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Research Proposal On Challenges of Local Government

This document outlines a research proposal assessing factors affecting the profitability of Commercial Bank of Ethiopia's Yirga Cheffe branch. The study aims to identify the key internal and external factors influencing the bank's profitability. It will collect primary data through questionnaires and secondary data from literature and published/unpublished sources. Data analysis will use qualitative and quantitative methods like percentages, pie charts, and tables. The findings will help understand how to improve the bank's profitability.

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Negash Lelisa
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0% found this document useful (0 votes)
171 views26 pages

Research Proposal On Challenges of Local Government

This document outlines a research proposal assessing factors affecting the profitability of Commercial Bank of Ethiopia's Yirga Cheffe branch. The study aims to identify the key internal and external factors influencing the bank's profitability. It will collect primary data through questionnaires and secondary data from literature and published/unpublished sources. Data analysis will use qualitative and quantitative methods like percentages, pie charts, and tables. The findings will help understand how to improve the bank's profitability.

Uploaded by

Negash Lelisa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 26

ASSESSMENT OF FACTORS AFFECTING THE PROFITABILITY OF

COMMERCIAL BANK OF ETHIOPIA (A CASE STUDY IN YIRGA


CHEFFE BRANCH)

A RESEARCH PROPOSAL SUBMITTED IN THE PARTIAL


FULFILLMENT OF THE REQUIREMENT FOR BA DEGREE
IN BANKING AND FINANCE.

PREPARED BY:
SIHNE ALEMU

ADVISOR:
MR. YOSEPH W.
MR. TEKABE S.

JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF BANKING AND FINANCE

DECEMBER 2010/11
JIMMA, ETHIOPIA
TABLE OF CONTENTS
Title Page
TABLE OF CONTENTS.....................................................................................................i
ABSTRACT........................................................................................................................ii
ACKNOWLEDGEMENT..................................................................................................iii
CHAPTER ONE..................................................................................................................1
INTRODUCTION...............................................................................................................1
1.1 Background of the Study...........................................................................................1
1.2 Background of the organization.................................................................................2
1.3 Statement of the Problem...........................................................................................5
1.4 Objective of the Study...............................................................................................6
1.4.1 General Objectives of the Study.........................................................................6
1.4.2 Specific Objectives of the Study.........................................................................6
1.5 Significance of the Study...........................................................................................7
1.6 Scope of the Study....................................................................................................8
1.7 Limitation of the Study..............................................................................................9
CHAPTER TWO...............................................................................................................10
2. LITERATURE REVIEW..............................................................................................10
CHAPTER THREE...........................................................................................................13
METHODOLOGY............................................................................................................13
3.1. Source of data.........................................................................................................13
3.2. Method of data collection.......................................................................................13
3.3 Sampling techniques and sample size......................................................................13
3.4 Method of data analysis...........................................................................................13
CHAPTER FOUR.............................................................................................................14
TIME BUDGET AND COST BUDGET..........................................................................14
4.1. Time Budget...........................................................................................................14
4.2 Cost Budget.............................................................................................................15
REFERENCE....................................................................................................................16
ANNEXES.........................................................................................................................17

i
ABSTRACT

This study under the title assessment on factors affecting the profitability of
commercial bank of Ethiopia Yirga Cheffe branch in Yirga Cheffe town will has
want to know factors that will affect the profitability of the bank. The general
objectives of this study will be assessing and investigating the main factors that
will affect the banks profitability. There also a specific objective in the study will
be mention.

Both primary and secondary data will conduct primary data will be collect through
questionnaire, secondary data will collect from the allowable literature on the
subject and from published and unpublished materials.

The data will be analyze by using both qualitative and quantitative data analysis
particularly descriptive types of analysis will be used in the study is percentage,
pi-chart and tables. Pervasive sampling techniques has be used as a sampling
techniques and the obtained results will analyze using descriptive analyzing
method. Finally based on the result of findings, conclusion and recommendations
will be forward.

ii
ACKNOWLEDGEMENT

First, I would like to thank almighty God that helps me through out my life.

Secondly, I would like to thanks my family of helps and also I like to express to
heart felt gratitude to my advisor MR. Yoseph W. and MR. Tekabe S. for her
guidance and constructive suggestion in completing this research proposal.

iii
CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

Assessment of factors affecting the profitability of commercial bank of Ethiopia


Yirga Cheffe branch will have a significant impact to the development of the
organization, by clearly identifying what factors will affect the growth of a market
share, the level of service quality, investment intensity, development expenditure,
and what factors will to be appreciate, the study will hope that to un cover the law
of market through in depth will investigating and identifying of factors. In this
study, the main focusing area that the study will conserning about identifying of
factors affecting profitability of commercial bank of Ethiopia, in case study area,
Yirga cheffe branch. The most factors will be relating to the emergence of
potential competitors, which will result a great impact on the market share of the
commercial bank of Ethiopia, and also in relation to this, the change in customers
attitude and preference in banking service such as loan services, money transfer,
deposit services and customer service of bank. This factors will affect the market
share of the bank largely and decrease in the market share.

1
1.2 Background of the organization
The history of bank in Ethiopia will dates back to the establishment of the bank of
Abysinia in 1905.

The bank will be the first bank in the history of Ethiopia, establishing under the
partnership of the government of Ethiopia and the national bank of Egypt. The
bank will continue to operate until 1931, later on, it with wholly purchased by the
government of Ethiopia and renamed “ The bank of Ethiopia” This bank will
operate until the Italian invansion in 1936.

From 1936-1942 (National bank these years will marked by the Italian
occupations. There will only a few Italian banks operating. After the victory over
fascist Italy, the state bank of Ethiopia will establishing by a proclamation issue in
august 1942, Although the international will to establish it as a full fledged
commercial bank, a year later, in 1943, it will gives additional central banking
functions until it will splited in 1963 to from the two banks, the national and
commercial bank of Ethiopia according with the issuance of the monetary
proclamation 1993, the national bank of Ethiopia and the commercial bank of
Ethiopia will establish to handle the national banking and commercial banking
functions respectively.

The state owned Commercial Bank of Ethiopia will still dominates the market
interns of assets, deposits, capital, and customer base and branch network, despite
the growing competition from private banks over the last 17 years. This will make
of one of the most reliable and strong Commercial Banks in the country and the
region.

Its strong capital base, close to seven decodes of rich experience in the market and
wide branch network through out the country will enable the bank to

2
accommodate the large demands for its services, and will increase its overall
revenue on sustainable basis.

The bank will be the first bank in Ethiopia to introducing ATM (Automated teller
machine) Services for local users and currently commercial bank of Ethiopia will
has about 2 million account holders. It will has strong correspondent relationship
more than 50 renewed foreign banks and SWLFT bilateral arrangement with 500
others.

Pioneer to introduce western union money transfer services in Ethiopia


commercial bank of Ethiopia will here reliable and long standing relationships
with many internationally acclaimed banks through out the world.

The Commercial Bank of Ethiopia will legally establish as a share company in


1963 to take over the commercial baking activities of the state bank of Ethiopia,
which will found in 1942 with twin objectives of performing the duties of both
commercial and central banking. During the 1974 revolution, commercial bank of
Ethiopia will get its strength by merging with the privately owned Addis Ababa
bank. Since then, it will have been playing a significant role in the development
endeavor of the country.

The commercial bank of Ethiopia, which is striving to become a world-class bank,


is rendering state of the art and reliable service to its millions of customers, both at
home and abroad. The business strategies of the bank will focus on the interest of
the public it serves.

As at the end of fiscal year 2008/09, the bank will has 208 branches stretching a
cross the length and depth of the country, and 7955 employees whom it regards as
its key assets but at this year, 2010 the bank will have 305 branches and more than
9000 employees. As June 30th 2010, total deposits will stood at by 56.1 billion

3
while total assets and capital of the bank will reach by 73.7 billion and 5.5 billion
respectively.

Commercial bank of Ethiopia, Yirgacheffe branch was established in 1971, and


from the establishment the bank pass through different governmental systems and
banking policies. The branch bank was far from Addis Ababa by 397km and from
the district (from Awassa) the distance is 126km is far away. The bank mainly
serve the people by accepting deposits and lending money.

4
1.3 Statement of the Problem

The study will tries to assess factors affecting the profitability of commercial bank
of Ethiopia Yirga Cheffe branch under various competitive conditions. There is
so many factors that will affect profitability of business organization. Identifying
those factors has a great significance for the successful operation of the
organization because these factors will be a means for measuring the weakness
and strengthens and to realize the changing business environment.

The main factors that affecting profitability of the banks will be highly related to
the emergence of new potential competitors in the market. In addition to this
efficiency of banking services to customers like money transfer, loan facilities,
deposit services in comparison to other competitors will be another factors. Thus
this study will try to access those factors affecting the profitability of commercial
bank of Ethiopia in Yirga Cheffe branch and tries to find answers for the following
questions.
1. How customers feel about the service that are rendered by the bank.
2. What are the effects of competition on banks market share and profitability.
3. By what method the bank control the effects of competitors.
4. What are the main factors affecting the profitability of the bank.

5
1.4 Objective of the Study
1.4.1 General Objectives of the Study
The general objectives of this study will be to identify or assess factor that affect
the profitability of commercial bank of Ethiopia Yirga Cheffe branch will
investigate different factors that affect the development or growth of the
organization.

1.4.2 Specific Objectives of the Study


The specific objectives of this study will include the following.
- To identify the effects of competitor banks on the bank market share.
- To evaluate the extent of customer service of the bank and will investigate
the level of customer satisfaction.
- To analyze the factors affecting profitability of banks.
- To provide suggestions to rectify the problem
- To examine the contribution of different services for the bank profitability.

6
1.5 Significance of the Study

The significance of this study will be include the following.


- Identifying factors that affect the profitability of the bank.
- Suggest or propose solution for the identified problem based on the
gathered information.
- Will provide information to managers about the customers feeling or
preference towards the bank services and the competitors, strength and
weakness.
- Create awareness for managers about the changing business environment.

7
1.6 Scope of the Study

The overall scope of this study will be focusing on the extent to which the research
objective is concerned will avoid discrepancies, ambiguity, misunderstanding and
other related problems, in conducting the research objectives.

The study will conduct on southern nation nationalities of Ethiopia in Gedeo Zone
Yirga Cheffe town. So as to search or critically will investigate factors affecting
profitability of commercial bank of Ethiopia. Yirga Cheffe branch to reach on
remarkable results from the study, by attempting will answer the stated questions
on the statements of the problem.

8
1.7 Limitation of the Study

The following limitations will affect the research significance form generating
expected out comes or information.

This limitation will be:-


- Unwillingness of the managers in showing documents.
- Iliteracy of the customers to answers the questionnaire.
- Lack of experience on conducting research on the side of researcher.

9
CHAPTER TWO
2. LITERATURE REVIEW

Functions of commercial banks and the services rendered by them


The main function of commercial banks are borrowing and lending of money.
They borrow money by taking all kinds of deposits. Deposits may be received on
current account where by the banker incurs the obligators of paying tender after
the expire of a fixed period, or on deposit account where by the banker under takes
to pay the customer an agreed rate of him an agreed period of notice for
withdrawals. Thus a commercial banker, whether it be through current account
society. Then be provides this money to those who are or by discounting bulls of
exchange or promissory notes. Thus a primary function or a commercial banker is
that of banker and a dealer in money to those who are in need of it by granting
over draft or fixed loans or by discounting bulls of exchange or promissory notes.
Of banker and adealer in money. By discharging this function efficiently, a
commercial bank renders very variable service to the community by increasing the
productive capacity of the country and there by accelerating the pace of economic
development.

Thus we have seen that a banker receives deposits which he has to repay according
to his promises and makes them available to those people who are really in need of
them. E is actually distributing his deposits between the borrowers and his own
vaults. “Banking theory and practice, Shekhar and Shehar 18th edition.

Agency Service
Most of the commercial banks have an executor and trustee department; some
many have affiliated companies to deal with this branch of their business they aim
is to provide, therefore, a complete range of trustily executor or advisory services

10
for a small change. The business of banks acting as trustees, administrator, etc…,
has continuously expanded with considerable use fullness of their customers.

Private companies wishing to set up pension funds may appoint a bank as


custodian trustee ad investment adviser, while retaining the administration of the
scheme in the hands of the management of the fund.

Most banks will undertake on behalf of this customers the preparation of income
tax returns and claims for the recovery of over paid tax.

General usability services


These services are those in which the banker’s position is not that an agent for his
customer they include the issue of credit instruments like letter of credit and
travelers cheques, the acceptance of bills of exchange, the safe custody of
valuables and documents, the transaction of foreign exchange business, acting as a
referce as to the responsibility and financial standing of customers and providing
specialized advisory service to customers.

By selling drafts or orders and by issuing letter of credit circular notes, travelers
cheques, etc… a commercial banker is discharging a very important function.

Mechanism of credit deation


Banks always try to minimize their holding of idle cash to the lowest extent
possible. In their attempt to achieve this end, they un wittingly increase the total
amount of money in circulation in the community. It does not mean that they
increase the total amount of legal tender currency.

Market competition and the challenges a head


It is clear and being increasingly realized by many bankers that banking is no more
a deposit taking and money lending institution, making profits on the deferential,
not is it an institution which could be run by bankers whose only qualifications

11
were high integrity, intuitive shrewdness, certain degree of impassivity, but not
necessarily high intellect.

The banking industry is an increasingly competitive environment would face new


challenges and apport unities.

It is time for them now to be proactive in their approach and to anticipate the new
demands on their skills that will be emerging and to prepare for the same through
appropriate adjustments in their organizational structure and method of operations
and procedures in an environment of operational flexibility and internal autonomy.

As competition and diversification exposes banks to new risks, sound bank


management becomes a pre condition in the new area of financing liberalization.
Thus there arise a need for building strong management which is responsive to
change policy reform in the finical sector can be introduced on a durable basis
only through concrete efforts, to strengthen institutional frame work in which
banks operate and develop the necessary know how and human capital. “Michael
E. Baker (1998) “ Dictionary of marketing and advertising 1998” Macmillan.

Banks do need a considerable degree of autonomy banks do need a considerable


degree of autonomy so as to be able to clearly define this operating role and
strategy and perform their banking business in a professional manner. Autonomy
must also extended to the banks policies relating to lending, financial
management, and personnel.

12
CHAPTER THREE
METHODOLOGY

3.1. Source of data


In this paper primary and secondary data will be used as a source of information.

3.2. Method of data collection


As the sources are identified above primary sources and secondary sources of data
will be used to get realistic information from concerned bodies.

In collecting primary data questioner will be used. The questioner may have both
open and close ended type. In order to collect secondary data bank document and
other publiciers will be extracted including finding of other related books.

3.3 Sampling techniques and sample size


For this study the researcher will use pervasive sampling techniques. For the total
population of 20 employees that the bank has the sample size will be 20x50% =
10.

3.4 Method of data analysis


After relevant data will be collected, the data will analyzed using descriptive
statistics. (quantitative data analyze method) will be used in the study. The data
collected through questionnaire, will analyzing using different stastical tools like
percentage, pie-chart and tables.

13
CHAPTER FOUR
TIME BUDGET AND COST BUDGET

4.1. Time Budget


No Activity Months
Oct Nov Dec Jan Feb Mar April May
1 Topic selection xx
2 preparation of research xx
proposal
3 Recommendation of xx
comments to first draft of the
proposal
4 Typing of final proposal xx
5 Submission of proposal xx
6 Data collection xx
7 Data analysis xx
8 Submission of first draft of xx
research report comments
9 Typing of final report xx
10 Submission of final research Xx
11 Presentation Xx

14
4.2 Cost Budget
Item Quantity Duration in Unit cost Total cost
day per day (Birr)
Personal cost
Researcher 10 30 300
Transpiration 2 round
(Jimma –Y/cheffe)
Y/cheffe- Jimma 2 170 340
Typist 150
Equipment
Printing 100 0.30 cent 30
Paper 2 reams 75 150
Pen 4 3.00 12
Pencil 2 0.60 cent 1.20cent
Robber 2 1.50 cent 3.00
Miscellaneous expense 150
Total 1136.20

15
REFERENCE

1. Shekhar and Shedhar (1996) .. “Banking theory and practice” 18th edition
2. Frederic S. Mishkin (1990) “ The economic of money, Banking and financial
marketing”
3. Michael T. Baker (1998) “Dictionary of marketing and advertising 1998”
Macmillan
4. Dr. Solomon Alemu, (2005) “Research methodology in business and social
science.
5. Modern commercial banking, H. R Machiraju.
6. www.nbe.gov.et

16
ANNEXES
COLLEGE OF BUSINESS AND ECONOMIC
JIMMA UNIVERSITY
DEPARTMENT OF BANKING AND FINACE

Questionnaire for managers, supervisors and personnel’s

This questionnaire will disgned to collect information for assessing factors


affecting the profitability of commercial bank of Ethiopian Yirga Cheffe branch
from the managers, supervisors and personnels of the bank.

Please fill the questions provided below

Remark, no need of writing your name

Part I. Questionnaire about personal data


1. General background
1.1. Age __________
1.2. Gender Male  Female 
Education status:
College diploma  first degree  masters 
Part II. Questionnaire about the organization
2. What are the different type of banking service rendered by the bank currently?
____________________________________________________________
__________________________________________________________

17
3. Is the bank profitable? Yes  No 
If the answer is no, what is the reason?
____________________________________________________________
__________________________________________________________
4. What type of credit program is the bank utilize?
Term loan  Short term loan  Overdraft 
Merchandize loan  Agricultural loan 
5. What is the different types of securities required by the bank for advancing the
loan? _________________________________________________________
______________________________________________________________
Does the bank satisfied with this securities sufficiently
Yes  No 
6. What is the method of charging securities to cover the advanced loans of the
bank? _________________________________________________________
______________________________________________________________
7. Is there any decrease in the numbers of borrowers due to the emergence of new
competitions?
Yes  No 
If the answer is Yes, what is the reason and by what amount the number of
customers decrease? _____________________________________________
______________________________________________________________
______________________________________________________________
8. Does the bank gives advice for borrowers?
Yes  No 
9. What is the main problem in advancing and repayment of loan?

_______________________________________________________________

18
_______________________________________________________________
_______________________________________________________________

10. Does the bank satisfy all customer’s banking needs?


Yes  No 
11. Is there any difference on the market share of the bank due to the entrance of
new competitor banks and micro financing institution in to the market
Yes  No 
If the answer is Yes, what is the difference and in what amount?

_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
12. What is the bank strategy to compete with the competator to maintain its
market share.

_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
13. What are the main problem that the bank currently faces? ________________

_______________________________________________________________
_______________________________________________________________

19
Questionnaire of customers
This questionnaire will design to collect information for assessing factors affecting
the profitability of commercial bank of Ethiopia from the customers of the bank.
So you will kindly request to complete this questionnaire genuinely and honestly.

Please full the questions provided below. Remark, no need of writing your name

Part I – Questioner about respondent personal data


1. General background
1.1. Age ____________
1.2. Gender Male  Female 
Education status:
Merchant  Farmer  Employee  Trader
If there is other specify __________________________
Part II- Questionnaire about the organization
2. What kind of service do you use?
Saving account services  current account services 
Money transfer services  loan services 
3. Does the bank satisfy all your banking service needs?
Yes  No 
If your answer is no, what is you’re an satisfied banking needs? _____________
_______________________________________________________________
_______________________________________________________________
4. How much you interested or satisfied in the service rendered by the bank?
Comparing with the other
Very much  Little 
4.1. If your say very much, what is your reason? ______________________
__________________________________________________________

20
4.2. If you say little, list your reason _______________________________
_________________________________________________________
5. What is the bank contribution for your business activity and personal life?
_______________________________________________________________
_______________________________________________________________
6. Have your ever ask the bank for a loan previously?
Yes  No 
6.1. If your answer is Yes, for what purpose ___________________________
____________________________________________________________
6.2. If your answer is No, why don’t you ask a loan______________________
____________________________________________________________
7. Which type of the bank borrowing system do you use previously?
Short term loan  medium term loan 
Long term loan  merchandize loan 
Agricultural loan 
8. How much you are satisfied by the bank borrowing system
Very much  Little  Unsatisfied 
8.1 If you say very much, on what way the bank satisfied you?
___________________________________________________________
____________________________________________________________
8.2 If you say little, why __________________________________________
___________________________________________________________
___________________________________________________________
8.3 If you say unsatisfied, what is the reason? ________________________
___________________________________________________________
___________________________________________________________

21
9. What type of security required by the bank, when the loan is advanced by the
bank __________________________________________________________
______________________________________________________________
10. Do you face any problem when you ask the bank for a loan?
Yes  No 
If you say yes, what was the problem ________________________________
______________________________________________________________
11. Does the organization employees treat you well?
Yes  No 
12. What is the main problem of the bank comparing to other private bank?
_______________________________________________________________
_______________________________________________________________
13. Are you using other private bank?
Yes  No 
14. Are you satisfied by other banks service?
Yes  No 

22

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