THE ROLE OF COMMERCIAL BANK OF ETHIOPIA IN SUPPORTING PRIVATE

INVESTMENT (A CASE STUDY OF NEKEMTE BRANCH)

A RESEARCH PAPER SUBMITED FOR DEPARTMENT OF ACCOUNTING AND

FINANCE FOR PARTIAL FULLFILLMENT OF BACHELOR DEGREE IN
ACCOUNTING AND FINANCE
ABSTRACT
This paper tries to examine the role of commercial bank of Ethiopia in supporting private
investment in case of commercial bank of Ethiopia Nekemte town. Various literatures assert
that private investments are the back bone of economy. It contributes to the economic
development of the country through creating jobs and reducing unemployment, generating
revenue and enhancing skill, knowledge and technology innovation development. Those
sectors have a major problem of finance related activities from lack of financial sector
development. Financial sector have many contribution to the development of private sector
investment through many activities like provision of deposit, transfer of money, overdraft etc.
In Ethiopia private sectors investment has been given a due attention and grand works such
as financial provisions, infrastructure development, and other technical support service has
been given to boost the sector. Despite the many opportunities, the sector faces major
financial sector challenges that bottleneck its swift development. . In light of this problem,
this study is conducted with an objective of identifying the role of commercial bank of
Ethiopia in supporting private investment in Nekemte town. The researcher collected data
from of 56 respondents. This is contains the role of different kind of service for private
investors. In addition, the researcher have also analyzed there are some problems faced by
commercial bank. Accordingly, the researcher found that commercial bank is the backbone
for the enhancement of private investment; the researcher also found that in Nekemte town
commercial bank provides different kind of service for private investor, However,
commercial bank does not give enough amount of money for the investors. Based on the
findings of the study decreasing interest rate of loan, is better to decrease the cost of loan for
private investment; commercial banks should have to try to solve the problem of money
shortage in order to give enough amount of money for private investors; government have to
take corrective actions to decrease the inflation rate; commercial banks should give advice
for investors so as to they use their funds appropriately for intended purpose were suggested
as recommendation.

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ACKNOWLEDGMENT
First of all I would like to thank the almighty God who gives to me the opportunity and health
throughout the study in order to cover all necessary activities and to pursue senior research
study at Wollega University.

Again, I would like to express my sincerely appreciation and deep gratitude to my advisor
Mr. Adugna for his valuable and constructive advice and suggestion for my success in this
research paper.

At last but not least, I want to thanks employees in CBE Nekemte branch and efforts and
support of those individual that led to the success of the study.

ACRONYMS

CBE------Commercial bank of Ethiopia

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CB--------Commercial bank

LC---------Letter of credit

GDP-------Gross domestic product

NBE--------National bank of Ethiopia

CDS--------Certificate deposits

Table of contents

List Page

ABSTRACT…………………………………………………………………………………….
.i

ii
Acknowledgement………………………………………………………………………………
ii

ACRONYMS………………….…………………………………………………….
………….iii

CHAPTER ONE……………………..……………………………………………………….
…1

1. Introduction……………………………………………………….……………………….
….1

1.1 Background of the study……………………….……………………….

…………………...1

1.2 Background of the organization………………………………….…………………….

…....2

1.3 Statement of the problem…….………………………………….

…………………………...3

1.4 Objective of the study……………………………………………………………………..

….5

1.4.1 General objective……….…………………………………………………………….

…5

1.4.2 Specific objectives……………………………………………………………….

……...5

1.5 Significance of the study…………………………………….…….

……………………….....5

1.6 Scope of the study……………………………………..………………………………..

…….6

1.7 Limitation of the study…………………...........................……………………………..

……6

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1.8 Organization of the study…………………………………….
………………………………..6

CHAPTER TWO……………………………………………………………………………….
…7

2. Literature review……………….
………………………………………………………………7

2.1 Theoretical review………………………..…………………….……………..

………………7

2.1.1 An overview of commercial bank of Ethiopia………………………..

………………...7

2.1.2 Investment and commercial bank………………………..………………………….8

2.1.2.1 The roles of commercial bank………………..……………..

…………………........8

2.1.3 Functions of commercial bank…………………………….

…………………………….10

2.1.3.1 Acceptance of deposit…………………………………..

…………………………..11

2.1.3.1.1 Time deposit…………………………………………………..…………

11

2.1.3.1.2 Demand
deposit………………………………………………………….11

2.1.3.2 Advancing of loan……………………………….

……………………………..12

2.1.4 Benefits of commercial bank activities for private investor……………………………13

2.2 Empirical
review……………………………………………………………………………..14

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 2.2.1 Credit assessment……………………….………..………….
…………………………14

2.2.2 Credit appraisal…………………………………………….…………………………

14

2.2.3 Interest rate…………………………………………………….

………………………..14

2.2.4 Disbursement…………………………….
…………………………………………...15

2.2.5 Repayment of loan……………………………………….

……………………………..15

CHAPTER THREE……………………………………………….………….
………………….16

3. Research design and methodology………………………….………….……………………

16

3.1 Research methodology……………………………………………….

…………………….16

3.2 Research design…………………………………………………………..

………………….16

3.3 Type and source of data…………………….……………..……..…..

……………………...16

3.4 Target
population…………………………………………………………………………….17

3.5 Population sample and sample determination………………….………..

…………………..17

3.6 Data
presentation………………………………………………………................................17

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3.7 Data analysis………………………………………………….
…………………………….17

CHAPTER
FOUR………………………………………………………….................................18

4. Data analysis, interpretation and presentation…………….

…………………………………..18

4.1 General information of

respondents………………………………………………………….18

4.1.1 The sex and characteristic of

respondents…………………………………………………18

4.1.2 The educational and work experience of respondents……………………………………

18

4.2 The factors affecting private

investment……………………………………………………..20

4.2.1 Shortage of
finance……………………………………………………………………..20

4.2.2 Lack of infrastructure………………………………………….

……………………….20

4.2.3 High interest rate

loan…………………………………………………………………..20

4.2.4 Lack of financial

knowledge………………………………………………………….20

4.3 Commercial bank service that support privet

investment………………………………….21

4.3.1 Activity of saving/deposit……………………………………………………………

21

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 4.3.2 Provision of loan or
credit…………………………………………………………..23

4.3.3 Terms of loan…………………………………………………………………… …

24

4.5 Provision of money

transfer…………………………………………………………………25

4.6 Provision o enough money for privet

investors……………………………………………..25

4.7 Consultancy service and private investors ………………..…………………………….…

26

4.8 Bank overdraft to private investors…………………………………..

…………………….27

4.9 Support of privet investors by commercial bank………………………………………..28

CHAPTER FIVE……………………………………………………………………………30

5. Conclusion and recommendations……………………….………………………………30

5.1 Conclusion……………………………………………………………………………….30

5.2 Recommendations…………………………………………………………………………
31

REFERENCE…………………………………………………………………………………
….

APPENDIX………………………………………………………

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Lsit of tables

Table4.1 Age and gender of respondents

Table 4.2.The educational level of the respondents

Table 4.3 the work experience of the respondents of the organization.

Table 4.4 Factor affecting privet investments

Table 4.5 kinds of deposit CBE provide

Table 4.6 Level of interest rate on deposit

Table 4.7 Terms of loan

Table 4.8 P rovision of money transfer

Table 4.9 The need of money foprivet investor

Table 4.10 Provision of bank overdraft

………………………………………………………………………………………28

Table 4.11 Support of privet investor by CBE……………………………………………….29

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ii
 CHAPTER ONE: INTRODUCTION
1.1 Back Ground of the Study
Banks are intermediaries that bring together parties that have surplus and parties in deficit and
give different service for customer such as deposit, transfer money, local and international loan
another many service. In modern world commercial bank serves variety of functions, of those
functions much of them involve with the support of private investments. Commercial bank also
named because they have special relationship to commercial business (Encyclopedia Delux
2004)

Commercial bank is the type of financial intermediary and type of bank. Thus bank are two
possible meanings, commercial bank is the term used for a normal bank to distinguish it from an
investment bank. This is what people normally call a bank. The term commercial was used to
distinguish it from an investment bank. The two types of bank no longer have to be separate
companies; some have used the term commercial bank to refer to banks which focus mainly on
investment (Jonathan Dodoo, 2000).

Investment is the most crucial economic activity of sustainable economic development of the
country to improve the life standard society sustainable, saving or capital accumulation from
investment activity is very essentials (Hordfort, 1997).

Private investment composes economic resource for future benefit but in developing country
they lack those resources especially finical resource due to low saving culture of society. The
solution to this problem is the arrangement of linkage between commercial bank and private
investors. For our country to achieve the goal commercial bank of Ethiopia can a vital role and
formidable role in increasing the GDP through supporting all productive sector of investment.

Generally in this study the researcher is try to investing or identify the role of commercial bank
of Ethiopia supporting private investment in case of Nekemte town.

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1.2 Back ground of the Organization
The state bank of Ethiopia was found in 1942 with on objectives forming the duties of
both commercial and central bank in 1963 established as a share company to take over
the commercial banking activities of the state bank of Ethiopia. In the 1974 revolution
commercial bank of Ethiopia got its strength by emerging with privately owned Addis
Ababa bank.

The commercial bank of Ethiopia which is striving to embark into world class
commercial bank, rendering state of the art and reliable service to millions of its
customers both locally and abroad. The business strategy of the bank was focus on the
stakeholders serves. The number of branches now a day reached above 1500 and
stretched across the length breadth of the country. CBE combines a wide capital base
with talented and committed employees, whom it regards as it key assets for banking
development. The state owned commercial bank of Ethiopia still dominates the market in
terms of asset deposit, capital and customers base and branch network, deposit the
growing competition from private bank over the last 17 years. This make the bank one of
the most reliable and strong commercial bank in the country and the region. Its strong
capital base above 78 years and its rich experience in the market as well as large branch
network throughout the country can able the bank to accommodate large demand for
banking service, bank from private and public companies and to increase its overall
revenue on sustainable base.

VISION
The vision of the CBE is “To become world class commercial bank in 2025”. The term
world class presumes efficiency good cooperate with governance and move toward best
international banking practices.

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MISSION

We are committed to maximizing shareholders value through enhanced financial

intermediation and up parallel customer satisfaction we strongly believe that reliability
and public confidence are the base of our success. The fundamental component of our
mission statement include

- Customer:- our customers are our most important assets.

- Shareholders:- In order to optimally meet the need of our customers and efficiently
manage out the business.
- Employees:- Quality customer service is possible only through motivated and
skilled employees for the wellbeing of its employees it tries to develop a work
force that enjoys working for and prides itself in association with the bank.

1.3. Statement of problem

Commercial bank of Ethiopia is needed for the economic, social and environmental dimension of
sustainable development that precise studies conclude, without exception that needs are
extremely large. Because, the achievement of development goal can only be realized with the
development of the commercial bank which is engine of many other banks to rise the country’s
economy. Commercial bank of Ethiopia is banking that facilitating the technology through
innovation, through intermediation role and opened that the allocation of saving identifications
and funding of entrepreneurs are veritable tools for achieving the micro economic objectives be
realized with the development of CB which is the engine of many other banks to rise the
countries’ of economics expansion. Commercial bank is intermediate between the surplus and
deficit sector of the economy (Oluita, 2009).

The commercial bank regulate to determine the strategies for allocating funds their by playing
significant role in determining the type of investment activities, the level of employment
generation and distribution of income. The development of private investment sector is strongly
correlated with the development of commercial bank lending (Athanasio2010).

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The researcher faced a problem getting some research done by other researcher on this title.

However, the researcher investigate some research on related issue. Most of them done their

study on the role financial institution.

Melaku deraje (2015) investigate the relationship between commercial banks’ development

and economic growth in Ethiopia. Alex (2012) noted that banks play several vital roles in any

economy. And these roles are aimed at ensuring sound financial system and economic

stability. It is incontrovertible that the banking system is the engine of growth in any economy,

given its function of financial intermediation. Through this function, banks facilitate capital

formation, lubricate the production engine turbines and promote economic growth. However,

banks’ ability to engender economic growth and development depends on the health,

soundness and stability of the banking system itself. Similarly, Abdulsalam (2013) noted that

financial intermediation is the process through which financial institutions transfer financial

resources from surplus units of the economy to deficit ones. However, for financial institutions

to discharge this role effectively, they have to be developed in terms of their resource

mobilization, variety of financial assets and efficient in credit allocation.

This implies that financing of private investment through the credit form commercial bank

portends that investments are associated with level of credit expansion. As one of major role of

commercial bank of Ethiopia is lending money by over draft, installment loan or other means,

the study seeks to find out how those CBE support the private investment in Nekemte town by

facilitating them to assess to credit and advising them, how to use those credit efficiently so as

to up lift standard of living and develop investment through commercial activity.

4
All the above researcher give emphasis on overall types of financial institution in promoting

investment. But this study focus on specific type financial institution that is commercial bank

of Ethiopia.

The researcher wants to fill the gap on the role of commercial bank in supporting private

investment. So the researcher initiated to conduct such study in order to fill such gap by

improving the above problems is raised the following basic question that should be answered

on how commercial bank of Ethiopia support privet investment in Nekemte town.

1. What are factor affecting private investments?

2. What commercial bank Ethiopia service support private investments?
3. How commercial bank gives service regarding with deposit and loan?
4. How deposit and loan interest rate affects investments?

1.4 Objective of the study

1.4.1 General objective of the study

The general objective of the research is to identify the role of commercial bank of Ethiopia in
supporting private investment in case of Nekemte town.

1.4.2 Specific objective of the study

 To identify factor affecting private investments
 To identify commercial bank of Ethiopia's service that support private investments.
 To examine how commercial bank of Ethiopia provide service regarding deposit and
loan.
 To examine the impact of deposit and loan interest rate on investment

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1.5 Significance of the study
The research is done on the role of commercial banks in supporting privet investment in the case
of Nekemte town with the objective of examining the role it has to enhancing investments. There
are deferent police that come up with the issue of privet investments.

This research is expected to be significant for following reason. There are different parties
involved in the supporting privet sector investments, including government. So those parties may
use the finding of the research as additionally input in designing police towards private
investments. Academicians, consultants and governments agencies may use the study has
stepping stone for further study in the area at advanced level.

The other significance of the research is both graduated and under graduated students may
findings the study for their academic work. The finding may also be considered as important
addition to the existing relevant body of knowledge in the area.

1.6 Scope of the study

The researches geographical concentration is limited to Oromia Special zone, Nekemte town,
found in Oromia region 331 km away from Addis Ababa. The focus of the study is limited to the
clear and detail identification of the role of commercial bank of Ethiopia in supporting private
sector investments in Nekemte town. This because of the time and cost limitation.

1.7 Limitation of the study

While conducted this study the researchers faced different obstacles such as shortage
of reference material because some contents of the reference are difficult to find,
shortage of time, the respondents have less interest to give information, there is also
financial limitations.

1.8 Organization of the study

The research is organized as five chapters. The general introduction information about the topic
of the research is provided in the first chapter. In this part, back ground of the study, back ground
of the organization, statement of problem, and objective of the study, significance of the study
and Area the study. The second chapter conveys the related literature review of data authors
about the subject matters under the study. The third chapter has explained about the methodology

6
to be adopted in the process of research under taking. The fourth chapter mainly the analyze part
of study diagnosis the data collected and relates them to different aspects. Method so as to
provide sound conclusion and recommendation area applied. Finally the fifth chapter will be sum
up all the points that are raise in the paper, draw conclusion and raise sound recommendation

CHAPTER TWO: Literature review

2.1 Theoretical and Empirical Review

2.1.1 An over view of commercial bank of Ethiopia
Commercial Bank of Ethiopia was legally established as a share company in 1963 to take over
the commercial bank activities of the State Bank of Ethiopia, which was founded in 1942 with
twin objective of performing the duties of both commercial bank and central banking
(www.deepethiopian.com, 2014). During the 1974 revolution Commercial Bank of Ethiopia got
its strength by merging with the owned Addis Ababa Bank. Since then, it has been playing a
significant role in the development endeavors of the country.

The bank has been playing a pivotal role in advancing economic development of the country for
78 years now. This role can be maintained only when it is able to keep-up its good image by
providing service that are most demanded by customers in the way they like it. To attain this, it
has to continue improving the way it does business i.e. the way it provides service to its
customers and the image it creates in the eyes of stakeholders have to go on improving.

Its strong capital base , for the last seven decades of rich experience in the market and wide
branch network throughout the country have enabled the bank to accommodate the large demand
for its service and increase its overall revenue on sustainable basis. The bank with its employee
and management has aspiration to promote sound liquidity management framework which
enables the bank bring itself to standard of modern international business practice and be
competent enough in the national and international market.

Today, more than ever before, CBE aggressively expanded its presence in all directions of the
country. Despite the flourishing of private commercial banks in the country, CBE has remained
potent and is in the lead in terms of assets, deposits, capital, and customer base.

7
 Commercial Bank of Ethiopia, in which it is striving to become a world class bank, is rendering
state of art and reliable service to its millions of customers both at home and abroad. The
business strategy of the bank focus on the interest of the public it serves.
Accordingly, Commercial Bank of Ethiopia envisions ‘becoming world class commercial bank
by the year 2025. In its strategic document too, it is clearly stated that the bank values both its
customers and employees as not only important but also essential actors in all its endeavors of
fulfilling public expectations.

2.1.2 Investment and commercial bank.

An investment is the current commitment of resource for a period in the expectation of receiving
future resource that will compensate the investor for the time the resource are committed, the
expected rate of inflection and the uncertainty of the future payment (K.RElly and Narton ,2004).

Investment supported by commercial bank is made through the provision of credit facilities to the
investors for mainly, to working capital purposes (Money, banking and financial market). Capital good
is other aspects of what are called investment good.

Commercial bank of Ethiopia contribute to the operation and growth of investment through various
roles including that of intermediary and provide of payment settlement facilities and they must also
execute these roles faultlessly in order to promote confidence and stability in the system.

Commercial bank accept deposits from individual and businesses, deposits are then made available to
the business which make use of them for productive purpose in the country. The banks are, therefore,
not only the store houses of the country’s wealth but also provide financial resource necessary for
private investor(SayedJanan 2009).

The business men normally hesitate to invest their money in risky enterprises. The commercial bank
generally provide short and medium term loans to entrepreneurs to use as working capital and adopt
new methods of production. The provision of timely credit increases the productive. The provision of
timely credit increases the productive capacity of the economy. Commercial banks perform many
functions they satisfy the financial needs of the sectors such as agriculture, industry , trade
communication, so they play very significant role in process of economic social needs (Richard, E.B
1998).

8
Commercial bank can extend to the poor while at the same time making a reasonable profit by charging
high interest rate. It can afford the high transaction cost of processing, large volume of loans small as a
few dollars. CB provide clients from house hold with arrange of money management and service
which include credit service, where by small loans are allocated against collateral substitutes , such
as group guarantees or compulsory savings deposit service designed to offer alternative saving
option and risk are managed as active partnership (M. kabir Hassan , 2002).

Commercial bank mobilize a financial resources has led to capital formation since capital formation
requires the release of domestic goods and service which promote the real investment . Then any
economy that wants to increase the real capital formation must be able to provide a climate respective
to the impact of resource from overseas and the encouragement of domestic savings. This requires a
financial arrangement of domestic savings. This requires a financial arrangement that encourage the
mobilized savings and productive investment (Josiaetal, 2012).

The commercial bank of Ethiopia is bank that provides financial services to surplus speeding unit to
deficit speeding unit (borrowers). The most important commercial bank are financial intermediaries;
Various services such as, saving and loan association and credit unions that serve as go between to
link up surplus speeding unit and deficit speeding unit. Economic growth and development of any
country depend up on a well join financial system. It provide a mechanism by which saving are
transformed in to investments (Burton nasibaLombra, 2003).

Banks as the most important of our financial intermediaries- institutions that serves as “ middle men”
for transfer of fund from the millions of individual house hold, investors and other entities with
surplus funds to those who borrow in order to purchase consumer goods or invests in real assets such
as houses, business plants and equipment. The statement of condition shows that principal financial
contracts issued by banks are demand deposit, saving deposit and time deposits.

The decision to save and decision to invest is typically made by different individuals and group. Many
house hold and firms engage investment. The difference groups of individuals and firm purchase
investment goods to realize investment goals. The saving of the masses must be transferred to investors
in capital goods. The key role in commercial bank and market is to facilitate the transfer of funds.
Banks have developed system to facilitate the transfer of funds, such that money can be transferred
almost instantaneous lousily and used the minimal risk (Money , banking and financial market).

9
Commercial banks are bank which financial intermediation raise funds primary by issuing checkable.
Deposits (deposit on which checks can be written, saving deposits, deposit that are payable on demand
but do not allow their owner to write checks, and time deposit (deposits with fixed terms to
maturity).They then use this funds to make commercial, consumers and mortgage loans and to buy
government security and municipal bonds (Frederic S, 2004).By almost any measures CB is the most
important financial intermediaries serving the public today. For example commercial banks sold more
asset than any other financial institution. Banks although represent a vital link in the transmission of
government economic policy (particularly monetary policy) to the remainders of the economy. Bank
deposits represent the most significant component of the money supply used by the public, and changes
in money growth are highly correlated with changes in the price of the goods and services in the
economy (Roseetali, 1993).

The roles of commercial bank of Ethiopia

> Accepting money on term of deposit.

> Lending money by over draft installment loan or other means, cash management and treasury.

> Safe keeping of documents and other items in safe deposit boxes.

> Processing of payments by way of telegraphic internet banking.

> Issuing bank drafts and bank check.

> Merchant banking and private equity.

Sales, distribution or brokerages with or without advises of insurance, unit trust and similar financial
products and financial super market.

Traditionally large commercial bank also under write bonds and make markets in currency, interest
rate, and credit related securities but today large commercial banks usually have an investment bank
arm that is involved in the aforementioned activity.

2.1.3 Functions of commercial bank of Ethiopia are;

The commercial banks serve as the king pin of the financial system of the country. They render many
valuable services. The important function of the commercial banks can be explained with the following.

10
Primary function: -The primary function of the commercial banks includes the following:

2.1.3.1 Acceptance of deposits

2.1.3.1.1Time deposits:-
These are deposits repayable after a certain fixed period. These deposits are not withdrawn able by
check, draft or by other means. It includes the following.
Fixed deposits: The deposits can be withdrawn only after expiry of certain period say 3 years, 5 years
or 10 year. The banker allows a higher rate of interest depending up on the amount and periods of time.
Previously the rates of interest payable on fixed deposit were determined by reserve bank.

Presently banks are permitted to offer interest as determined by each bank. However, banks are not
permitted to offer different interest rate to different customers for deposits of same maturity period.

These days the banks accept deposits even for 15 days or one month etc. In times of urgent need for
money, the banks allow premature closure of fixed deposits by paying interest at reduced rate.
Depositors can also avail of loans against fixed deposits. The fixed deposit receipt cannot be transferred
to other persons.

Recurring deposits: In recurring deposit, the customer opens an account and deposit a certain sum of
money every month. After a certain period, say 1 year or 3 years or 5 years, the accumulated
amount long with interest is paid to the customer. It is very helpful to the middle and poor sections of
the people. The interest paid on such deposits is generally on cumulative basis. This deposit system is a
useful mechanism for regular savers of money.
Cash certificates: - Cash certificates are issued to the public for a longer period of time. It attracts the
people because its maturity value is in multiples of the sum invested. It is an attractive and high
yielding investment for those who can keep the funds for a long time.

It is a very useful account for meeting future financial requirements at the occasion of marriage,
educations of children etc. Cash certificates are generally issued at discount to face value.

2.1.3.1.2 Demand deposits:-

These are the deposits which may be withdrawn by depositor at any time without previous notice. It is
withdraw able by check/draft. It includes the following:

11
Saving deposits:-The savings deposit promotes thrift among people. The savings deposits can only be
held by individuals and non- profit institutions. The rate of interests paid on savings deposits is lower
than that of time deposits. The saving account holder gets the advantage of liquidity (as in current
account) and small income in the form of interests.

But there are some restrictions on withdrawals. Corporate bodies and business firms are not allowed to
open SB accounts. Presently interest on SB accounts is determined by RBI. It is 4.5 percent per annum.
Co- operative banks are allowed to pay an extra 0.5 percent on its savings bank deposits.

Current account deposits:-These accounts are maintained by the people who need to have a liquid
balance. Current account offers high liquidity. No interest is paid ion current deposits and there is no
restriction on withdrawals from the current account.

These accounts are generally in the case of business firms, institutions and co- operative bodies.
Nowadays, banks are designing and offering various investment schemes for deposit of money. These
schemes vary from banks to banks.

It may be stated that the banks are currently working out with different innovative schemes for
deposits. Such deposit account offer better interest rate and at the same time withdraw able facility also.
These schemes are mostly offered by foreign banks.

2.3.2 Advancing of loan

The commercial banks provide loans and advances in various forms.

Overdraft: -Occur when money is withdrawn from a bank account and the available balance goes
below zero. In this situation the accounts is said to be overdrawn is within authorized over draft
limit, the interest is normally charged at the agreed rate. If the negative balance exceed the agree
terms, then additional fees may be charged and high interest rate may apply. Over draft occur varieties
of reason this may include. Internal short term loan the account holder over may occur for variety
reason this may include. Internal short term loan; the account holders find themselves short of money
and knowingly make an insufficient fund deposit. They accept the associated fees and cover the
overdraft with their the associated fees and cover the overdraft with their next deposit.

Failure to maintain accurate account register; the account holder doesn’t accurately account for activity
on their account and over spends through negligence.

12
Letter of credit:-This document issued by commercial bank, or assuring payment to a seller of goods
and / or service provided certain documents have being presented to the bank.

These are documents that provide that the seller has performed the duties under an underlying
contract ( example sales of goods or service) and the goods or service have been supplied as a greed.
In return for these documents the beneficiary relieves payment from the commercial bank that issued
the letter of credit. The letter of credit receives payment services as a guarantee to the seller that will be
paid regardless of when their buyer ultimately fails to pay. In this way the risk that the buyer will fail to
is transferred from the seller to the letter of credit issuer.

Loan:-An arrangement in which a lender is given money or property to a borrower and the borrower
agrees to return the property or repay the money usually long with interest at future point in time.
Usually there is a predetermined time for repaying the loan and generally the Leander has to bear the
risk that borrowers may not repay a loan through modern capital market have developed many
ways of managing this risk.

The terms of standardized loan are formally presented to this party in the transaction before any money
or property changes hands. If lenders require collateral, this will be stipulated in the loan documents as
well. Most loan also have legal stipulation regarding the maximum amount interest that can be
changed as well as other convenient such as the length of time before repayments is required. Loan
can come from individuals, corporation, commercial bank and government they are way to grow
over all money supply in an economy as well as open up competition , introduce new products and
expend business operations.

2.1.4 Benefit of commercial bank activities for private investor

The deposit and loan service provided by commercial banks are benefit for private investors in many
ways. First, checking account, because the act like cash, make it is much easier to buy goods and
services and therefore help both consumers and businesses who find it inconvenient to carry or send
through the mail huge amount of cash.

Secondly, loans enable investors to improve their standard of living and economy by borrowing money
for working capital to purchase materials important for investments. Thirdly, loans help investors
through plant expansion and production of new goods and services therefore increase employment and
economic growth.

13
Finally, since commercial bank is want loans repaid, they choice borrowers carefully and monitor
performance of company’s manager very closely. This helps ensure that only the best project get
finance and that companies are run efficiently.

In addition since the owners of company receiving a loan want their company to be profitable and
managed efficiently, bankers act as surrogate is present on a regular basis to watch the company’s
manager. This flow of money from savers through bank to ultimate borrowers is called financial
intermediation, because money flows through intermediary that is the bank (James, M.J, 2009).

2.2 Empirical Literature Review

According to the 1993 national survey of small business finance, commercial banks are the most
important single source of small firms (Cole and Wolken. 1995). Issues whether certain borrowers are
dependent on banks loans and whether banks lending is directly affect money policy action.

Therefore, there is different research try to find out the problems and try to explain the essentiality of
the credit for one’s country. However, this research tries to ass the credit provision of mechanism of
commercial bank.

2.2.1 Credit Assessment

According to Nsereko (1995) credit assessment is the first stage in the lending process. It is the process
through which the credit application present the necessary documentation to the organization in order
to obtain a loan.

2.2.2 Credit appraisal

According to Santamero and Kim (1993). Credit appraisal is defined to lender take action which
facilitate repayment makes the financial institution does do it well; its performance is highly affected.

2.2.3 Interest rate

According to Ross (1991). It is price of land able funds service to allocate credit and moderate the level
of investment. Interest rate are locked at form the borrowers and lenders risk premium to the price of
the loan to cover loan losses. The risk premium results from fact that at the same time of the loan
request. The lender is unable to clearly identify which borrower will repay and which borrower will be
default loss are known until a scheduled repayment are due.

14
 2.2.4 Disbursement;-
Disbursement on the hand that money is not available until approvals and documentation are obtained
before fund are disbursed.

According to Ross (1995) and Nsereko (1995) if disbursement control is week, the whole integrity of
the credit process can be weekend and abused.

2.2.5 Repayment of Loan

According to Motoru and akuman (2004) each institution has different repayment mechanism based on
the specific of the institution of the customer pay weekly or installments.

2.3 Research gap

The study doesn’t show the current role of commercial bank in supporting private investment in
Nekemte town. Due to this fact it attracts our attention to conduct research in Nekemte town on role of
supporting private investments.

15
 CHAPTER THREE:

Research Design and Methodology

3.1 Research methodology
In this chapter detail methodology showing the logical frame work that discuss research design
and research method would be presented. To achieve the object of the research the appropriate
method is be adopted. Basically there are three type of research approaches qualitative,
quantitative and mixed approach (Cress well, 2003). The choice of this method is dependent of
several factors including researcher’s interest and experience, nature of the study etc. The paper
used both qualitative and quantitative techniques. The study is tried to quantify some of the key
issues regarding each role of commercial bank of Ethiopia in supporting private sector
investmentment in nekemte town
3.2 Research Design
The researchers use a descriptive study because Descriptive research includes surveys and fact-
finding enquiries of different kinds. The major purpose of descriptive research is description of
the state of affairs as it exists at present. In social science and business research we quite often
use the term Exposit facto research for descriptive research studies. The main characteristic of
this method is that the researcher has no control over the variables; he can only report what has
happened or what is happening it is one of the researches that use both qualitative and
quantitative expressions and enable to obtain the general overview of the fact. This involved
personal interview, questionnaire and telephone contract when it is necessary. To collect the
necessary data, key people like general manager, casher heads, and other essential people and
employees will interview. The researcher selects this method to describe, summarize and present
the data. In addition to this the questionnaire will be distributed for sample employees.
3.3 Types and Source of Data
In conducting the research study the required data is gathered from both primary and secondary data
sources. The information required helped the researchers to achieve the set objectives.

16
Primary data, during the research primary data used is obtained from the sample elements relevant
information concerning the whole people under study. The technique used is questions. Question,
include both close and open ended questions. Because open ended questions enable respondents to
express their idea freely and closed ended questions unstructured form of interview is also prepared to
get the necessary reliable information particularity from the management’s and sales and marketing
questioner. The question is addressed to selected employees under the study and contained both closed
and open ended questions.

Secondary data, the source of data for the study is the review of published and unpublished documents
report. Journal, magazine and internet which is greatly assistance for successful and fruitful for
completion for the study.

3.4 Target Population

The target population of the study is the total number of employees concerning with the role of
commercial bank in supporting privet investment in commercial bank of Ethiopia Nekemte branch.

3.5 Population Sample and Sample Determination

The sample techniques where used is through census sampling techniques because the population for
the study is not over in number. The researcher is used census is not difficult to collect and get
information easily from the employees or the manager of the bank.

3.6 Data Presentation

After the process of data collection, the data is analyzed by arranging and organizing them properly so
as to be easily interpreted. To analyze the data, the researchers used editing, coding and tabulation.

3.7 Data Analysis

Data is analyzed after editing, coding and tabulation. The data is presented on the descriptive bases by
using table and percentage that can facilitate to interpretation which focused on result that are relevant
to the study.

17
CHAPTER FOUR: Data analysis, interpretation and presentation
4.1 Introduction
Examining the role of commercial bank in supporting privet investment is the main objective of
the research, as to enhance the contribution of the bank to privet investment. Data is gathered
from commercial bank of Ethiopia, Nekemte branch. Those data gathered through questioners
are interpreted through descriptive analysis. The first part asks about respondents characteristics
the second part contains questions about the role of commercial bank in supporting the private
investment sector development. In this particular chapter the data is analyzed and interpreted
depending on their respective information.
4.1 General information of respondents
The questioner first part is designed to gather information about respondent characteristics. It
contain question in order to gather the general information about the respondent’s characteristics
like gender, age educational level and work experience.
4.1.1 The sex and age characteristics of the respondents
Table 4.1 Sex and age of the respondents
No Description No of respondents Percentage

1 Sex No of respondents
Male 45 80.36%

Female 11 19.64%
Total 56 100%

2 Age No of respondents Percentage

18-25 8 14.29%

26-35 28 50%

36-45 20 35.71%

>45 0 0%

Total 56 100%
Source: computed by the researcher

18
Table4.1 show that out of the total respondents 80.36% was male and the reaming 19.64% are
female. This may shows the most of workers are male and it indicates that the portion of females
participate in sampled enterprise is low. This may be the result of cultural and many other effects
on females during historical period. Accordingly, the table above table 4.1 shows that14.29% of
employers are between age 18-25 and 50% are between age 26-35 and between age 36-45 and
above 45 years are 35.71% and 0% respectively.

4.1.2 The educational level and work experience of respondents

Table 4.2.The educational level of the respondents

Educational level No of respondent Percent
Diploma 0 0%
Bachelor degree 48 85.71%
Master’s degree 8 14.29%
PHD 0 0%
Total 56 100
Source: computed by researchers
Table 4.2 Shows that 77.28% of the respondents have a bachelor degree and the remaining
22.72% of them have master’s degree.

Table 4.3 the work experience of the respondents of the organization.

Work experience No of respondent Percent
Below 3 years 4 7.14%
4-6 years 22 39.29%
7-10 years 28 50%
11 and above 2 3.57%
Total 56 100%

Source: computed by the researchers

Based on the above table 4.3 shows 7.14% of the respondents have below 3 years work
experience on commercial bank of Ethiopia, 50% of them have 7-10 years’ work

19
experience ,39.29 of them have 4-6 years experience and 3.57% of them have 11 and above work
experience in the bank.
According to the above table most number of employs of the organization ranges between 7-10
years of work experience.
4.2 The Factor Affecting Privet Investment
4.2.1 Shortage of finance
According to respondents opinion the shortage of finance would be a most factor influencing the
level of investment regardless of cost of capital loans in the banking system would probably the
most important determination of investment in developing countries due to the shallow depth of
the capital markets. Therefore, there would be great dependence on non-financial firms for credit
from banks to finance both working capital and long term investment. This view emphasizes the
importance of including the bank credit as to determinant of gross private capital formation.
4.2.2 Lack of Infrastructures
Over the last decades, public capital investment in infrastructure has on average declined in
countries. Public provision of infrastructure has sometimes failed to deliver efficient investment
with misallocation across sectors, regions or time due to financial considerations. Constrains on
public finance and recognized limitations on the public sector’s effectiveness in managing
projects have led to a reconsideration of the role of the state in infrastructure provision.
4.2.3 High Interest Rate on Loan
Changes in interest loan can have both positive and negative effects on the investment. With
every loan there is a possibility that the borrower will not legally pay the money. Interest is
amount of money that leaders earn when they make a loan, that the borrower repays principal
and the interest rate, is the percentage of the loan amount that the lender charge to lend money
(Josiaetal, 2014).
4.2.4 Lack of Financial knowledge
A lack of financial knowledge is not a problem only in investment or developing economy.
Consumer in developed or advanced economies also fail to demonstrate strong grasp of financial
principle in order to understand and negotiate the financial landscape, manage financial risk
effectively and avoid financial pitfalls

20
TABLE 4.4, FACTOR AFFECTING PRIVATE INVESTMENT

What are the factors affect No of respondent Percent

private investment?
Shortage of finance 24 42.86%
High rate interest loan 13 23.21%
Lack of infrastructure 2 3.57%
Lack of financial 17 30.36%
knowledge
Total 56 100%
Source: computed by the researchers
Based on the table 4.4 analysis 42.86%of respondents agreed that the shortage of fiancé are the
factor affect investment, 23.21% of them says that the high rate interest loan, 3.57% of them
are lack of infrastructure of business change to investment and the remaining 30.36% was
agreed on lack of financial knowledge.
From this information the majority of respondent agreed that the main factor affect private
investment is shortage of finance. Lack of financial knowledge and lack of infrastructure that
affecting the performance of the investment. As a result of this, road, electric power,
communication access, and construction of bridge are not well developed in our country.

4.3 Commercial bank service that support privet investment

4.3.1 Activity of saving /deposit

Commercial bank deposit are major liabilities for commercial bank due to fact that commercial
banks are using this liability to lend it and gain return on it their deposits are using them do
their business. Commercial bank deposit are the most significant components of the money
supply used by the public and changes in money growth highly correlated with changes in
the price of goods and service in economy.

Commercial bank of Ethiopia is providing three different type of deposit for private investors.

21
1. Current deposit: is an interest bearing account and is opened by literate customer only.
This depots is operated by legal agent in the name of principal against producing a power
of attorney which shall be attested by the banks legal service department or area offices or
branch managers. The minimum amount required by the bank to open a current account for
individual l trader is birr 500 and for others birr 1000(Ross 1991).
2. Saving deposit: is an interest bearing deposit that CBE renders for physical and legal
persons (individual, organization and association) who can fulfill the bank requirements and
are legal. The minimum balance to open a saving account should be birr 25. However, saving
account may be opened and maintained with zero balance for one month.
3. Fixed deposit: CB fixed deposit refers to a type of deposit which can be drawn on the
expiry of specific period. This type of deposit is paid at a higher rate of interest.
Table 4.5 kinds of deposit CBE provide

Question Kinds No of Respondents Percentage

How your bank give Current deposit 35 62.5%

service regarding
Saving deposit 13 23.21%
deposit?

Fixed deposit 8 14.29%

Total 56 100%

Table 4.5 conveys 62.5% of respondents agree on giving current deposit, 23.21% say CBE
give service in saving deposit, the rest 14.29% agree with giving fixed deposit
According to table 4.5 Current deposits is the major deposit service given to privet
investments. Next to current deposit saving deposit is the larger deposit given by the bank.
Fixed deposit also given by the bank to privet investments.

4.3.1.1The level of the interest rate on depositors

Deposit interest rate is the rate paid by commercial bank for demand deposit, time deposit and
saving deposit. The level of inflation has inflected the rate of interest that bank given to their
deposition according to a NBE report inflection and investment policy change directly affect that

22
bank deposit rate. This mean the level of investment influences that of deposit interest rate, while
deposit interest rate in turn influences bank deposits.

The deposit interest rate in Ethiopia based on this the value for average deposit interest rate
(saving and fixed time deposit interest rate) in commercial bank of Ethiopia was between 3% and
6% from 2000 to 2016 (Richard, E. B 1991).

Table 4.6 level of interest rate for deposit

Question Level of interest No of respondents Percent

If your answer for the High 8 14.29%

above question is yes,
Medium 27 48.21%
what level of interest
for depositor? Low 21 37.5%

Total 56 100%

Source: computed by researchers

Considering the above table 4.6 large parentage of respondent 48.21% shows their commercial
bank provides medium interest rate for their deposit to investors, 37.5% of the respondent
commercial bank provide low interest rate to investors and 14.29% of respondent proved high
interest ret deposit to investor.
This implies that large percentage respondent; commercial bank pays medium interest rate for
deposit of investors. If commercial bank increase interest rate of deposit, many investors
come up with CB and depose their money in the bank. It is better to increase interest rate of
deposit to increase saving for private investment.

4.3.2 Provision of loan or credit

Businesses can use internal funds or external source to finance their investment. A firm can use
one of these two financing resources only or as is more often the case in practice are mature of
them. Traditionally internal findings is personal saving retained profit and sale of assets is an
important means of financing only for small business and cover only the smallest part of
private investment in large companies. Whereas, external source commercial bank is the major
source of funds for private investment. Since the commercial bank is established to support the
country economy by contributing loan that increase private investment especially in

23
developing countries like Ethiopian it is must for the investors to get finance from commercial
bank of Ethiopia to make their investment and get profit (Motoru and akuman 2004).
The main source of working capital of their investment both in developing and developed
countries for private sector investment is loan from commercial bank. This shows that the
commercial bank of Ethiopia currently operating in Nekemte branch is providing credit service
which is the main contribution of their value. The implication of this is that, they are having and
major role in making private investment possible.

4.3.3 Terms of loan

Commercial bank of Ethiopia in Nekemte branch provides different terms of loan for private
investors. These terms of loans are based on maturity of time of payment divided in to three:
short term loan, medium term loan and long term loan. A short term loan is period of time from
one year to two years. A medium term loans is a period of time from two years up to five years
and long term loan is above five year
Commercial bank of Ethiopia provides the following kind of loan for its private investors.

Table 4.7:- Terms of loan the bank provides

Questionnaires Terms of loan No of Percent

respondents
What kind of loan the Short term loan 14 25%
bank provides? Medium term loan 30 53.57%
Long term loan 12 21.43%
Total 56 100%

Source: computed by researchers

Based on the table 4.7 analysis 53.57% of respondent agrees that the commercial bank provides
medium term loan, 25% agrees short term loan and the remaining 21.43% commercial bank
provides long term loan to private investors when compare to other similar bank. Large
percentage of respondent agree medium term loan, because commercial bank collects large
percentage of deposit from customers.

4.4 Impact of deposit interest rate and loan interest rate on investment

24
Commercial bank makes money by providing loan and earning interest income from those loans.
Customer deposit such as checking account, saves in account, money market accounts and
certificate of deposit (CDS), provide bank with the capital to make loans. Investors who deposit
money in to these account effectively lend money to the bank and are paid interest however, the
interest rate paid by the bank on money they borrow is less than the rate charged on money the
lend. Savings and loans institution epitomize the two moving parts commercial bank the
savings side pays customers to provide them with capital while the loans side earns the bank
money by charging interest. The amount of money earned by a commercial bank is determined
by the spread between the interest it pays on deposits and the interest it earn on loans. However
the investments traditionally pay very low interest rate, when compared to mutual funds and
other investment products. In some cases, commercial bank deposits pay no interest, checking
accounts fit into category. When a commercial bank lends money to investor, It charge 7% and
when borrow s from investor (customer) charged only 11% annually. That means it charges a
rate of interest that is higher than what the bank pay its depositors. There is a negative
relationship between investment and interest a rate means that as interest rate fall investment
raises and the opposite is true when the interest rate rises. Interest rate is used to determine the
level of investment in an economy. When interest rate is high borrowing would become more
expensive for the investors so they make real investment on the other hand if the interest rate
is low more and more investment take employment opportunities and increase in the
potential GDP. Thus the interest rate through the effect on investment improves growth and
future living standard of nation (Fikru, 2014).

4.5 Provision of money transfer

Table 4.8 provision of money transfer

Questionnaires Answer No of Percent
respondents
Does your organization transfer money from one place to Yes 56 100%
another place? No 0 0%
Total 56 100
%
Source: computed by the researchers

25
As show in the above table 4.8 (100%) of the respondent of the commercial bank said that, they
transfer of money from one place to another place. According to the respondent commercial
bank is bank that transfer money from surplus area to deficit area when investor is needed fund
from bank.

4.6 provision of enough amount of money that private investors require

Table 4.9 the need of money for private investors

Question Answer No of Percent

respondents
Do your bank give enough amount of money that private Yes 15 26.79%
investors require (need)?
No 41 73.21%

Total 56 100%

Source: computed by the researcher

According to the above table 4.9, 26.79% of respondent response as the bank give enough
amount of money that private investors requires and 73.21% of respondent response as the bank
does not give enough amount of money that private investors requires.

The reason of the respondents whose answer is “NO” is the bank gives loan for investors as per
economic activities of the investors and as rules and regulation of the bank, they highly focus on
public sectors rather than private investor, due to lack of money and many investors requires
high amount of money from commercial bank without knowing the value of their collateral as
current market. This is the factor that they don’t gain as they want.

4.7 Consultancy service and private investors

The breadth of resources at CB enables them to combine industry expertise with investment
knowledge and transaction execution expertise when such specialized skill set is critical to a
transaction’s outcome. Their capabilities provide them a competitive edge to understand and to

26
convey to potential buyers, sellers and financing sources a company’s key business drivers
(Josieta, 2012)

This will provide private investors with a Better ability to identify the most suitable acquirers,
targets and funding sources, less upfront time needed to understand and articulate a company’s
key business drivers and Keen insight into company valuation/fundamentals for each potential
buyer/seller/lender, which often translates into a better price/term. In addition, the senior-level
relationships they have in each of industry verticals provide them unique access to key decision
makers at prospective buyers, financing sources and related parties to facilitate transaction
closings. This commercial bank deals with many businesses in different industry. This will
provide them insight knowledge of each industry they are currently leaving in and dealing with.
Their depth knowledge of industry, breadth of resources and strong senior-level relationships
provide the basis for their services to private investors, whether in analysis of strategic
alternatives or in execution of a merger, acquisition, divestiture or capital placement, as well as
for fairness opinions. Commercial bank through broad spectrum of services provides assistance
to investors around the globe throughout all phases of a company’s financial advisory. Clients
that require a sophisticated combination of financial, technical and industry expertise continually
rely on the experts within their practice areas to address a wide range of investment issues
(Albuquerque, etal, 1985).

4.8 Bank Overdraft to private investors

An overdraft is a loan arrangement between the borrower and the bank whereby the bank extends
the credit to a maximum amount against which the customer can write check or make
withdrawals. It refers to the amount of money borrowed that exceeds the deposits. In other ward
an overdraft occurs when money is withdrawn from bank account and the available balance goes
below zero. In this situation the account is said to be "overdrawn".

If there is a prior agreement with the account provider for an overdraft, and the amount
overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed
rate. If the negative balance exceeds the agreed terms, then fees may be charged and higher
interest rates may apply.

27
An overdraft allows the individual to continue withdrawing money even if the account has no
funds in it. Basically the bank allows people to borrow a set amount of money. If you have an
overdraft account, your bank will cover checks which would otherwise bounce. As with any
loan, you pay interest on the outstanding balance of an overdraft loan. Often the interest on the
loan is lower than credit cards (Iskshmy shekher,2005)

Table 4.10 provision of bank overdraft to private investors

Question Answer No of respondents Percent

Does your organization give an overdraft service? Yes 56 100%

No 0 0%

Total 56 100%

Source: computed by the researchers

The study result shows that there is over draft services opportunities available for private
investors in,Nekemte town. As you can easily grasp from the above table (100%) commercial
bank provide overdraft service for private investors. Those investors with the availability of over
draft service with commercial banks.

The requirement to get overdraft is that everybody who require getting overdraft should have
integrity and honesty quality for the bank, respecting the rule and regulation of the bank, identify
the reason he (she) want overdraft with legal form, have enough collateral coverage, the business

28
that have daily cash flows, account performance with commercial bank of Ethiopia, based on
previous loan repayment history, should have trade license and high turnover business activity.

4.9 Support of private investor by commercial bank

Within an overarching strategy for improving the investment environment, investment promotion
and facilitation can help to increase both domestic and foreign investment and to enhance their
contribution to national economic development. Success in supporting investment requires a
careful calculation of how to employ resources most effectively and how to organize investment
promotion activities within the financial sector so that the overriding goal of economic
development through improvements in the investment climate remains at the forefront of
policymaking. This will assist private investors in incorporating international best practices into
their own investment promotion efforts (CresWell,J,W 2009).

Table 4.11 Support of private investors by commercial bank

Question Answe No of Percent
r respondents
Is any problem faced by your bank in supporting private Yes 32 57.14%
investment?
No 24 42.86%

Total 56 100%

Source: computed by the researcher

As shown in the above table 4.11 (57.14%) of the respondent response as there is problem faced
by CB in promoting private investors, (42.86%) of respondent response as there is no problem
face by the CB in promoting private investment.

According to 57.14% of the respondent the problem faced by CB is; there is problem of inflation
which is general increment of price in all over the country, Many investors have lack of
awareness regarding rule and regulation of the loan, less collateral, high requirement of loan, to
fulfill the criteria of gaining loan from bank, evidence of owner and unable to pay return the
amount they are borrowed and diversion of fund. To decrease inflation government can take
many fiscal and monetary policies. That measurement can be the selling of Treasury bill in open
market operation which is buying and selling of bond by government for the society to collect
money from all country. This is one way to protect inflation, so the national banks can use fiscal

29
 policy and monitory policy to measure inflation. Another way of measurement taken by
commercial bank of Ethiopia is to support the investor on the track of the business, to know
investor principle before giving the fund, approaching the investor to diversify their business and
by re-scheduling their loan period.

CHAPTER FIVE:

CONCLUSION AND RECOMMENDATION

5.1 conclusions
Investment and economic growth of any country depend up on a well join financial system.
Financial system is simultaneously attached with comparison of commercial bank. It provides a
mechanism by which saving are transformed in to investments. Commercial bank of Ethiopia is
contributes to the operation and growth of investment through various roles.

Based on the analysis, interpretation and objectives, the following points are concluded.

According to finding commercial bank of Ethiopia make crucial role in giving deposit (saving), loan
service for investor by medium interest rate, transfer of money from one place to another place and it
makes them to enhance their investment.

Commercial bank plays a crucial role by providing consultancy service for investors in which they
direct the private investor into the best direction.

However, commercial bank of Ethiopia does not give enough amount of money that the investor
need the reasons are, there is lack of money and the reason is investors requires high amount of
money from the bank without knowing the value of their collateral as current market.

Based on the finding banks give overdraft service and the requirement to get overdraft is respecting
the rule and regulation of the bank and identify the reason they want over draft with the legal form
and have collateral material.

30
Banks give LC service to the investors when they require for competitive bidding and they also give
mortgage service.

According to many of the respondents the problem faced by commercial bank is inflation which is
generate increment of price in all over the country there is also a problem faced by investors ,lack of
awareness regarding rule and regulation of the loan.

Generally commercial bank is the back bone for the country socio economic development. Since the
private investor have a significant role in the economy of the country. Commercial bank provides
service as the linkage or the bridge that facilitate the way for private investor. This organization also
makes the private investor to be efficient and effective in the activity they undertake to increase the
income of private investors that lead them from low level living standard to the medium as well as
high level standard.

5.2Recommendation
I would like to recommend commercial bank of Ethiopia Nekemte branch should give better
privilege and more chance to private investors in granting loans than an individual’s credit users and
it is also recommends for the commercial bank to provide their service

 According to the finding many of the commercial bank pays medium interest rate for the deposit
and loan of investors. If they increase interest rate of deposit and decrease interest rate of loan, it is
better to increase private saving and decrease loan for private investment.
 In order to give enough amount of money for private investor commercial bank has to try to solve
the problem of money shortage.
 Inflation is the problem faced by commercial bank so government can take corrective action to
decrease inflation rate, like monitory policy.
 In order to solve the problem dispersion of fund the commercial bank of Ethiopia should give
advice for the investors so as to they use their funds appropriately for intended purpose.
 Governments regularly reviews and improve the policy environment particularly for the
development of private investment and should provide special support and should encourage for
those investors.

31
Reference
 Athanasio and Lekshmyshekhar 2010; Banking theory and practice, 9thedition.

 Creswell,JW 2009, Research design; quantitative, qualitative and mixed methods

approaches, 3rdedition,sage publication, California.

 Christopher W. Anderson and Luis Garcia, Feijoo. VOL.LXI, No 1 Feb 2006

 DE, Albuquerque, Martim (1855) and Queries: London;George Bell

(p.431)Encyclopedia New (1997)

 Financial market and institution, New Burton NASIBA LOMBRA, 2003(P.8)

 Fikru 2014, Studied loan and advance management system in case CBE.AA

 K. Relly and Narton 2004,P5 Levine, 1991, mishkin 2007.

 Money, Banking and Financial market, Lloyd Thomas (2006), Kheker,1998

 M.Kabir Hassan, 2002 Technical scale and allocative efficiencies of Turkish banking

industry.

 Oluita (2009).’’Financing of investment through credit market.

 R,R paul 2004 money Banking and International Trade 5th Edition, India

 Richard, E,B 1991. Deposit composition and commercial bank earnings. USA.

America finance association.

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 Schumbeter (1911), Athanasius &Antonios(2010), Gross (2001)

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country.

 Liyod Thomas (2006), kherker, Money banking and financial market.

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34
 APPENDIX
WOLLEGA UNIVERSITY
SCHOOL OF BUSINESS AND ECONOMICS

DEPARTEMENT OF ACCOUNTING AND FINANCE

Dear respondent, we would like to express our gratitude in advance for corporation, you will show in
completing the questionnaire. This study is conducted under the title; The role of commercial bank in
supporting private investment in case of commercial bank of Ethiopia Nekemte town. This study is
conducted partial fulfillment of the requirements for the BA degree in accounting and finance at Wollega
University. The main objective is to identify the role of commercial bank in supporting private investment
and determine factor affect investment.
Part I personal questions
1. Age 18-25 26-35 35-45
46 and above
2 .Gender A, Male B. Female
3. Educational status
Certificate Diploma Degree
Masters PHD Other
4. Work experience (In year)

0-3 4-6 7-10 11 and above

5. What is factor affecting private investment?

Shortage of finance
High rate interest loan
Lack of infrastructure
Lack of financial knowledge
6. Based on question number 5 express your reason why do you think so?
_________________________________________________________________________________
____________________________________

7. How commercial banks give service regarding with deposit or saving money to investor?

Current deposits fixed deposit saving deposit

35
 8. Based on question number”7” what is your opinion about the interest rate for depositor.

High Low Medium Satisfactory

9. Based on question number “8” what is the effect of deposit interest rate on privet
investments…………………………………………………………………………………………
……………………………………………………………………………………...

10 .Does your bank gives loan or credit to privet investments?

Yes No
11. If your answer for question number is yes what kind of loan does the bank provides?
Long term Medium term Short term
12. What is your opinion regarding loan interest rate?
High Medium Low

13. Based on question “12” what is the effect of loan interest rate on privet
investments……………………………………………………………………………
…………………………………………………………………………………………
14. Does your bank transfer money from one place to another place?
Yes No
15. Does your bank give enough amount of money that private investors require (need)?
Yes No
16. If question “15” no could you express the reason?
________________________________________________________________________
______________________________________________________
17. Does your bank give advice service for private investors?
18. Does bank given an overdraft service for the investor?
Yes No
19. If question number “18” yes what are the requirements to get over
draft? ...............................................................................................................................
.......
20. Is there any problem faced by your bank in supporting private investment?
Yes No
21. If questions “20” yes what is the problem?
________________________________________________________________________
______________________________________________________
22. What measure to be taken by the CB to solve the problem?

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______________________________________________________

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