Saint mary’s university

Recommendation

Based on the findings of the research and the conclusions made the following recommendations are forwarded:
NBE requires each bank to purchase bill which is 27% of their total loan with 3% interest rate. This in turn affects banks profitability, therefore it is better if policy makers minimize either the percentage of total loan required to purchase the bill or increase the interest rate paid for the bill.
For banks they need to exert their maximum effort to mobilize deposit and use aggressive branch opening strategy, in order to mobilize substantial amount of deposits and increase their market share and it is advisable to open many branches in strategic areas of both in the capital city and outline areas of the country.
Though the credit cap was already removed the result from the regression shows it had a negative impact performance of private banks. Because such regulatory variables increase cost of intermediation which creates the ultimate burden on customers, NBE has to consider the effect of such policy on banks profitability and their overall performance.
On the other hand banks need to increase operating efficiency to trade off such effects and
to serve their customers as usual to create long-lasting relationship when such kinds of regulations are imposed.
Finally, regulatory bodies need to consider the far-reaching effect of increase in cost of intermediation as a result of such frequent regulatory changes. Because, banks tend to transfer such costs to their customer which in turn increases cost of getting finance. The higher the cost of finance, the higher its effect on investment would be. Due to this the country at large would be affected. If investment becomes worse because of increase in cost of finance, production and employment opportunity will be affected negatively.
Last but not least the housing scheme policy that the government has taken has negative impact on the performance of private banks. This policy measure might increase the deposit of Commercial Bank of Ethiopia which is government owned bank and eligible for collecting the deposit for the housing scheme. The result might be low share of deposit by private banks which intern decreases loan by the private banks and hence low income.