Determinants of Deposit Mobilization and Related Costs of Commercial Banks in Ethiopia
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Date
2015-01
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Addis Ababa University
Abstract
The objective of commercial banks in Ethiopia is to make profits and thus satisfy the needs of
their respective owners. The making of profits and even staying on board of these conventional
banks depend on the strategies adopted by each bank to mobilize deposits from the public that is
an input to earn income for most conventional banks. In order to make good strategies, however,
the banks should know what factors determine the deposit mobilization activity in the real world.
This paper then explores the theoretical as well as empirical analysis of those factors having an
impact on deposit volume in banks and even assesses which ones are more significant or less
significant. To do the practical investigation in terms of commercial banks in Ethiopia, the
researcher collected the relevant data from annual reports of twelve years (2001/2-2012/13) and
from questionnaires and interviews made to senior bank officers of seven banks. The data is
analyzed through the econometric analysis using SPSS software.
The study reveals that the branch expansion, the money supply, the exchange rate of Birr to USD
and general inflation are the most significant factors of deposit mobilization activity. The other
variables-deposit rate and real per capita GDP growth rate have insignificant power to
influence the dependent variable. In this research, as opposed to the conventional economic
theory, the deposit rate is found to have negative relation against the deposit volume for the
period under study. The study also exposes that the deposit mobilization activity is becoming
challenging, its associated costs are escalating and the competition is also becoming stiff-the
outcome of the competition favoring the big size state banks. Beyond that the government
policies are also favourng the latter in an effort to mobilize huge fund for a national development
activities. The research recommends that banks have to do much in branch expansion studying
potential deposit areas.
Key Words: deposits mobilization, customers, banks, financial institutions
Note: The word Savings and deposits are interchangeably used in this research.
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Keywords
deposits mobilization, customers, banks, financial institutions Note, The word Savings and, deposits are interchangeably used in this research