EFFECTS OF DEPOSIT MOBILIZATION ON BANK’S PROFITABILITY: A STUDY ON SELECTED PRIVATE BANKS IN ETHIOPIA

Abstract

The objective of the study was to determine the impact of deposit growth on profitability of selected private commercial banks in Ethiopia. Using quantitative research approach, it was found that deposit growth of banks (DEPG) has a significant effect on profitability of the banks. A mixed research approach and explanatory and descriptive research design were used in this study. In this study, panel data of eight private banks for 10 years (2005 to 2015) was employed as panel data has the advantage of giving more informative data and the rationality to choosing eight commercial banks was due to the availability of structured data for the specific duration. As the result indicates that DEPG with coefficient of 0.6665 and the p-value of 0.0001. The descriptive analysis showed that Cooperative Bank of Oromiya (CBO) had the highest ROA (0.047%) followed by both Bank of Abyssinia (BOA) and Wegagen Bank (WB) (0.040%). The least percentage of ROA is 0.034% in the United bank (UB). In general rule of thumb in other the banking sector expects not less than 5% of ROA, in the banking sector which strives to record. Thus, based on these findings, the following policy implications are forwarded to enhance their efficiency in utilizing the resources they collected from the public by paying significant large amount of interest. The banks should also offer competitive rate on deposits as mechanism of mobilizing more, use different channels of making advertisement of the existing and new product offered to the customers, do the campaign of awareness on agency banking in order to build the trust of customers by studying and minimizing challenges faced by people using this channel.