (relevant) information.
1.8 Definition of the terms
 Inflation: the rate at which the general level of price for goods and services is
rising.
 Letter of credit:- A form of guarantee of payment issued by a bank on behalf
of a borrower that assures the payment of interest and repayment of
principal on bond issues.
 Advance:- increase in the market price of stocks, bonds, commodities or
other assets.
 Discretion:- accounts over which an individual or organization, other than
the person in whose name the account is carried.
 Guarantee:- the assumption of responsibility for payment of a debt or
performance of some obligation if the liable party tails to perform to
expectation.
 Remittances: payments for purchases by cash, check or electronic transfer
 Agency:- in context of general equities, buying or selling for the account and
risk of customer.
 Negotiable instrument: an unconditional order or promise to pay some
amount of money, easily transfererable from one party to another.
 Securities: pieces of paper that proves ownership of stock bonds, and other
investments.
 Liquidity:- a high level of trading activity, allowing buying and selling with
minimum price disturbance.
1.9 Organization of the study

This paper is divided in to four chapters

The first chapter highlights introduction of the study.

The second chapter consists of related literature review.

Chapter three present; analysis and interpretation of the data gathered.

The last chapter provide conclusion and recommendation.

CHAPTER TWO

RELATED LITERATURE REVIEW

2.1 Definition of Bank Role, Bank, Commercial Bank And Economic

Development

Bank Role

Any modern financial system contributes to economic development and

the improvement in living standards by proving various services to the
rest of the economy. These include clearing and settlement systems to
facilities trade, channeling financial resources between savers and
borrowers, and various products to deal with risk and uncertainty.
(www.rbht.govt.nt(speech/4487002htm)

In principle, these various functions can be provided by banks or other finical

institutions or directly through capital markets. Banks and other financial
intermediates exist because they are an efficient response to the fact that
information is costly. ((www.rbht.govt.nt(speech/4487002htm)

Major roles of banks are’s accepting deposits, advancing loans, receiving of

valuables for safe custody, acting as references, issue letter of credit in foreign
trade, merchant banking service provides, deal in foreign exchange, issuer of
travelers cheque and credit cards, sale and purchase of stock exchange
securities (http://www.social studieshelp.com/eco-banko.8:50Am)

Bank

A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who wants to save in the
form of deposit and it lends money to those who need it.
(http://www.ehnow.com/list-6127387-character,combank,htm)

It is a commercial institution licensed as a taker of deposit. Banks are

concerned mainly with making and receiving payments on behalf of their
customers, accepting deposits, and making short term loans to private
individuals, companies, and other organization. (Encyclopedia of Accounting
(2006, 143)

Commercial bank

Commercial banks are financial institution that offer the pubic both deposit
and credit services, as well as a more growing list of a never and innovative
services, such as investment advise, security underwriting, selling insurance
and financial planning. It attract saving by accepting deposit from the genera
public and advance loan mainly business firm. The name commercial implies
that those banks do not most of their resource to meeting the financial need of
the business firm. However, in recent decades commercial banks have
significantly expanded their fairing of financial services to customers and
government unit around the world. (peter S.Roea and Milton H.Morquise
16,55).

Role of Commercial Bank

 They hold largest proportion of the total asset of all finical institution all
over the world.
 They are the principal means of making payments through checking
account (demand deposit) credit card, and electronic transfer services
they offer.
 They have the ability to create money from excess reserve made available
from the public deposit.
 Today, commercial banks are most important saver of consumer credit
(loan to individual and families) and one of the major sources of loans to
small business.
 Commercial banks are also major buyers of debt securities issued by
federal, state and local government. (peter S.Rose and Miston
H.Mosquise, 421)

Economic development

The expansion of the out put of an economy, usually expressed interims of the
increase of national income. Nations experiences different rate of economic
growth mainly because of differences in population growth, investment, and
technical progress. (Oxford Dictionary of Business (1986), p177)

2.2 Characteristics of Banking activity

 A bank accepts money from the people in the form of deposits which are
usually repayable on demand or after the expiry of afixed period. It gives
safety to the deposits of its customers. It also acts as a custodian of
funds of its customers;
  A bank provides easy payment and withdrawal facilities to its customers
in the form of cheque and drafts, and it also brings bank money in
circulation;
 A bank provides various banking facilities to its customers. They include
general utility services and agency services;
 A bank is a profit seeking institution having service oriented approach;
 Banking is an evolutionary concept. There is continuous expansion and
diversification as regards the function, services and activities of a bank;
 A bank acts as a connecting link between borrowers and lenders of
money. Banks collect money from those who have surplus money and
give the some to those who are in need of money.
(http://www.ehow.com/list-6127387-charactrcombank,htm)

2.3 The Functions and Services Of Commercial Banks

2.3.1 Functions of Commercial Banks

2.3.1.1 Main Functions of Commercial Bank

 Receiving deposits;; the primary function of commercial bank is accepting

deposits from the pubic. Banks maintain deposits accounts for their
customers and converts deposit money in to cash and vise versa, at the
discretion of the latter:
 Making loans and advances; leading money is one of the important
functions of the bank. This lending of advancing of money can be either up
on our without security. Banks accept deposits form those who have
surplus money and grants loans and advances to those who need them.
Banks charge comparatively higher rate of interest on the amount advanced
as a loan. Loans are advanced by the bank in such a ways as, discount of
 bills, short notice loans, and various forms of direct loans to trades and
producers;
 The drawing, making, accepting, discounting, buying selling, collecting and
dealing in bill of exchange, promissory notes, coupons, drafts, bill of
loading, railway receipts, warranted, debentures, certificate, scripts and
other instruments and security whether transferable or negotiable or not;
 The granting and issuing of letter of credit, traveler’s checks and circular
notes;
 The receiving of all kinds of bonds, valuables on deposits or for safe custody
of otherwise;
 The purchasing and selling of bonds, other form of securities, other forms of
societies on behalf of constituents of other one;
 The acquiring, holding, issuing on commission, underrating, and dealing in
stock, funds, debentures, debenture stocks, bonds obligation, security and
investment of all kindg. (E.P.Doyle, 274)

2.3.1.2 Subsidiary or ancillary function

o Guarantee such as performance guarantee

o Safe custody of deeds and securities
o purchase and sales of services
o collection of interest on securities or debentures and dividend on shares,
collection pension bills

Remittance of funds, such as bank drafts, mal transfers, telegraphic transfers

to other parts of the country and to foreign countries.

Personal tax assistance ,preparing income tax/sales tax/wealth tax returns.

Investment facilities such as underwriting of new issues guidance to invest,

stock exchange assistance.
Credit transfers, credit cards, travelers cheek, emergency vouchers, and sales
of the unit trust, national saving certificated, etc (E.P Doyle, 275)

2.3.2 Services of commercial bank

2.3.2.1 Agency services

 Customers can arrange for dividends to be sent to their bank and paid
directly in to them for payment and to act up on announcements in the
press of drawn bonds, coupon payable, etc.
 To collect make payment for bills, checks, promissory notes, interest, rent,
subscription, insurance premiums, etc for their services, some charges are
usually levied by the banks;
 Most of the commercial banks have executes and trustee department; some
may have affiliated companies to deal with this branch of their business.
They aim to provide, therefore, a complete range of trustees, executer or
advisory services for a small charge.
 Sometimes banker also employ income tax expects not only to prepare
income tax returns for their customers but to help them to get retuned of
income tax in appropriate cases. (E.P Doyle, page 275)

2.3.2.2 Services Given by commercial bank Ethiopia

Commercial bank of Ethiopia gives the following services for this esteemed
customers efficiently and effectively using modern technology;

 Customer accounts and transaction, services which include account

opening in local and foreign currency, deposit cash and negotiable
instruments, payments in local and foreign currency, foreign and local
transfer service and foreign currency exchange;
 VISA branded debit card which allows customers to access his or her
account and make financial transactions using ATM, and POS terminals
in the public space without the need for a human clerk or bank teller;
  Credit service and

 Trade services which facilitate international trade.

2.3.2.3 Types of trade service products

1. documentary credit: is a written undertaking by a bank given to the seller

at a request and the instruction of the buyer to make payment or accept and
pay bill of exchange (draft) drown by the seller up to a stated sum of money
within a prescribed time limit and against stipulated documents.

2. Documentary Collection: is a method under which banks handle a seller’s

commercial documents with or without financial documents in accordance with
or without financial documents in accordance with instructions received from
the seller in order to deliver the documents to buyer (importer) against
payment and acceptance or against other terms and conditions.

3. Advance payment: is a method under which a seller receives payment from

a buyer prior to shipment or the agreed up on goods or rendering the agreed up
on service.

4. Consignment basis payment: it is a method of payment in which the title to

the goods remains with the seller until an agent (distributor) in foreign country
sells them. Payment is made to the seller it and when the agent (distributor)
sells the goods.

5. Guarantee: is a written undertaking by the bank to compensate (pay asum

of money) to the beneficiaries (local or foreign) in the event that the obligor /
principal fails to fulfill his/her/ its obligations in accordance with the terms
and conditions of the guarantee.

6. Franco Valuate license (permit): is a license issued to importers of goods

on which no foreign exchange is payable.
7. Small export items license (permit): is a license issued for small export
items to tourists, foreign residents of Ethiopian replacements, exhibitions and
personal effects and belongingness etc.

8. Money Transfer Services:- incoming money transfer can be handled

through:

 SWIFT and in collaboration with foreign money transfer companies.

 Exchange of foreign cash notes, traveler and commercial cheques
 Foreign money transfer companies who are current working with the
bank

9. Foreign currency account operation:

 Non-resident accounts: this can be opened to international

organization, foreign nationals, NGOs, embassies, etc. whose source
of income is in foreign currencies.

Diaspora account: is a foreign currency account for non-resident Ethiopians

and for non-resident Ethiopian origin. The account can be opened in :

 Fixed time deposit,

 Current account
 Non-reparable birr account

10. Selling Bonds:

 For exporters- currently the bank has waived all changes on export
business.
 Exporters can open retention accounts from their export proceeds
 In coming money transfer services: Currently the bank has waived all
changes on incoming money transfer (Brochres of the organization)

2.4 Framework of Banking

  Core banking transformation:- Provide an integrated infrastructure for
managing all business function and mission – critical data across the
enterprise.
 Customer care and insight:- increase customer confidence and drive
revenue growth from greater insight in to customer needs.
 Integrated risk management:- Take a holistic approach to managing
risk across the enterprise to improve financial performance.
 Payments and securities:- Enable flexible, efficient and secure
payments and securities operations while reducing costs
(www.01.ibm.com/software/industry/banking/framwerok/9:55Am)

2.4.1 Objective and role of banking framework

2.4.1.1.: Objectives of baking framework

 To preserve the capital of the over all portfolio over the investment
horizon subject to the appropriate risk constraints:
 To maintain sufficient liquidity, reserves shall be invested in securities
(www.01.ibm.com/software/industry/banking/framwerok)

2.4.1.2 Role of Banking Framework

 Pre-built assets that reduce development costs.

 Industry models that help you build solutions faster.
 Best practice methodologies that promotes standardization across
solutions.
 A scalable common architecture that consolidates systems, and
provides flexibility for future growth
(www.01.ibm.com/software/industry/banking/framwerok)

2.5 Factors affecting the role of commercial bank of Ethiopia

2.5.1 Challenges of E-Payment in commercial bank of Ethiopia

Banking sector in Ethiopia faces numerous challenges to adopt advanced
technologies as well as E-banking applications and seize the opportunities
presented by ICT application in general.

Commercial bank of Ethiopia, despite , being the pioneer in introducing ATM

based payment system, it lagged behind private commercial bank. Low level of
infrastructural development, lack of suitable legal and regulatory framework,
high rate of illiteracy, frequent power interruption and security issues are the
main challenges for developing e-banking in Ethiopia. All banks in Ethiopian
are too late 10 move with technological advancement (Garedachew Fekadu
(2009) Gonder university papers.ssrn.com/5013/paper. cfm? Abstract- id =
1492006).

2.5.1.1 New Technologies

Banking sector in Ethiopia it is still under developing. The banks try to use
advanced technologies and attract customers. The new software’s high
configured hardware devices (Computers) to maintain centralized servers and
individual PC’s and also to use these software’s employee needs more skill.
Ethiopia is lagging with proper trained persons.
(Yaleisp.org/cop-content/uploads/2009/10 Assefa-ICT.doc).

2.5.1.2 Internet and Telecommunication

Lack of infrastructure for internet and telecommunications impede smooth

development and improvements in E-banking in Ethiopia. Still to day, the
whole country is total depending on only one network called Ethiopia
telecommunication. The government is not allowed any other private
telecommunication network in the country (Yaleisp.org(wp-ocntent/up
load/2009/10 Assafe – ICT-dod)

2.5.1.3 Lack of suitable legal and regulatory framework for

banking

Ethiopian current laws do not accommodate electronic contracts and

signatures. Ethiopia has not yet enacted legislation that deals with E-
commerce concerns including enforceability of the validity of the electronic
contracts, digital signatures and intellectual copyright and restrict the use of
encryption technologies. ICT in Ethiopia is now collaborating with Europe and
other countries in the world and developing regulatory framework for banking
sector (Yaleisp. Org/WP-content (uplads/2009/10/Assefa-ICT-doc).

2.5.2 Problem of Inflation

The first factor to affect interest rate is the actual or expected inflation rate in
the economy. Specifically, the higher the level of actual or expected inflation,
the higher will be the level of interest rate. The institution behind the positive
relationship between interest rate and inflation is that an investor who buys a
financial assets must earn a highest interest rate when inflation increases to
compensate for the increased cost of foregoing consumption of real goods and
services to day(Financial Markets and Institution, A Modern Prospective (PP
45).

2.5.3 Institutional capacity

Weak institutional capacity, particularly at lower level of government, is a

challenge. This is aggravated by high staff turnover due to inadequate

incentives, among other factors. Overall, there is a shortage of highly skilled

manpower, including accounts, technicians and engineers (Yateisp.org/wp-

content/up/ocal(2009/10/Assefa-ICT-doc)

2.6 Bank Regulation

Are a form of government regulation which subject banks to certain

requirement restriction. Banks regulated for there different reasons. The first
two reasons involves prudential regulation of banks dealing with their safety
and soundless, the third reason concerns social goals.

First banks are regulated to reduce the risk of large scale failures that would
adversely affect the level of economic activity. In this regard the smooth
functioning of the economy is dependents the money supply on the payment
system checkable deposit, saving deposit, and time deposit institution after the
liquidity mobility and acceptability are necessary for our economic
performance.

There is also concerned asystematic risk occurs when banks failed potentially
to undertake all of the world major economies are linked to gather thought he
financial markets and other business relationships commercial can be work as
a business relation different country in facilitating economic performance.

Banks are also regulated to achieve desired social goals. This public choice
approach to regulation serve to reallocate resources from one group to another
(en.wikpidia.org/Wiki/Bank-regulation.9:04Am

2.6.1 Objective of Bank Regulation

The objective of bank regulations are:

  Prudently to reduce the levels of risk bank creditors are exposed to
protect depositors.
 System risk reduction to reduce the risk of disruption from trading
condition for banks causing multiple or major bank failure.
 Avoid misuses of banks to reduce risk of banks bening used for criminal
purpose.
 To protect banking confidentiality
 Credit allocation to direct credit to favored
sectors.(en.wik.org/wiki/Bank-regulation)

2.6.2 General principle of bank regulation

 Minimum requirements are imposed on banks in order to prominent in

banking of the regulation. The most important minimum requirement in
banking regulation is maintaining minimum capital ratios.
 Supervisory review banks are required to be issued with a bank license
by the regulatory in order to carry out business as banks and the
regulation supervises licensed banks for compliance with the
requirement and responds to braches of the requirements through
obtaining understanding giving direction imposing penalties
(en.wik.org)wik/Bank-regulation)

2.6.3 Instrument and Requirement of bank Regulation

Capitals requirements a frame on how banks must beheld their capital in

relation to their asst.

Reserve requirements set the minimum reserve each bank must hold to
demand deposited and bank note. This type of regulation has moves towards
capital adequacy and in many counties there is no minimum reserve retio is
liquidity rather than safety.(en.wikipedia.org/wiki/bank-regulation)
 CHAPTER THEE

Data Analysis and Discussion

3.3.1 Primary data

This chapter is mainly concerned with analysis and discussion of data

gathering through the questionnaire and structured type of interview. The
questionnaires were distributed to employees of CBE Dilla branch. And the
interview were hold to manager of the branch. Through survey, 15
questionnaire copies were distributed and out of this 12 were collected, 3 of
them were not collected due to different reason because of this they were
rejected from data analysis and discussion.

Table 3.1 Overview of the sample population

Respondents Sample population Response percentage

Employees 15 12 80%
Total 15 12 80%
( Source: questionnaire survey)

In the above table, there are certain observation about respondents taken as a
vital source of information in this study. These survey questionnaire were
distributed to 15 employees out of these 12 questionnaire (80%) have been
returned generous about the sources help to obtain information to discuss and
argue about different facts of the study.
Table 3.2 Background of the respondents

Item In number In percentage

Sex: male 9 75%

Female 3 25%

Total 12 100%
Age: <30 8 67%
30-40 3 25%
40-50 1 8%
Total 12 100%
Educational
Level:
Diploma 2 17%

Degree 9 75%

MA 1 8%

Total 12 100%
Work experience:
<1 year 1 8%
1-5 year 8 67%
5-10 year 2 17%
>10 year 1 8%
Total 12 100%
(Source: questionnaire survey) Table 3.2 shows the respondents 75%
and 25% are male and female respectively. More than half of the respondents
67% lies in the age of less than 30 years old and 25% of them are ranging
between 30 up 40 years old .And 8% of them are age ranging from 40 up 50
years old. According to qualification majority of the respondents 75% degree
holder ,17% diploma holder and 8% of the respondents are MA holders.
Regarding the experience 8% of the respondents have less than l year of
services, 67% respondents have 1-5 year of services 17% respondent are 5-10
years of services and 8% of respondents are above 10 years of services.

Table 3.3: Main problems in running banking activities.

Response No of respondents In percentage

Inconsistence in service quality - -
lack of balanced focused on major - -
target
Frequent network and Powerfailure 5 41.7%
Lack of team spirit -

Shortage of skilled manpower 2

poor saving culture 3

All can be answer 2

Total 12 100%
(Source: questionnaire survey)

Table 3.3 indicates that 41.7% of the sample respondents responds that the
major problems faced in running banking activity is frequent network and
power failure. The 25% of the respondents respond is poor saving culture. Next
to this 16.7% of the respondents respond shortage of skilled manpower. And
the remaining 16.7% of the respondents respond all as the major problems.
This shows shortage of skilled manpower, inconsistency in service quality, and
lack of balanced focused in major target influence is very less.
The above finding implies that the majority of the respondents replied that
frequent network and power failure is the major problem facing banking
activity.

Table 3.4 the main reason for the problem in running activities

Response N0 of In percentage
respondents
Carelessness 6 50%
Lack of effective management 4 33%
Any other 2 17%

Total 12 100%
(Source: questionnaire survey) 0

This is because of the fact that there is carelessness by employees which is

greatest constraints in running their activities. Commercial bank of Ethiopia in
Dill branch also faces the same situation stated here running their activities is
lack of effective management.

Table: 3.5 shows communication between manager and employees

Item

Is there good communication between the manager and employees?

Response In N0 In percentage
Yes 12 100%
No - -
Total 12 100%
(Source: questionnaire survey)

Table 3.5 shows out of 12 respondents 100% of the respondents say yes. This
implies that the bank activity can improve through good communication
between manager and employee of the bank that contributes to the activity.

Table 3.6 shows responses of respondents about free conflicting duties

Statement

Are employees free from conflicting duties and are able to investigate any
area?
Response In N0 In percentage
Yes 5 42%
No 7 58%
Total 12 100%
(Source: questionnaire survey).

Table 3.6 shows out of 12 respondents 7(58%) of the respondents say no and
5(42%) say yes .According to the respondents response the largest proportion
of the response shows that the employee are not free from conflicting duties
and not able to investigate any area. Therefore, this results shows most of
employees are busy in their duties.

Table 3.7 shows about job training

Statement

Have you get on job training with this 3years?

Response In N0 In percentage
Yes 12 100%
No - -
Total 12 100%
(Source: questionnaire survey).

Table 3.7 shows that job training within three years. 100% of the respond say
yes. Since bank work require knowledge and experience on a wide range of
system and operation, it is imperative to deploy employee’s with extensive
professional skills and upgrade their skill through continuing professional
training and development.

Even though, the majority of the respondents are respond the open ended
question. Their point of view are as follows:

- The job in the bank by its nature tedious and routine, so the training given
have a great contribution for productivity.
- It also increase work performance
- Training results in the increasing quality of back activity
- It create capability to do the job.
- It provide information for improving knowledge, communication skill and
attitude.
Therefore, according to the respondents, training have high effect on
employees productivity by increasing work performance and by
creating capability of the job.
Table:3.8 shows the quality of banking activity provided by the
branch

Response In N0 In percentage
High sufficient 5 42%
Sufficient 7 58%
Not sufficient - -
Total 12 100%
 (Source; questionnaire survey).

As indicated on the table 3.8,58% of the respondents replied that sufficient,

42% of the respondents respons high sufficient . There is no respondents who
respond not sufficient. There is no respondents who respond not sufficient .
From this the researcher understand that the service quality provided by the
bank is possible to say sufficient.

Does net work and power failure affect the banking activity?

Response In N0 In percentage
Yes 11 92%
No 1 8%
Total 12 100%
Table 3. 9 shows network and power

(Source: questionnaire survey).

Table 3.9 shows 92% of the respondents say and 8% of the respondents say
No. this implies that the network and power failure influences the entire
activity of the bank. As the majority of the respondents responds yes their
point of view are as follows:

- It make the work too delay

- It decrease the quality of services given by the bank
- It may affect customer satisfaction. that means the main effect is customer
dissatisfaction.
- Therefore, according to the respondents respond network and power failer
has high impact on the banks activity.
 Table : 3.10 shows saving culture between customer

Statement

Is there poor saving culture between customer?

Response In N0 In percentage
Yes 9 75%
No 3 25%
Total 12 100%
Source: questionnaire survey.
Table 3.10 revealed that 75% of the respondents that say there is poor
saving culture between customers. Therefore, from this survey the
researcher understand that there is poor saving culture between
customer.
For the open ended question some respondents puts the possible
measure: now a day 84% of financial transaction made out of bank.
Since this phenomena, customer needed to take promotion, continue
sly learning through media, reading news paper and magazines.
Table: 3.11 problem that affect E-payment services

Is there any problem that affect E- payment service in the branch

Response In N0 In percentage
Yes 3 25%
No 9 75%
Total 12 100%
(Source: questionnaire survey)

As shown on 3.11, 25% of respondents say yes and 75%of respondents say No.
Respondents who respond the item as yes reason out what problem affect the
E-payment service is network and power failure as the major issue. Therefore,
the researcher understand that there is problem on electronic payment services
in the bank. Activity of Dilla branch.

Table:3.12 shows problems in relation to bank regulation.

Statement

Have you faced problem in relation to bank regulation?

Response In N0 In percentage
Yes - -
No 12 100%
Total 12 100%
(Source: questionnaire survey).

As shown on table 3.12 all respondents said no problems faced in their work in
relation to bank regulation. Hence, the researchers understand that bank
regulation has no impact on the bank activity.

 Suggestion to improve and develop the entire banking activity

For the open ended question some respondents describe their suggestion
to improve and develop the entire activities of the bank through:
 First promoting by any means the branch and by teaching the people the
use of saving and generally banking services.
 Other respondents also explain, be in rule, in bank rule and regulation on
customer satisfaction.
 Some respondents describes that, increasing skilled manpower and make
strong relationship with telecommunication to decrease network failure, and
telecom provide quality network and telephone services.
 Issues related to factors affecting the role of commercial bank of
Ethiopia.
Some of respondents indicates an issue related factors affecting
the role of CBE on economic development
 Less satisfaction of employee
 Lees infrastructure of the country
 The bank is not able to improve the capital budget of company
from other banks.
3.3.2 Interview Analysis
In addition to questionnaires, structured type of interview to gather data
from the manager of commercial bank of Ethiopia Dilla branch were
used.
 Do you think that bank regulation has an impact on the banking activity?

As the manager of the bank described, we work based on the bank regulation
that the national bank legislate. Speaking on occasion, the managers said that,
it is the law of country the CBE depends on. He also said, the bank regulation
estates the customer deposit rate is at minimum of 5% and no one accept
deposit from customer who come in to deposit less than 5% rate. The manager
continues, the bank regulation gives security for employees, it safe the security
of employees. Therefore, the bank regulation has no impact on the banking
activity.

 Does inflation affect the saving culture of the customer?

The manager responded that inflation means the overall increase in prices
of the increase in the cost of living. If there is increasing in good and
services the customer deposit will decrease. Because, Human wants should
 be first fulfilled before, therefore, inflation has the main problem over the
saving culture of the customer.
 Do you think that the existing employee’s get training and advise to motive
timely?
The manager responded that, most of the employee timely get training and
advises in order to change old way doing of tasks, to make positive feeling of
their work and there are also job training and experience sharing to motive
the employee
 Do you agree that the existing number of employee of the bank enough?
The manager responded that, the existing number of employees are almost
enough .Because, the bank does not use the manual system to run its
activity, but the bank uses electronic system to render it’s services
therefore, the existing number of employees are enough.
 What mechanism do you suggest to make effective and efficient banking
activity
The manager suggested that there are three branches in the town and two
outlet branches all these branches must be interconnected. There should be
smooth network connection. For this reason, tale, must give special support
for us. In addition to this effective network, qualities employee (skill),
knowledge of employee, for computer up date is necessary. Therefore, all
these must be interconnected to make effective and efficient banking
activity.
 CHAPTER FOUR:

Conclusion and Recommendation

4.1 conclusions

This paper is set out to investigate the factors that affect the role of commercial
bank of Ethiopia in Dilla branch and the overall problems that hinder the
effectiveness of the bank to achieve its target. In this paper an attempt has
been also made to identity the problem related to the major problems faced by
commercial bank of Ethiopia are; frequent power and network failure, poor
saving culture and shortage of skilled manpower respectively. From the above
findings the researcher can arrive at the following conclusion:

 There is a weakness from the side of customer in their saving culture

 The study found that frequent network and power failure is one of the
major problems for the bank activity in its role on economic development.
Because of this communication with other banks fail, services given by
the bank decrease, the work delays are one of the problems behind the
network and power failure.
 There is good communication between manager and employee’s of the
bank.
4.2 Recommendation
 Many issues are discussed concerning factors affecting the role of CBE on
economic development. Potentially recommendations are given. The
forwarded recommendations are applicable for the organization. In
relation to the problems of factors affecting are forwarded:
 The manager of the bank has to make strong relationship with
telecommunication in order to increase network connection that its failer
challenges the activity of the bank and to make quality network telephon
services..
 The bank manager must free employee from conflicting duties and help
them to investigate any area. Because investigation plays a great role in
helping to understand the banking activity in their investigation. Manager
should make personal meeting with customer to make awareness about the
necessity of saving in order to enhance the saving culture of the customer. .
 The bank manager should encourage the customer taproot their saving
activity when inflation occurs and affect the saving culture of the society.

The bank manager has to cooperate with other branches to control other
related challenges facing the bank activity and to provide quality services, so
that the bank activity in effective.
 REFERENCES

 Ashu Abuja(2006).Encyclopedia of Accounting

 E.P Doyle(2005). practice of banking 2nd edition
 Peter S. Rose and Milton H. Marquise (2006).Money and capital market
9the edition.
 Macmillan (2005). principle of Banking, Indian institute of banking and
Finance
 Http://en. Wikipedia. Org/ wiki/ commercial –bank-Ethiopia
 Http://ieee. Xplore. ieee. Org/expl/abs.all.isp/renumber =5304469
 Http://www. Combanketh com/news /inws. Phppid=67 and 84
 Http://www. Combaketh .et
 En. Wikipedia. Org/wiki/bank -regulation
 Gardachew Fekadu(2009) Gondar university papers.
Ssrncom(5013)paper. Cfm 2 abstract. id =1492006.
 Http://www. Socialstudishelp .com/Eco Bank
 Http://www. Enhow.com/list 6127387- character –combank .htm.
 WWw.rbhz.gov’tnz/speech/ 4487002.htm.
 www.01. Ibm.com/software/industry/banking/framework
 Yaleisp. Org/wp- content/uploads (2009/10 Assefa-IcT-doc
 Appendix I
Dilla University

COLLEGE of Business and Economics

Program of Accounting and Finance

Questionnaire For Employee Of The Organization

Dear respondents I would like to thank you in advance for helping in tilling the
questionnaire regarding to factors affecting the role of commercial back of
Ethiopia on economic development.

Instruction:

 You are not required to write your name

 Put tick( ) sign for the choice in the boxes provided
 Specify your answer on the space provided.

Part I- General information

1. Sex: A. Male B. Female

2. Age: A. <30 B. 30-40 C. 40-50
3. Educational level: A. Diploma B. Degree C. MA
4. Work experience: A. < 1 year B. 1-5 year C. 5-10 year D. >10 years
Part II information about problems
1. What are the main problems that you have faced in running banking
activity.
Inconsistency in service quality poor saving culture 
Lack of balanced focus on major target Lack of team sprit 
Frequent network and power failure  Shortage of skilled manpower All
can be answer 
2. What do you suggest for the reason behind the above problems?
Carelessness  lack of effective management 
If any other, mention it __________________________________
3. Is there good communication between the manger and employee?
A. Yes B. No
4. If your answer for Q 3 is no, what is the problem? _____________________
________________________________________________________________________
________________________________________________________________________
5. Are employees tree form conflicting duties and are able to investigate any
area? A. Yes B. No
6. If your answer for Q.5 is yes, what will your expected out come?
________________________________________________________________________
________________________________________________________________________
7. Have you get on job training with in this 3 year? A. yes B. No
8. If your answer for Q.7 is yes, what will your expected outcome?
________________________________________________________________________
________________________________________________________________________
9. The quality of banking service provided by the branch made economic
development:
A. Highly sufficient
B. Sufficient
C. Not sufficient
10. Does network and power failure affect the banking activity? A. yes B.
No
11. If your answer for Q10 is yes, what will be the effect you expect?
12. Is there poor saving culture between the customers? A. Yes B. NO
13. If your answer for Q.12 is yes, what are the possible measure?
________________________________________________________________________
________________________________________________________________________
14. Is there any problem that affect electronic payment service in the
branch? A. Yes B. NO
15. If your answer for Q14 is yes, what are the problem?
________________________________________________________________________
________________________________________________________________________
16. Have you ever faced problems in relation to bank regulation? A. yes
B. NO
17. If your answer for Q16 is yes, in what way your complain belongs?
________________________________________________________________________
________________________________________________________________________
18. What do you suggest to improve and develop the entire activities of the
bank in the branch? (please list your option as far as possible)
________________________________________________________________________
________________________________________________________________________
19. If you have any suggestion or comment concerning an issue related
with factors affecting the role of commercial bank of Ethiopia on
economic development, please specify it:
________________________________________________________________________
________________________________________________________________________
 Appendix II
Bank Manager Interview Questionnaire

1. Do you think that bank regulation has an impact on the banking

activity?
2. Does inflation affect the saving culture of the customer?
3. Do your think that the existing employees get training and advice to
motive timely?
4. Do you agree that the existing number of employee of the bank enough?
5. What mechanisms do you suggest to make effective and efficient banking
activity?