DETERMINANTS OF DEPOSIT MOBILIZATION IN COMMERCIAL BANKS OF ETHIOPIA

Abstract

Deposits are the lifeblood of the banking Industry; Hence, deposit mobilization is critical to Banks, a fundamental part of banking activity. (Banson, et al, 2012), the study focused only on one of the areas of finance, which involves determining Commercial banks' deposits. This paper empirically examines the determinants of Deposit mobilization in commercial banks of Ethiopia for the period 2015-2024. From the total of Eighteen Banks in Ethiopia that were engaged in commercial banking activities, eight commercial banks were selected as a Sample based on the year of establishment, the Capacity of all Key Performance Indicators, and the availability of data. To arrive at the generalized idea, the researcher used these Selection Criteria to achieve the maximum number of observations through a purposive sampling technique. The sampled commercial Banks were Commercial Bank of Ethiopia, Awash International Bank S.C., Dashen Bank S.C., Bank of Abyssinia S.C, United Bank S.C., Cooperative Bank of Oromia, Wegagen Bank S.C, and Nib International Bank S.C. The researcher used secondary data as a source, which were gathered from the annual reports of eight commercial banks. The specific data were collected from financial statements Bank records, journals, websites, and relevant literature. The researcher employed quantitative research methodology and techniques using an econometric model and Descriptive Analysis in order to address the research questions. Multiple regression using OLS (Ordinary Least Square) estimates of the dependent (Total Deposit growth) and four independent external variables, Inflation, Deposit interest rate, Broad Money Supply, Growth per capita, and two internal factors, return on equity and loan to deposit ratio, were employed. Different diagnostic tests (test for assumption of Heteroscedasticity using estathtest, specification error using linktest, multicollinearity using correlation matrix) were conducted to check the appropriateness of the model. The results reveal that deposit interest rate and growth per capita are positively and statistically significant on bank deposit growth; whereas, inflation rate, return on equity, broad money supply and loan to deposit ratio influence is negatively and statistically significant on bank deposit growth. The research recommends that the Government should decrease the supply of broad money to the economy, devise a mechanism to control inflation, increase deposit interest rate and give more attention to investment and commercial banks loan to loan-to-deposit ratio to be kept minimum.