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Role and functions of Commercial Banks in Ethiopia  D O W N LO A D

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Assignment Ethiopian Economy, 2014

ROLES AND FUNCTIONS OF COMMERCIAL BANKS OF ETHIOPIA

The roles and function of the commercial banks of Ethiopia is too many and too vast, it is
difficult to mention each and every role and function of the banks in overall aspects of the
country. e have only !rite the most fre"uent function and roles of the commercial banks. And
!e have seen the function and roles of the commercial banks independently.

A. FUNCTIONS OF COMMERCIAL BANKS

The function of commercial banks is the main establishing purpose of the commercial banks. #t is
for doing the banking business activities that the banks from the beginning come to e$istence.
The functions of commercial banks of Ethiopia is clearly stated at Art 2 sub Article 2 of the
%anking %usiness &roclamation 'o ()2*2000. And the function of the commercial banks are+

#. Accepting Deposits:  This is one of the primary function of commercial banks of


Ethiopia. The commercial banks accept deposit of their customers. The customers deposit
in the commercial banks to be safe and secure their many and to be free from theft and
robbery. pecially in this time people have developed culture of saving and they use even
AT- method to make commerce in any super market or any other markets !here such
services are provided. They provide t!o types of deposits such as current deposit and
fi$ed deposit. urrent deposit can be dra!n at any time !hen the depositor needs to !ith
dra! it, !hereas fi$ed deposits can/t dra!n at any time but at the fi$ed time !here the
agreement specifies. The depositor has a deposit interest for his*her deposit. eposit
services is very vital function as it makes depositors/ many safe and secure and enables
the depositors to get a benefit of deposit interest.

##. Giing Lo!ns: The second main function of commercial banks in Ethiopia is rendering
loan services to their customers. -ost of the time the banks re"uire mortgage in giving
loan to their customers for guaranteeing of their loans. The banks get loan interest as a
benefit from their borro!ers. The banks provide this loan service by using the many that
they have deposits from their customers. pecially in this time the commercial banks are

engaged in giving
manufacturing and loans to the sector.
agricultural productive sectors of the Ethiopian economy such as the

###. M!n" t#!ns$e# se#ices: The commercial banks are engaged in transferring of many
from one branch to another branch. They collect service charge for their many transfer
services. This is very important function of banks that enables the society to send many to
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the person that he *she likes to send !ith in minutes, specially in this time it is becoming
safe and secure by sending codes to the mobile of the receiver of the many.

#. B%"ing !n& Se''ing o$ go'& !n& si'e# (%''ion: As it is clearly stated under Art 223 of
the %anking %usiness &roclamation 'o ()2*2000, the commercial banks of Ethiopia has
the function of buying and selling of gold and silver bullion.

. B%"ing !n& se''ing o$ $o#eign)e*c+!nge: The commercial banks of Ethiopia can also
buy and sell foreign e$change. As !e see every day in E%, the foreign e$change rate is
disclosed to the public by business ne!s. And by using the e$change rate the banks

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Assignment Ethiopian Economy, 2014

engage in buying and selling of foreign currency.

#. Disco%nting o$ (i'' o$ e*c+!nge This is the most prevalent and important method of
advancing loans to the trader. 5nder this system, banks advance loans to the traders and
business firms by discounting their bills. #n this !ay, businessmen get loans on the basis
of their bills of e$change before the time of their maturity.

##. Oe#)D#!$t %anks advance loans to its customer6s up to a certain amount


through over7drafts, if there are no deposits in the current account. 8or this banks demand
a security from the customers and charge very high rate of interest.

###. Agenc" se#ices:  They render some services on behalf of the government and
some times on behalf of their customer. A good e$ample of this is the ommercial %ank
of Ethiopia pays the salary of the government employees and the beneficiary of

retirement benefits,
evelopment %ank ofaccept deposits
Ethiopia of condominium
similar sells registered persons
bonds of the 9enaissance and also
am. %anks the
pay che"ues issued by their customers.

#:. Misce''!neo%s se#ices: ommercial banks provide miscellaneous banking activities to


the government and the society. ome of the miscellaneous activities are+ issuing of bank
statement to their customers, collect necessary and useful statistics relating to trade and
industry, give reference for their customers and give some financial information to the ta$
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authority !here then authority asks by a letter.


B. ROLES OF COMMERCIAL BANKS

#n rendering their day to day functions, commercial banks has a great role in contributing
to the economic development of the country. 'o developmental strategy can be achieved
!ith out the heavy involvement of the commercial banks of Ethiopia, as all strategies

needs many banks


commercial for their implementation.
is indispensable 8orlike
if !e thistoreason
ensure the role and contribution
development of these
to our country. And
as our group investigates the roles of the commercial banks are+

#. Fin!ncing In&%st#":  The commercial banks play an important role in financing

the industry sector of the economy. #ndustries needs huge capital and they need the
help of banks for loan services and these commercial banks are providing this loan
services to the industry sector of the economy. And by providing finance to this
sector they banks help the economic gro!th to be fast and sustainable.
##. Fin!ncing T#!&e:)  #n Ethiopia, the commercial %anks help the financing both

internal and e$ternal trade. The banks provide loans to retailers and !hole sellers
to stock goods in !hich they deal. They also helping the movement of goods from

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Assignment Ethiopian Economy, 2014

one place to another by providing all types of facilities such as AT- and che"ue
services to make the trade transactions safe and secured. -oreover they finance

both e$port and import of of the country by providing finance facilities to


importers and e$porters of goods.
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4/26/2018 Role and functions of Commercial Banks in Ethiopia | Gebremariam K Segu - Academia.edu

###. Fin!ncing !g#ic%'t%#e:)  The commercial banks of Ethiopia are also playing a

vital role in financing the backbone economic sector of the country. This enables
the agricultural sector to be effective and efficient in its productivity. The

commercial banks provide loan to the unions and federations of cooperatives to


import fertili;ers and other agricultural inputs to the country. This is a very
important role of the banks to minimi;e shortage of agricultural products in the in
the domestic market on the one hand and to increase e$ports of agricultural
products on the other. The banks provide such financing services not only to the
small holding farmer but also to the commercial agricultural activities of the
country.
#. Fin!ncing s/!'' !n& /ic#o /!n%$!ct%#ing in&%st#ies: The commercial banks

provide finance the small and micro manufacturing industries of the country.

pecially in this time the government is giving higher emphasis for small and
micro manufacturing industries. And for that reason, the commercial banks are
also playing a great role in financing this sector. -any of the o!ners of the small
and micro manufacturing industries are young and !ith out having beginning
capital, but skill only. These young skillful persons get finance from the banks and
start business and they are becoming effective in their businesses.
. F!ci'it!ting co//e#ce: The commercial banks are helping the society to make

commerce by using e7commerce. The customers use AT- and can buy any
product or services at any super market !here such AT- technology e$ists.
&eople don/t need to have cash if they are having AT- they can buy !hatever they
need. %y doing this the banks are playing a great role in facilitating commerce safe
and secure commerce !ith in the country.
#.   F!ci'it!ting e$$icient co''ection o$ #een%e:  #n this time E9A is using E7ta$

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&age 0 of -

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