Financial distress situation of financial sectors in Ethiopia: A review paper

Abstract

The development of financial sectors is considered as one of vital determinants of the growth of Ethiopian economy, and for secure equitable distribution of the benefits to the society. However, financial distress has an effect on the sectors. This review was conducted to assess financial distress situation of financial sectors in Ethiopia. The objective is specifically to identify the determinants of financial distress, opportunities of financial sectors, and challenges and constraints of financial distress in Ethiopia. Ethiopia is a developing country with majority of unbanked population. Liquidity, profitability, leverage, firm size, capital adequacy, management efficiency, earning ability, inflation and interest rate are major determinant of financial distress in Ethiopia. Moreover, Ethiopian financial sectors have an opportunity of trade openness, rapid economic growth, unexploited resource, population growth and encouragement of privatization.

Keywords:

• Commercial banks
• Companies
• Financial distress
• Insurance
• Microfinance

PUBLIC INTEREST STATEMENT

This review paper aimed to assess financial distress situation of financial sectors in Ethiopia. Financial distress describes a condition where individuals or firms are unable to pay their obligations or suffering with financial problems. Usually, workers of a distressed firm have lower morale and less productive. The Ethiopian financial sectors are very exposed to the internal as well as external crises. Yet it is very important and reasonable to assess the financial distress situations of financial sectors as they are found to be the key divers of the nation’s economic growth. This review paper may contribute to the sectors in reducing financial distress conditions by considering important recommendations.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Esmael Abdu

Esmael Abdu Adem is a lecturer in the department of Accounting and Finance at Samara University. He received his BA degree in Accounting and Finance from Samara University and MSc in Accounting and Finance from Hawassa University. He has teaching several courses for Accounting, Marketing and Economics department students and conducted researches in various research areas.