Fanos Assefa

THE EFFECT OF BANK REGULATION ON
PROFITABILITY AND LIQUIDITY OF PRIVATE

COMMERCIAL BANKS IN ETHIOPIA
BY
FANOS ASSEFA
Addis Ababa University

College of Business and Economics
Department of Accounting and Finance
June, 2020 Addis Ababa,
Ethiopia
THE EFFECT OF BANK REGULATION ON
PROFITABILITY AND LIQUIDITY OF PRIVATE
COMMERCIAL BANKS IN ETHIOPIA
A THESIS SUBMITTED TO ADDIS ABABA UNIVERSITY COLLEGE OF BUSINESS

AND ECONOMICS DEPARTMENT OF ACCOUNTING AND FINANCE IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR DEGREE OF MASTERS OF
SCIENCE IN ACCOUNTING AND FINANCE.
BY
FANOS ASSEFA
June, 2020 Addis Ababa,

Ethiopia
Declaration
I, Fanos Assefa, hereby declare that the thesis work entitled “The Effect of Bank Regulation On
Profitability and Liquidity of Private Commercial Banks in Ethiopia” submitted by me for the
award of the degree of Masters of Science in Accounting and Finance of Addis Ababa University
at Addis, Ethiopia, is my original work and it has never been presented in any university. All
sources and materials used for this thesis have been duly acknowledged.
Name Fanos Assefa Advisor’s Name Abebe Yitayew(PhD)
Signature:________________ Signature:__________________________________
3
Certification
Addis Ababa University
School of graduate studies
This is to certify that the thesis prepared by Fanos Assefa entitles: The Effect of Bank
Regulation On Profitability and Liquidity of Private Commercial Banks in Ethiopia
and submitted in partial fulfillment of the requirements for the degree of masters of Science in
accounting and finance compiles with the regulations of the university and meets the accepted
standards with respect to originality and quality.
Approved by
Advisor: Dr. Abebe Yitayew

Signature Date
Internal Examiner: Dr. Alem H.

Signature Date
External Examiner: Dr. Zenegnaw A.

Signature Date
4
Chair of Department or Graduate Program Coordinator
5
Acknowledgement
Undoubtedly, writing this thesis has been one of the most challenging and engaging but also
considerably exciting experiences of my academic career & experience which I couldn’t have
done without the help of others. I feel the need to acknowledge the support of these great people.
First in the list comes Christ, the One whom I always counted on and the One who always
showed up. I would like to express my sincere gratitude to my advisor Abebe (Ph.D) for his
constructive advice and guidance since the research proposal preparation to the final writing of
the Thesis. I am grateful to his invaluable comments and suggestions from which I have benefited
a lot. No doubt his suggestions and recommendations contributed a great deal in the makeup of
this thesis.
[
And finally, I would also like to thank my friends without whom I would have found many things
very difficult. I am marveled by their love, understanding, and encouragement. I am especially
indebted to my beloved friend, Sisay Abera who always on side of me when I needed him. The
help what I got from them in my data collection and editing of the document was simply amazing.
I am deeply humbled by their patience and facilitation.
i
Table of Contents
Content page
Acknowledgement............................................................................................................................i
Table of Contents.............................................................................................................................ii
List of Acronyms.............................................................................................................................v
ABSTRACT.................................................................................................................................viii
1. INTRODUCTION.......................................................................................................................1
1.1. Background of the study...................................................................................................1
Measure NBE banking regulations..........................................................................................4
1.2. Statement of the Problem.................................................................................................5
1.3. Broad obj ective................................................................................................................7
1.4. Specific objective.............................................................................................................7
1.5. Research question (RQ)....................................................................................................8
1.6. Hypotheses of the study...................................................................................................8
1.7. Significance of the research..............................................................................................9
1.8. Scope of the study..........................................................................................................10
1.9. Organization of the Paper...............................................................................................10
Chapter Two...................................................................................................................................11
2.1.1. Prudential regulation in banks.................................................................................11
2.1.2. Helping- hand theory...............................................................................................12
2.1.3. Grabbing-hand theory..............................................................................................12
2.1.4. Cost and benefit of bank regulation........................................................................12
2.1.5. Do banks need to be regulated?...............................................................................14
2.1.5.1. The systemic risk argument.................................................................................14
2.1.5.2. Proposals to insulate banks from runs.................................................................16
2.1.5.3. Deposit insurance and moral hazard....................................................................17
2.1.5.4. Is fairly priced deposit insurance possible?.........................................................18
2.1.5.5. The depositors' representative argument.............................................................19
2.2. Banks profitability and liquidity and its measurement.....................................................20
2.2.1. Banks profitability......................................................................................................20
2
2.2.2. Bank liquidity................

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THE EFFECT OF BANK REGULATION ON

PROFITABILITY AND LIQUIDITY OF PRIVATE

Addis Ababa University

June, 2020 Addis Ababa,

A THESIS SUBMITTED TO ADDIS ABABA UNIVERSITY COLLEGE OF BUSINESS

June, 2020 Addis Ababa,

Name Fanos Assefa Advisor’s Name Abebe Yitayew(PhD)

Advisor: Dr. Abebe Yitayew

Internal Examiner: Dr. Alem H.

External Examiner: Dr. Zenegnaw A.

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