Determinants of Commercial Banks’ Deposit Growth in Ethiopia: Case Study on the Commercial Bank of Ethiopia

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Addis Ababa University


This study primarily aims at determining the short and long run impacts of determinant factors on deposit growth of commercial bank of Ethiopia for the period 1974/75 to 2013/14 using Vector Error Correction Model (VECM). The study also checked the causal relationships that exist between deposit growth and its determinant factors employing test of Granger causality. In the empirical VECM model, control variables (Economic Growth, Inflation, Interest Rate, Exchange Rate, Population Growth and Branch Expansion) are included to enable ceteris paribus interpretation of the relationship and impact on the growth of deposit in commercial bank of Ethiopia. The estimated results suggest that interest rate has positive but insignificant impact on deposit growth both in the long run and short run. While Exchange rate and branch expansion significantly increases banks deposit contemporaneously both in the short run and long-run. Population and Economic growth also has a positive relationship with deposit growth and it is significant in the long run but insignificant in the short run. However, Inflation has positive and significant impact on deposit in the long-run and negative impact in the short run. Using test of granger causality, the study found uni-directional causality that runs from deposit to inflation, from exchange rate deposit, from deposit to interest rate, from population growth to deposit without any feedback response. The finding also indicates that there is bi-directional causality between branch expansion and deposit and economic growth in Ethiopia. This implies that deposit can affect economic growth through investment. These results have important policy implications for both domestic policy makers and the bankers working in the country. The findings are of direct relevance to the development of deposit mobilization policy by the commercial bank of Ethiopia. KEY WORDS: Deposit, Determinant Factors, VECM, Granger Causality and CBE



Deposit, Determinant Factors, VECM, Granger Causality and CBE