Competition in Ethiopian Banking Industry

This paper tries to assess the trend, nature, and extent of competition in the Ethiopian banking industry using qualitative, descriptive and econometric techniques. In Ethiopian context, the financial system is dominated by banking industry, and yet, it is amongst the major under-banked economy in the world. Banks performances are governed largely by macroeconomic performances than competitive parameters as high (low) performances coincided with good (bad) macroeconomic conditions. The Ethiopian banking industry can be characterized as highly profitable, concentrated and moderately competitive. In most cases, the dominant bank (Commercial Bank of Ethiopia) still seizes quasi-monopoly power. In terms of contestability, the Ethiopian banking industry can be characterized as incontestable as entry in the industry is difficult, due to legal, technological and economic factors. Competition in terms of price is relatively weak in the Ethiopian banking industry. The econometric study also confirms that there is monopolistic competition among banks in terms of prices. In a nut shell, banks in the Ethiopian case are competing in terms of service quality and efficiency (including use of technological advances), branch network expansions, advertising and prices, put in the order of their significance