Determinants of Commercial Bank Deposits in Ethiopia: The Case of Commercial Bank of Ethiopia
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Date
2023-05-05
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A.A.U
Abstract
The study focuses on deposit mobilization in commercial banks in Ethiopia and aims to identify
the factors that influence this process. Deposit mobilization is crucial for banks to increase
liquidity, meet credit demands, and promote economic growth. However, there is a limited
understanding of deposit mobilization in Ethiopia, creating a gap in empirical evidence and
hindering policymaking. The study utilizes an explanatory research design and a quantitative
approach. It analyzes twenty-two (22) years of secondary data from audited financial statements
of the Commercial Bank of Ethiopia, obtained from the NBE database. The factors examined
include return on assets (ROA), capital adequacy ratio (CAR), gross domestic production
(GDP), liquidity ratio (LR), loan to deposit (LD), political stability (PS), and inflation rate (IR).
The findings reveal important relationships between these factors and deposit mobilization. GDP
growth shows a positive association with deposits, indicating that factors beyond economic
growth influence deposit decisions. Inflation has a negative impact on deposits mobilization,
while political stability exhibits a negative influence, emphasizing the importance of a stable
political environment for depositor confidence. Financial performance metrics, particularly
ROA and CAR, significantly affect deposit levels, with higher profitability and capital adequacy
ratios attracting more deposits. Additionally, a positive relationship exists between the loan to
deposit ratio and deposits, indicating that higher loan demand can lead to increased deposits.
Based on the findings, several recommendations are provided. Enhancing political stability is
crucial to instill confidence among depositors. Strengthening financial performance, particularly
ROA and CAR, can attract more deposits. Customer education and outreach initiatives are
suggested to increase awareness and trust in deposit products. Diversifying deposit offerings can
cater to diverse customer needs and preferences.
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Keywords
Return on Asset, Political Stability, Loan To Deposit, Inflation Rate, Commercial Bank of Ethiopia (CBE)