Opportunities And Challenges Of Secondary Capital Market: In The Case Of Ethiopia Commercials Banks

Abstract

In Ethiopia, bank based financing is still prevalent, which leads to; control the private sector by a relatively small group of agents and weakened domestic entrepreneurship through favored government or family group ownership with excessive debt ratios. Thus, to avoid this stricture, it is essential to developing an equity market in the country as an alternative. In contrast, the avoiding this stricture and the commencement of capital market is expected to come up with opportunities and challenges for the Ethiopia commercial banks sector. This study aimed to asses related challenges and opportunities of Capital Market for Ethiopian commercial banks. The study used mainly a mixed research approach and data was collected from both primary and secondary sources. Primary data was collected questioners and secondary data was collected from various credible sources. This research employed a descriptive research design. To analyze quantitative data descriptive statistics such as mean and standard deviation were employed. Qualitative data were prepared in narrative from quantitative and qualitative data integrated to triangulate the findings. The key findings of the study revealed that stock exchange could benefit banks to diversify revenue, maximize profit, build up equity capital, improve liquidity, Securitize assets, improve FCY generation and enhance informed decision. The market may help commercial banks to change the loan portfolio of the bank to reduce share of long term loans and to increase and diversify income from non-lending activities. However, it may also affect banks through reducing loan demand and household deposit and increasing exposure to risks. The study suggest the following activities for the banks : prepare a secondary capital market corporate engagement plan; Design Transaction Accounts ( pay-in, pay-out settlement) and Certificate of Deposit; Securitize assets including government bond, coupon bond and condominium loan; Prepare a feasibility Study to begin security/Investment service; Consult/lobby the NBE and actively participate in the regulations preparation of Stock Market and Enhance the capacity of Human resource on capital market operation; identify IT infrastructures requirements and Identify Legal restriction to participate in the security market. Therefore, the research concluded that the concerned commercial banks address the finding of the research.