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The paper analysed the&nbsp;implication of establishing the capital market on commercial banks operating in&nbsp;Ethiopia. The study aimed to identify its potential opportunities and main&nbsp;challenges to banks, to see how the capital market is operating in other&nbsp;African countries and to show the necessary preconditions to commercial banks&nbsp;to prepare themselves. The research method employed in the study had both&nbsp;qualitative and quantitative features, and the research was conducted using a&nbsp;mixed research method. Primary data was collected from focus group discussions&nbsp;with experts that have experience in the area, and, furthermore, secondary data&nbsp;were collected from literature and websites. The findings of the study&nbsp;identified the major risk of the capital market to the economy like economic&nbsp;risk to investments, inflationary/deflation risk, market value risk, being too&nbsp;conservative and political crisis by relating with the current situation of&nbsp;country regulation power. The study also investigated the major opportunities&nbsp;of the capital market to meet the financial need for the economy and how it can&nbsp;work with commercial banks. Besides, the study investigated its challenges to&nbsp;commercial banks working with security exchange companies. Many literature&nbsp;analyses confirmed the reputation of capital markets comparative to banks,&nbsp;which cannot explain across-countries deviation in economic growth. And it is&nbsp;better to establish a well-functioning legal framework, which plays a vital&nbsp;role in creating a healthy financial system. The study recommended that&nbsp;commercial banks should modify their business models and create products&nbsp;related to the investment bank and product differentiation that captures the&nbsp;mode of the capital market. And it is better for the commercial banks to&nbsp;empower their human resource, and they shall aggressively work on technology&nbsp;adaptation, work highly on awareness creation for all internal and external customers. Banks’ capital increment should be made before the security market&nbsp;is established to minimise any risk that may come with it.

10.32038NCAF.2021.06.04.pdf

Original Research 

NCAF.2021.06.04.xml

The Impact of Establishing Capital Market on Ethiopian Commercial Banks

The paper analysed the&nbsp;implication of establishing the capital market on commercial banks operating in&nbsp;Ethiopia. The study aimed to identify its potential opportunities and main&nbsp;challenges to banks, to see how the capital market is operating in other&nbsp;African countries and to show the necessary preconditions to commercial banks&nbsp;to prepare themselves. The research method employed in the study had both&nbsp;qualitative and quantitative features, and the research was conducted using a&nbsp;mixed research method. Primary data was collected from focus group discussions&nbsp;with experts that have experience in the area, and, furthermore, secondary data&nbsp;were collected from literature and websites. The findings of the study&nbsp;identified the major risk of the capital market to the economy like economic&nbsp;risk to investments, inflationary/deflation risk, market value risk, being too&nbsp;conservative and political crisis by relating with the current situation of&nbsp;country regulation power. The study also investigated the major opportunities&nbsp;of the capital market to meet the financial need for the economy and how it can&nbsp;work with commercial banks. Besides, the study investigated its challenges to&nbsp;commercial banks working with security exchange companies. Many literature&nbsp;analyses confirmed the reputation of capital markets comparative to banks,&nbsp;which cannot explain across-countries deviation in economic growth. And it is&nbsp;better to establish a well-functioning legal framework, which plays a vital&nbsp;role in creating a healthy financial system. The study recommended that&nbsp;commercial banks should modify their business models and create products&nbsp;related to the investment bank and product differentiation that captures the&nbsp;mode of the capital market. And it is better for the commercial banks to&nbsp;empower their human resource, and they shall aggressively work on technology&nbsp;adaptation, work highly on awareness creation for all internal and external customers. Banks’ capital increment should be made before the security market&nbsp;is established to minimise any risk that may come with it