DETERMINANTS OF COMMERCIAL BANKS’ DEPOSIT: IN THE CASE OF COMMERCIAL BANKS IN EHIOPIA

Abstract

The study focused on examining the determinants of commercial banks deposit evidence from Ethiopia. In order to achieve this objective the study adopted quantitative methods of research approach using secondary data. Six explanatory variables were regressed with dependent variable (total deposit). The explanatory variables are number of bank branches, deposit interest rate, capital adequacy, liquid asset to deposit, economic growth (GDP) and inflation. The data for these variables were collected from the selected commercial banks financial statements, national bank of Ethiopia, and MoFEC from the year 1999/2000-2015/16. Seven commercial banks out of the seventeen commercial banks operating in Ethiopia in existence as of 2017 have purposively been selected for the study. Different diagnostic tests were performed to determine the validity of the model. The final result achieved by using pane date, number of bank branches, deposit interest rate, and GDP has positive and statistically significant impact on banks deposit.; whereas liquid asset to deposit and inflation has negative and statistically insignificant impact; capital adequacy has negative and significant impact on deposit. The study recommends commercial banks have to reach the unbanked area to increase deposit. The bank managers should be responsive to risk associated with changing macro economic factors like inflation and GDP. NBE should make periodic supervision and check capital strength of banks. The government should come up with consistent policies regarding proper setting of liquid asset to deposit ratio.