Determinants of Deposit Mobilization in Commercial Banks of Ethiopia

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Addis Ababa University


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 empirically examines the determinants of commercial banks deposit mobilization in Ethiopia for the periods 2003-2016. From total of eighteen Commercial Banks which are engaged in commercial bank activities, seven selected based on the historical time formation of banks. The researcher adopted Quantitative research approach. Bank specific and macroeconomic variables were analysed by using the balanced panel random 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 Bank Profitability, Gross domestic product and liquidity are positively and statistically significant on bank deposit growth; whereas, Exchange rate and credit risk is negatively and statistically insignificant on bank deposit growth. General inflation had insignificant positive influence on bank deposit growth. Since the depositor confidence increases if the commercial banks are profitable and have adequate asset return, so commercial banks should sustain their profitability to increase their amount of deposit. Commercial Banks should also increases their liquidity because higher liquidity buffers tend to signal greater bank soundness, which could be a factor favouring deposit demand. Finally the study suggests that as deposits are the critical resource for investment, economic growth & development and also the banks are stay profitable, they have to give more emphasis than ever to the activity. The Ethiopian commercial banks should have to introduce new deposit product types that are appealing to the public to increase market share. The government also should to give equal playing ground for all banks.


A thesis submitted to Addis Ababa University in Partial Fulfilment of the Requirement for the Degree In Msc. Program in Accounting and Finance


Commercial Banks, Deposit Mobilization, Random Effect Model Deposit