The financial sector plays a critical role in the process of economic development by effective mobilization and locates financial resources for their most productive uses. The development of financial sector reduces information and transaction costs encouraged financial savings and investment. A bank makes investment in government securities and in the stocks of large reputed industrial concerns. While in case of loan the bank advances money against recognized security and bill.
Commercial bank of Ethiopia Gondar main branch is one branch of commercial bank of Ethiopia among which is found in Gondar. It is established to provide different services for the society. CBE Gondar main branch create job opportunities to those individuals taking alone, by providing fund to operate their business activities and receive return as interest for the principal they lend. So, creating job opportunity increases the individuals’ living standard and the return increases the asset of the bank, these also leads to economic development of the country (from the Bank manager).
Currently CBE Gondar main branch offers the following credit products:-
– Term loans (short; medium and long term loans)
– Over draft
– Merchandise loans
And the bank accepts the following assets as collateral
– Building with motor Vehicles
– Construction machinery
The reason for the study is to assess the contribution of CBE Gondar main branch for the economic development of the society, it especially in depth the bank contribution of the local people and increasing the people’s awareness about the importance of the CBE.
1.2 STATEMENT OF THE PROBLEM
The bank undertakes financial intermediation, this implies that they mobilize deposits/funds from customers and provide lending to others who might need such funds from productive business ventures or other purposes. In performing these function the CBE improve the well-being of both depositors and investors by giving different services that arises their living standard. The bank promotes economic development by gathering the supply of funds from millions of individuals, depositors and making them available to investors, and the economic development of the society & the town is dependent on the contribution of the bank. In related to this there are some problems that occurs. In order to asses those problems the research is attempt to address the following questions. The Ethiopian financial system is bank dominated. Yet it is not easily accessible to a large segment of the population. Ethiopian banking system has limited size of coverage and unbalanced distribution.. From this the Addis Ababa, which is the capital city of Ethiopia, accounted for 66% of the total. In addition 2% deposit account holder contributed for 73% of total deposits. Regarding the amount of loans provided, few urban rich took the lion share who can offer collateral. Banking products are traditional (saving, time and demand deposits; as well as standard loan products.
1. What are the contributions of the bank in solving the problems of unemployment in the town?
2. What are the contributions of the bank for business development of the town?
3. What are the contributions of the bank in poverty reduction of the society?
1.3 OBJECTIVE OF THE STUDY
1.3.1 General objective
The main objective of the study is to identify the contribution of CBE Gondar main branch for the development of Gondar town.
1.3.2 Specific Objective
In addition to the general objective, the studies have its own specific objectives; these are: –
1. To assess the contributions of the bank in solving the problems of unemployment in the town.
2. To identify the contribution of the bank for business development of the town.
3. To investigate the contribution of the bank in poverty reduction of the s
4. 1.4 SIGNIFICANCE OF THE STUDY
The studies have a great significance for both a financial institution and the society. The bank can get the necessary information about its customer’s awareness, performance ; feelings about the bank.
The study plays a great role in the society’s awareness about the bank service and it may enable the society to capitalize the opportunity the bank provides to make use of idle resources
In addition to above importance, it helps another researcher who is interested to study on the same area.
1.5 SCOPE OF THE STUDY
The study of this research paper is to assess the contribution of CBE for the development of Gondar town. The study is conducted in CBE Gondar main branch with consideration of contribution of CBE Gondar main branch for the development of Gondar town in the bank.
1.6 LIMITATION OF THE STUDY
While conducting this study, the different obstacles, such as this study is only conducted in CBE Gondar main branch, it doesn’t include other CBE branches and also it doesn’t conduct in other privet banks.
1.7 Organization of the study
The study was presented in 3 chapters. The first chapter which is the introduction covers the background of the study, problem statement, objectives of the study, the research question significance of the study, as well as the scope and limitations of the study. This is followed by chapter two which reviews extensive related literature on the subject matter. Among the various topics to be covered include functions and contribution of bank, it role for economic development. Chapter three looks at the methodology of the research which comprises the research design, the research population, sample and sampling technique. It will also consider the sources of data and data collection instruments, methods of data collection and analysis.
2.1: Contribution of Banks for Economic Development
Banks play an important and active role in the economic development of a country. If the banking system in a country is effective, efficient and disciplined it brings about rapid growth in the various sectors of the economy. Some of the significances of banks in the economic development of a country are discussed below.
A. Commercial Banks
Com. Banks are those FIs which accept deposit from the public repayable on demand and lend them for short periods
Commercial banks provide numerous services in the financial system.
The services can be broadly classified as:
1. Individual banking;
2. Institutional banking; and
3. Global banking.
1. Individual banking:
It encompasses consumer lending, residential mortgage lending, consumer installment loans, credit card financing, student loan & individual oriented financial investment service.
They generate income:
? Interest from loans
? Fee income from credit card financing
2. Institutional banking:
It loans to non-financial corporation’s ; financial corporation’s (like insurance companies), government, leasing companies etc..
Interest from loan to corporation & leasing
Fees from management of private assets pension funds, custodial services.
3. Global banking:
It concerns a broad range of activities involving corporate financing & capital market & foreign exchange products & services.
Most global banking generates fee income rather than interest income.
Bank Balance Sheet
1. Bank Assets
An asset earns revenue for the bank and includes cash, securities, loans, and property and equipment that allow it to operate.
One of the major services of a bank is to supply cash on demand, whether it is a depositor withdrawing money or writing a check or a bank customer drawing a credit.
Hence, a bank must maintain a certain level of cash compared to its liabilities to maintain solvency.
The primary securities that banks own are Treasury Bills and Government Bonds.
These securities can be sold quickly in the secondary market when a bank needs more cash.
Therefore, they are often referred to as secondary reserves.
Loans are the major assets for most banks. They earn more interest than banks have to pay on deposits, and, thus, are a major source of revenue for a bank.
Loans include the following major types:
Business loans, usually called commercial and industrial loans.
Real estate loans, e.g., residential mortgages
Consumer loans, e.g., credit cards
Inter-bank loans, i.e., the loan given to other banks.
2. Bank Liabilities
Liabilities are either the deposits of customers or money that banks borrow from other sources to use to fund assets that earn revenue.
A. Checkable/Demand deposits
Checkable or demand deposits are deposits where depositors can withdraw the money at will.
Most checkable or demand accounts pay very little interest or no interest.
B. Saving and Time deposits
Since saving accounts are not used as a payment system, banks are forced to pay more interest for it.
Saving deposits are mostly passbook saving accounts, where all transactions were recorded in a passbook.
C. Certificate of Deposit (CD)
CD is a deposit where the depositor agrees to keep the money in the account until the certificate of deposit expires.
The bank compensates the depositor with a higher interest rate.