Challenges of Private Commercial Banks in Financing Foreign Projects in Ethiopia: a Case Study on Selected Private Banks

Abstract

The main purpose of this study is to examine the challenges of commercial banks in financing a foreign project in Ethiopia. In recent time, a number of foreigners are visiting Ethiopia for investment, Ethiopia is one of the biggest countries in Africa by taking foreign investors and fulfilling infrastructure as per there sector of investment, but every investment needs a financial sector for any transaction that needs to run their business. One of the primary financial institutions for this service is a bank, so in this study, the process of financing foreign project and factors that affect the banks to finance a foreign project were studied in detail and common projects that are financed by private commercial banks were identified and analyzed on selected six private commercial banks in Ethiopia that have a financial power on the banking industries. Descriptive and Explanatory research design was used for the study. The target population was 300 staffs that are directly participating in the project financing and foreign investment (Foreign Direct Investment) out of which Judgmental sampling technique was used to select a sample size of 105, from this 101 respondent has filled and returned back to the researcher. Data was collected by using questionnaire and the data collected was analyzed using Statistical Package for Social Sciences. The study found that national bank of Ethiopia regulation and directive have a negative impact on foreign project financing, and foreign currency shortage is also a challenge to make a foreign project transaction by commercial private banks. To minimize the gap of processing foreign project, private commercial bank needs to push the financial sector reforms by bringing huge capital and foreign project know how to the business and National bank of Ethiopia needs to decrease the number of intervention on the private commercial banks operation on foreign project financing