CFGS: Entrance of International Banks in Somali Financial Market, its Impact on the Development of the Local Economics

In a statement, the Center for governance solution declared foreign banks entry and Profitability have an impact on return on assets of domestic banks in Somalia.

“The central bank of Somalia and regulatory bodies need to strike a balance of operation for foreign and domestic banks that will help to improve and put measures for foreign banks to operate in the country” added the statement.

The study targeted members of the banking sector including Central Bank of Somalia and the selected commercial banks of Somalia including; Al Barakat Bank, Amal Bank, Commercial and Savings Bank of Somalia, Trust African Bank, Premier Bank, Salaam Somali Bank, Universal Bank of Somalia, Dara Salaam Bank, Daryeel Bank Limited and Somali Bank Limited respectively.

Poverty with the cost of civil conflict and the absence of a state in economic and social development has been extremely high in the country. Remittance companies, in the absence of commercial banks, are the main mechanism to transfer money in and out of Somalia since the war broke out in the 1990s.

The foreign banks’ entry has an impact on return on assets of domestic banks in Somalia consequently need for the government therefore to remove restrictions on the rate at which foreign banks enter the financial markets in Somalia.

Interest on loans charged by domestic banks clearly affects the rate of access to credit by domestic firms. The central bank in Somalia should set a standard of interest charged by both domestic and foreign banks and this will increase access to credit by firms.

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