FACTORS AFFECTING THE ROLE OF COMMERCIAL BANK OF ETHIOPIA ON

ECONOMIC DEVELOPMENT (THE CASE OF SHASHEMENE MAIN BRANCH)

BY: NASIR ABDELA

ADVISOR: ABIY GETAHUN (Ass.pro)

RESEARCH SUBMITTED TO DEPARTEMENT OF ACCOUNTING AND

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

JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

JANUARY, 2017

JIMMA, ETHIOPIA
Acknowledgment
First of all I would like to thanks the almightily God who has helped me to do
this research proposal. Next to God I would like to express my deepest sincerity
and great full gratitude to my advisor ABIY GETAHUN for his extensive
scholarly and knowledgeable advice as well as for his patience assistance
support throughout my work. Thirdly I would like to thanks my families for
their support in providing all the financial and moral support during in all
educational life time.

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Abstract
The main aim of this research is to assess factors affecting the role of commercial
bank of Ethiopia on economic development in Shashamane main 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
a primary and secondary 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 carefully 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.

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 Table contents
Acknowledgment..........................................................................................................................................i
Abstract.......................................................................................................................................................ii
Table contents............................................................................................................................................iii
Acronyms.....................................................................................................................................................v
CHAPTER ONE..............................................................................................................................................1
INTRODUCTION.......................................................................................................................................1
1.1 Background of the Study...................................................................................................................1
1.2 Background of the Organization........................................................................................................1
1.3 Statement of the Problem.................................................................................................................3
1.4 Objective of the Study.......................................................................................................................4
1.4.1 General Objective.......................................................................................................................4
1.4.2 Specific Objectives......................................................................................................................4
1.5 Significance of the study....................................................................................................................4
1.6 Scope of the study.............................................................................................................................4
1.7 Organization of the study..................................................................................................................5
CHAPTER TWO.............................................................................................................................................6
RELATED LITERATURE REVIEW................................................................................................................6
2.1 Definition of Bank Role, Bank, Commercial Bank and Economic Development.................................6
2.2 Characteristics of Banking activity.....................................................................................................7
2.3 The Functions and Services of Commercial Banks.............................................................................8
2.3.1 Functions of Commercial Banks..................................................................................................8
2.3.2 Services of commercial bank......................................................................................................9
2.4 Framework of Banking.....................................................................................................................11
2.4.1 Objective and role of banking framework................................................................................12
2.5 Factors affecting the role of commercial bank of Ethiopia..............................................................12
2.5.1 Challenges of E-Payment in commercial bank of Ethiopia........................................................12

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 2.5.3 Institutional capacity................................................................................................................13
2.6.1 Objective of Bank Regulation....................................................................................................14
2.6.2 General principle of bank regulation........................................................................................14
2.6.3 Instrument and Requirement of bank Regulation....................................................................15
CHAPTER THREE........................................................................................................................................16
Research Methodology..........................................................................................................................16
3.1 Research design...............................................................................................................................16
3.2 Type and Sources of Data................................................................................................................16
3.3 Method of data collection...............................................................................................................16
3.4 Target population............................................................................................................................16
3.5 Sample size......................................................................................................................................16
3.6 Sampling Techniques.......................................................................................................................16
3.7 Methods of Data Analysis and presentation....................................................................................17
CHAPTER FOUR......................................................................................................................................18
Cost and Time Plan................................................................................................................................18
4.1 Time Schedule.................................................................................................................................18
4.2 Financial Budget..............................................................................................................................19
REFERENCE................................................................................................................................................20
Appendix I..................................................................................................................................................21
Appendix II.................................................................................................................................................24

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Acronyms
CBE- Commercial Bank Ethiopia

ATM – Auto method teller Machine

EPP- Electronic payment.

EB-Electronic banking

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 CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

The commercial bank is a bank that provides 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 a newer 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 Shashamane main 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 (David N. Hyman2001:page89)
In general, based on the above listed factors the research’s concern will deal the way in
which the bank can operate to solve (minimize) the factors.

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 (Michael Vitale Salah 2002:page366)
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 (Ronald W.Hiltan:2001:page190)

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, (Man
Mohan:2004:page456)

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

. (Slalima Hamida:1998:page199)

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

(Mosher Frederick2002:page489)

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

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(Premer Hand1987:pp188)

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

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 branches2011.

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)

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Commercial bank of Ethiopia extended its branch to many district of the country. One of the
biggest branch of these was shashemane main branch. (from manager of the organization).

Shashemane main branch was established in 1966 with 13 employees. At present this branch is
one of the biggest branches of commercial bank of Ethiopia. It has 80 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)

1.3 Statement of the Problem

The role of the commercial bank of Ethiopia, by virtue of its size is enormous. The rapid
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(IAIN Marialand2003:pp219)

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(Gleven Weish2004:pp455)etc.com/news index.php pid, 67
and 84

In light of the above facts, this study will come up with reliable facts for the points about the
problems that shashemane 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
the obstacles will investigate in this study.

The researcher will try to answer the following basic research question:-

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 1. What are the factors that affect the role of Commercial Bank of Ethiopia on economic
development in shashemane branch?
2. To what extent major factors affect Commercial Bank of Ethiopia in shashemane branch?
3. What are the possible measures to alleviate the factors that affect the banking activity?
4. How can bankactivity be enhanced in Shashemanebranch?

1.4 Objective ofthe Study

1.4.1 General Objective
The general objective of this study is to assess factors affecting the role of Commercial Bank of
Ethiopia on the economic development.

1.4.2 Specific Objectives

 To identify factor that affects the role of Commercial Bank of Ethiopia in
shashemane branch
 To assess the impact of factor overall economic development on Commercial
Bank of Ethiopia in shashemane branch.
 To indicate the way of solving the factor of banking activity.
 To suggest some solutions as to enhancing banking activity in the branch.

1.5Significance of the study

This study will contribute a lot to encourage the banking activity in Sheshemene 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 wills also a significance of giving
highlights about the entire banking activity. In addition to this this study will give guideline to
the concerned manager of the bank with regard to how they properly address the need of the
customer. Furthermore, the study will use 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 1140 branches in the country.
So it is difficult to cover all braches. Therefore, this study will cover the Sheshemenemain

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branch only. This study will restrict only on major factors affecting the role of commercial bank
of Ethiopia on economic development Sheshemene main branch.

1.7 Organization of the study

This research proposal is divided in to four chapters. The first chapter dealt with introduction of
the study, statement of the problem, Objective of the study, Significance of the study and scope
of the study.The second chapter consists of related literature review.Chapter three is about
research methodology. The final chapter deals about cost and time budget.

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 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.(Codinal
Axelerd)

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.(Alam Pizzey2002:pp344)

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( Rounald W.Hilon 2001:pp957)

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(Michael Vitale and Salah C Maver)

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)

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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 general 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 page 655).

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,pp 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;

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  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.

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
public. 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;

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 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)

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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.

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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.

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  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 .

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.

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.

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
Fekadu2009.)

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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 ( 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.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 (P 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
2.6 Bank Regulation

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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 regulation.

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.

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

14
 compliance with the requirement and responds to braches of the requirements through
obtaining understanding giving direction imposing penalties 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 ratio is liquidity rather than safety regulation.

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 CHAPTER THREE
Research Methodology

3.1 Research design

The researcherwill use descriptive type of research design.Both quantitative and qualitative type
of data will be collected through questionnairesand interview. The reason that the researcher will
use descriptive type of research design it help to describe and explain event, phenomena and
certain facts. In addition to this it will help the researcher to get valid findings.

3.2Type and Sources of Data

The student researcher will conduct the study by using primary sources of data. The researcher
will collect both quantitative and qualitative data through questionnaires and interviews.

3.3Method of data collection

The student researcher will use different methods of data collection. In order to collect the data
through questionnaire’s the researcher will use open ended and close ended question. The
researcher will use structured type of interview in order to gather data through interview.

3.4Target population
The study will focus on the accounting department in Commercial Bank of Ethiopia Shashemane
main branch by selecting some personnel like; supervisor, Auditor, and cashier (Teller).

3.5Sample size
Among 80 employees of the commercial bank of Ethiopia sheshemene main branch, the
researcher will select only 20 employees as a sample. Because the student researcher wants to
avoid complexity and biasness of the data.

3.6Sampling Techniques
From the target population of the study that are managers, auditors, and Tellers of Commercial
Bank of Ethiopia Shashemene main branch, the researcher will use non-probability sampling
technique. From non-probability sampling the researcher will use judgmental sampling
techniques. By using this techniques 80 individual workers of the bank who are believed to have
sufficient knowledge and familiarity with the banks activity.Enables to get accurate and

16
sufficient information. The researcher will select 20 employees as a sample those who currently
working in the bank.

3.7Methods of Data Analysis and presentation

After the relevant raw data will be collectedfrom sources using data collection method,
processing including editing, classifying, and summarizing the collected raw data willundertake
by the researcher. The data will be analyze by using tables and percentage.

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 CHAPTER FOUR

Data Analysis and Discussion

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 shashemane branch. And
the interview were hold to manager of the branch. Through survey, 22
questionnaire copies were distributed and out of this 20 were collected, 2 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 22 20 90%
Total 22 20 90%
( 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 22 employees out of these 20 questionnaire (90%) 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

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Item In number In percentage

Sex: male 15 75%

Female 5 25%

Total 20 100%
Age: <30 14 70%
30-40 3 15%
40-50 3 15%
Total 20 100%
Educational
Level:
Diploma 5 25%
Degree 10 50%
MA 5 25%
Total 20 100%
Work experience:
<1 year 2 10%
1-5 year 10 50%
5-10 year 4 20%
>10 year 4 20%
Total 20 100%
(Source: questionnaire survey) Table 3.2 shows the respondents 75%
and 25% are male and female respectively. More than half of the respondents
70% lies in the age of less than 30 years old and 15% of them are ranging
between 30 up 40 years old .And 15% of them are age ranging from 40 up 50
years old. According to qualification majority of the respondents 50% degree
holder ,25% diploma holder and 25% of the respondents are MA holders.
Regarding the experience 10% of the respondents have less than l year of
services, 50% respondents have 1-5 year of services 20% respondent are 5-10
years of services and 20% of respondents are above 10 years of services.

Table 3.3: Main problems in running banking activities.

Response No of respondents In percentage

19
Inconsistence in service quality
lack of balanced focused on major - -
target
Frequent network and Powerfailure 10 50%
-
Lack of team spirit 3
Shortage of skilled manpower 4

poor saving culture 3

Total 20 100%
(Source: questionnaire survey)

Table 3.3 indicates that 50% of the sample respondents responds that the
major problems faced in running banking activity is frequent network and
power failure. The 15% of the respondents respond is poor saving culture. Next
to this 20% of the respondents respond shortage of skilled manpower. And the
remaining 15% 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 9 45%

20
Lack of effective management 8 40%
3 15%
Any other

Total 20 100%

(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
shashemene main 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 20 100%
No - -
Total 20 100%
(Source: questionnaire survey)

Table 3.5 shows out of 20 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

21
Yes 8 40%
No 12 60%
Total 20 100%
(Source: questionnaire survey).

Table 3.6 shows out of 20 respondents 12(60%) of the respondents say no and
8(40%) 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 20 100%
No - -
Total 20 100%
(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.
22
- 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 8 40%
Sufficient 12 60%
Not sufficient - -
Total 20 100%
(Source; questionnaire survey).

As indicated on the table 3.8,60% of the respondents replied that sufficient,

40% 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 19 95%
No 1 5%
Total 20 100%
Table 3. 9 shows network and power

(Source: questionnaire survey).

23
Table 3.9 shows 95% of the respondents say and 5% 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 14 70%
No 6 30%
Total 20 100%
Source: questionnaire survey.
Table 3.10 revealed that 70% 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

24
Response In N0 In percentage
Yes 5 25%
No 15 75%
Total 20 100%
(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 shashemene main 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 20 100%
Total 20 100%
(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.

25
 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 shashemene 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

26
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.

27
 CHAPTER FIVE

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 shashemene main 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

28
  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.

29
 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

30
  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
JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

Department 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:

31
  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

32
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 problems?
________________________________________________________________________
________________________________________________________________________
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)
________________________________________________________________________
________________________________________________________________________

33
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?

34
35
36