Determinants of Deposit in Ethiopian Private Commercial Banks
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Date
2017-01
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Addis Ababa University
Abstract
Understanding the nature of national savings behavior is critical in designing policies to
promote savings and investment which in turn enhance economic growth through capital
formation. This paper empirically examines the determinants of savings in private commercial
banks of Ethiopia for the 2001-2015 periods. From total of sixteen private Banks which are
engaged in commercial activities, six selected based on the historical time formation of banks.
The conceptual framework for this study is originally derived from Life-Cycle model and
appropriately modified to accommodate the peculiarities of a developing country and builds on
the existing cross-country literature on determinant of saving mobilization. The researcher
adopted Quantitative research approach. Bank specific and macroeconomic variables were
analyzed by using the balanced panel fixed effect regression model. Different diagnostic tests
(test for assumption of Homoscedasticity, Autocorrelation, Normality, average value of the error
is zero and independent variables are non-stochastic) were conducted to check the
appropriateness of the model. The results reveal that disposable income, real GDP growth,
branch expansion, are positively and statistically significant on bank deposit growth; whereas,
loan to deposit ratio (bank’s liquidity)influence is negatively and statistically significant on bank
deposit growth. Deposit rate and profitability had insignificant positive influence on bank
deposit growth. Whereas population growth and capital to loan ratio (capital adequacy) had
insignificant negative influence on bank deposit growth. The study implies that stimulation of
economic growth is most important factors that affect bank deposit growth. The research
recommends that private commercial banks should have to intensify branch expansion to areas
where there are potential deposit sources even to remote locations .moreover, private
commercial banks required to have enough liquid assets to meet the demand for cash outflows
so as to generate and sustain public confidence of the depositors.
Keywords: Private commercial Banks, Bank deposit, Regression Analysis
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Keywords
Private commercial banks; bank deposit; regression analysis