Determinants of Deposit Mobilization in Commercial Banks of Ethiopia
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Date
2019-06
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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 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.
Description
A thesis submitted to Addis Ababa University in Partial
Fulfilment of the Requirement for the Degree In Msc. Program in
Accounting and Finance
Keywords
Commercial Banks, Deposit Mobilization, Random Effect Model Deposit