(An) empirical investigation on competition in the banking sector of Ethiopia

Abstract

This Paper tries to investigate the nature and degree of competition in Ethiopian banking industry using bank-level quarterly panel dataset over the period 2001-2015. The structural approaches of CR and HHI were applied to measure the level of concentration. The results indicate that the banking sector in Ethiopia is dominated by the Commercial Bank of Ethiopia (CBE) and the market is highly concentrated. To analyze the competitive condition, the well-known non-structural model of Panzar-Rosse was used. The H-statistics of Panzar-Rosse confirms that Ethiopian banking industry operates under monopolistic competition market structure. Additionally, the market is considered to be incontestable as entry and exit in the industry is difficult, due to legal, technological and economic factors. Though there have been structural changes and improvements in the banking industry of Ethiopia yet, it is technologically less advanced and undeveloped compared to the developing countries banking industry.