Impact of Promulgation and Enactment of AML/CFT Rules on Resource Mobilization: Case of Ethiopian Banks

Abstract

The study basically attempts to provide answer to the basic research question:  has the implementation of the AML/CFT monitoring system weakened the resource mobilization endeavor of the commercial banks? It has used panel data of ten commercial banks for the period 2005-14. The result with regard to the central question shows that better resource mobilization endeavor has been observed while the banks were operating with AML/CFT compliance than otherwise. In other words, AML/CFT compliance has not resulted in loss of key clients for banks or has not become a hurdle to attract new depositors.  On the other front, exposure to low cost deposits like demand deposits as well as deposit structure favoring saving account growth have resulted in a positive and significant relationship. The study has unexpected result with regard to the effect of bank size, deposit price and yield, which are significantly and negatively related with growth of deposit. Therefore, from the study’s output, it’s interesting to note that despite the fear that pervades the banking system, the optimism and dedication of the FIC has been fruitful to change the image of the country in terms of AML/CFT cooperation and this is done without affecting the growth in the deposit market. Even it has benefited banks through building-up the confidence of correspondent banks and protecting them from risks arising from dirty money. The above mentioned success stories and implications should remain significant in a country where the banking sector has taken above 90% of the financial system asset. Therefore, taking a lesson from such success in the Banking sector, the FIC should build its capacity to effectively execute the AML/CFT proclamations to the financial (like insurance, micro-finance, real-estate which is on progress) and non-financial (real estate, import-export firms and others) firms. In addition, there is a need to enhance the public awareness concerning AML/CFT so as to narrow perception differences. On the resource mobilization front, the focus of banks should be on cost saving and stable deposit types which preferably to be done via increasing the share of demand deposits and boosting the growth of saving accounts.  More specifically, banks strategy in resource mobilization should relay on non-price measures like attracting new depositors through utilizing the untapped market, promotion, increasing accessibility, through benefiting the unutilized individual saving market and the booming private businesses.

Keywords: AML/CFT, deposit, bank, Ethiopia, resource, mobilization