Principal Competidor

In conventional banking activities banks either retain or transfer credit risk and liquidity crunch to other financial institutions. These then later have the same impact on the overall industry. Since banks sell customer deposits from their own asset on its balance sheet, in most instances banks are exposed to toxic asset, non-performing asset or contagion and short of liquidity problems. Once the bank is exposed to credit risk they are indirectly affected by hidden financial cost, where the bank pays interest to depositors on uncollectible loan already disbursed from the depositors’ account.

As illustrated in tables 5.8 to 5.12, the canonical result revealed that there was no relationship between credit risk and liquidity crunch on the one hand and AIRCABS on the other hand. This result also concurred with the individual perception to the point of survey questions. This implies that credit risk and liquidity crunch have no effect on AIRCABS. The statistical results indicated that AIRCABS can increase sustainability and profitability of the agent bank by transferring credit risk and liquidity crunch to the investor and entrepreneur. Deposit run, credit crunch, liquidity risk, non-performing asset and credit risk have therefore no relationship with non-interest income, bank efficiency, return on asset, return on equity and capital adequacy. This proves that credit risk and liquidity crunch had no effect on AIRCABS.

The agent bank stands on three pillars such as efficiency, profitability and sustainability and risk transfer. The agent bank’s profitability emanates from commission and fee as return for investor loan funding administration and project selection to an investor respectively. Since the agent bank transfers credit risk and liquidity crunch to investor and entrepreneur, the agent bank sustainability in the market is ensured. Empowering money depositor to exercise their full right for the use of their money deposited to receive reasonable credit price rather than offering unreasonable deposit interest rate that forces them to join into informal market helps to maintain sustainability and profitability of AIRCABS. This helps the agent bank to transfer credit risk and

liquidity crunch to investors and entrepreneurs through lending strategies of 360 degrees, 180 degrees and 90 degrees (Tessema & Kruger, 2015 and 2016).

The individual survey participants’ perception is tested by statistical tools such as Cronbach alpha, Kuder-Richardson, descriptive statistics, factor analysis, coefficient of variation and significant result found. The individual survey participants’ perception supports the empirical analysis result, which is based on financial statement of all commercial banks in Ethiopia. The research hypothesis is also tested based on financial data of the banking industry in Ethiopia using statistical tools, canonical correlation and multinomial logistic regression, and the positive significant result found.

This model helps banks that run other models to resist financial crisis by shifting their activities into AIRCABS when banks forecasts they would encounter liquidity and credit crisis.

As portrayed in tables 5.13 to 5.24, multinomial logistic regression results revealed that investor loan funding has a strong positive relationship with the sustainability and profitability of AIRCABS and discrete market deposit interest rate incentive also has a strong positive relationship with stable deposit mobilisation. This implies that a one-unit increment of investor loan funding increases profitability and sustainability of AIRCABS. A one-unit increment of discrete market deposit interest rate incentive also increases stable deposit mobilisation.

The main activity of traditional banking is maximising the net interest margin, which is the proceeds from buying and selling of fund, having borne credit risk and liquidity crunch. However, the main target of AIRCABS is maximising agreed interest rate commission from investor loan funding administration and project selection fee from investors. Since AIRCABS does not hold customer fund as an asset on its balance sheet, there is no financial expense. So AIRCABS enables the agent bank to collect loan interest commission and fee by transferring liquidity crunch and credit risk to investors and entrepreneurs. To investigate this fact the relationship between financial deepening, per capita income, growth domestic saving to GDP, total private investment to bank deposit, management efficiency on one hand and profitability and sustainability of AIRCABS on the other hand is tested and positive strong relationship found. This indicates that as the agent bank becomes efficient and effective, investor loan funding increased and thereby sustainability and profitability of AIRCABS increased. As investment on innovative entrepreneurs’ project increases, this in turn increases import substitution products and the country’s GDP in general.

As competition among banks in service excellence increases the likelihood of deposit stability at the origin depository bank decreases. Money deposit of customers is the lifeblood of the traditional banks to maintain its sustainability and profitability specifically and financial stability in general. In most instances, retail deposit, deposited by major society, is more stable than wholesale deposit, deposit by few society, in connection with the benefit of deposit interest rate. As interest rate increases, the interest of small money depositors’ increases and thereby stable deposit is established. This is confirmed by testing the relationship between special deposit ratio, average deposit interest rate, deposit interest incentive rate, efficiency of deposit utilisation ratio, deposit interest incentive payment capacity on one hand and stable deposit on other hand, and a significant positive relationship was found. This indicated that discrete market deposit interest incentive has a positive impact on stable deposit mobilisation in bank.

In general, an interest rate commission agent banking model is viable as well as reliable. This ensures that the model of AIRCABS has internal and external resistance at a buffer stage when market and economic shock is exhibited.