WALLAGA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

COLLEGE OF BUSINESS AND ECONOMICS

ACCOUNTING AND FINANCE

DETERMINANTS OF DEPOSIT MOBILIZATION OF PRIVATE

COMMERCIAL BANKS IN ETHIOPIA

BY

SOLOMON SHUMETA

Nekesmte, Ethiopia

May, 2024
 DETERMINANTS OF DEPOSIT MOBILIZATION OF PRIVATE
COMMERCIAL BANKS IN ETHIOPIA

A FINAL THESIS SUBMITTED TO WALLAGA UNIVERSITY, SCHOOL

OF GRADUATE STUDIES IN PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR MASTERS DEGREE IN ACCOUNTING AND
FINANCE

BY

SOLOMON SHUMATA

ADVISOR: Keno Telila (PhD)

Nekemte, Ethiopia

May, 2024
 A WALLAGA UNIVERSITY

SCHOOLOFGRADUATESTUDIES
P.O. BOX: 395, NEKEMTE, ETHIOPIA.

APPROVAL SHEET FOR SUBMITTING FINAL THESIS

As member of the Board of the Final M.A. thesis open defense, we certify that we have read and
evaluated the thesis prepared by Solomon Shumata Under the title “Determinants Of Deposit
Mobilization Of Private Commercial Banks In Ethiopia” and recommended that the thesis is
accepted as fulfilling the thesis requirement for the Degree of Master of Science Degree In
Development Economics

_____________________________ ________________ ________________

Chairperson Signature Date
_____________________________ ________________ ________________
Internal Examiner Signature Date
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External Examiner Signature Date
Final Approval and Acceptance
Thesis Approved by
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Department PGC Signature Date
____________________________ ________________ _______________
Dean of College Signature Date
Certification of the final thesis
I hereby certify that all the correction and recommendation suggested by the board of examiners
are incorporated in to the final thesis entitled “Determinants of Deposit Mobilization of
Private Commercial Banks in Ethiopia” Solomon Shumata.
____________________________ ________________ _______________
Dean of SGS Signature Date

iii
 Declaration
This is to certify that this thesis entitled “Determinants Of Deposit Mobilization Of Private
Commercial Banks In Ethiopia” accepted in partial fulfillment of the requirements for the
award of the Degree of Master of art in accounting and finance by the school of Graduate
Studies, Wallaga University through the college of & economics Business, done by Solomon
Shumata is a genuine work carried out by him under my guidance. The matter embodied in this
thesis work has not been submitted earlier for the award of any degree or diploma. The
assistance and help received during the course of this investigation have been duly
acknowledged. Therefore, I recommend that it can be accepted as fulfilling the educational
leadership and management thesis requirements.

Keno Telila (PhD) ________________ ________________

Name of Advisor: Signature Date

iv
 ACKNOWLEDGEMENTS
First and foremost, I would like to thank the almighty God for giving me the opportunity and
strength to continue with my education. Secondly, I would like to express my heart full gratitude
to my respectful main advisor Keno Telila (PhD) for his unreserved, invaluable and constructive
comments and continuous support throughout the whole work of this proposal.

I would also like to thank Wallaga University, Department of Accounting and Finance and
postgraduate studies for material support without which this thesis work would not be successful.

Finally, I would also like to gratefully acknowledge the participation of my colleagues who have
helped and given me suggestions, supports and corrections throughout my proposal work

v
Table of Contents
Declaration......................................................................................................................................iv

ACKNOWLEDGEMENTS.............................................................................................................v

LIST OF TABLES.......................................................................................................................viii

LIST OF FIGURE........................................................................................................................viii

LIST OF APPENDIX...................................................................................................................viii

LISTS OF ACRONYM..................................................................................................................ix

ABSTRACT....................................................................................................................................x

CHAPTER ONE..............................................................................................................................1

INTRODUCTION...........................................................................................................................1

1.1. Background of the Study...................................................................................................1

1.2. Statements of the Problem................................................................................................3

1.3. Research Question.............................................................................................................4

1.4. Objective of the Study.......................................................................................................5

1.4.1. General objective of the Study..................................................................................5

1.4.2. Specific Objectives of the Study................................................................................5

1.5. Significance of the Study..................................................................................................5

1.6. Scope of the Study............................................................................................................5

1.7. Organization of the Study.................................................................................................6

CHAPTER TWO.............................................................................................................................7

LITERATURE REVIEW................................................................................................................7

2.1. Introduction.......................................................................................................................7

2.2. Definition of terms............................................................................................................7

2.3. Theoretical Literature Review..........................................................................................7

2.3.1. Role of Banks in Financial System............................................................................8

vi
 2.3.2. Major Types of Deposit Products..............................................................................9

2.3.3. External Environment for Deposit Mobilization.......................................................9

2.3.4. Saving Mobilization Strategies................................................................................10

2.4. Empirical Literature Review...........................................................................................11

2.5. Conceptual Frame Work.................................................................................................14

CHAPTER THREE.......................................................................................................................16

RESEARCH METHODOLOGY..................................................................................................16

3.1. Introduction.........................................................................................................................16

3.2. Description of the Study Area.............................................................................................16

3.3. Research Design..................................................................................................................16

3.4. Research Approach.............................................................................................................17

3.5. Sampling Design.................................................................................................................18

3.6. Sources of Data...................................................................................................................18

3.7. Method of Data Collection..................................................................................................18

3.8. Method of Data Analysis....................................................................................................18

3.9. Ethical Consideration..........................................................................................................18

3.10. Definition of Variables......................................................................................................19

3.10.1. Internal Variables.......................................................................................................19

3.10.2. External Variables......................................................................................................20

3.11. Summary of Definition of Variables...........................................................................22

3.12. Model Specification....................................................................................................22

3.13. Diagnostics Tests..............................................................................................................24

3.13.1. Homoscedasticity Test...............................................................................................24

3.13.2. Normality Test............................................................................................................24

3.13.3. Multi-collinearity Test................................................................................................25

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CHAPTER FOUR.........................................................................................................................26

RESULT AND DISCUSSION......................................................................................................26

4.1. INTRODUCTION..............................................................................................................26

4.2. Descriptive Analysis...........................................................................................................26

4.3. Diagnostic Test...................................................................................................................27

4.3.1. Correlation Analysis.....................................................................................................27

4.3.2. Heteroscedasticity Test Result.....................................................................................28

4.3.3. Normality Test Result..................................................................................................28

4.4. Regression Analysis Result.................................................................................................30

4.4.1. Interpretation of Results...............................................................................................32

CHAPTER FIVE...........................................................................................................................33

SUMMARY, CONCLUSION AND RECOMMENDATION......................................................33

5.1. Summary of Research Findings......................................................................................33

5.2. Conclusion......................................................................................................................33

5.3. Recommendation............................................................................................................34

Reference.......................................................................................................................................35

Appendices....................................................................................................................................37

viii
 LIST OF TABLES
Table 3.1: Summary of measure of variables................................................................................22
Table 4.1: Descriptive Analysis Result.........................................................................................26
Table 4.2. Correlation Analysis.....................................................................................................28
Table 4.3: Heteroscedasticity Test Result.....................................................................................28
Table 4.4: Normality Test Result...................................................................................................29
Table 4.5: Fixed Effect Regression Result....................................................................................31

ix
 LIST OF FIGURE
Figure 2.1: Conceptual Frame Work.............................................................................................14
Figure 4.1: Normality Test............................................................................................................29

x
 LIST OF APPENDIX
Appendix1: Diagnostic Test..........................................................................................................37
Appendix2: Correlation Test.........................................................................................................37
Appendix3: Multi-Collinearity test result......................................................................................38
Appendix4: Fixed Effect Regression Result..................................................................................38
Appendix5: Data used for this study.............................................................................................39

xi
 LISTS OF ACRONYM
BDM - Bank deposit mobilization

LDR - Loan to deposit ratio

IR - Interest Rate

PB - Profitability of bank

I NF - Inflation rate

GDP-Gross Domestic Product

MS: Money Supply

PG: Population Growth

OLS: Ordinary Least Square

NBE: National Bank OF Ethiopia

CLRM: Classical Linear Regression Model

MOFED: Ministry of Finance and Economic Development

WB: World Bank

xii
 ABSTRACT
The main objective of the study was to assess the determinants of bank deposit mobilization of
commercial banks in Ethiopia. The necessary data required for this study was secondary data.
The secondary data was the audited financial statement for the period of 2012 to 2022. The data
was collected from the National Bank of Ethiopia and [Link] target population of the
study was private commercial banks operating in Ethiopia. The seven private commercial Banks
was taken as sample namely, Awash International Bank S.C, Bank of Abyssinia S.C, Wegagen
Bank S.C, United Bank S.C, Nib International Bank S.C, and Dashen Bank S.C and Cooperative
Bank of Oromia S.C. Fixed effect Econometric model was adopted. Data was analyzed using
descriptive statistical techniques like mean, standard deviation, minimum and maximum. The
correlation analysis is also used. The Adjusted R-squared values of 0.807 is an indication that
the model is a good fit. This means 80.7% of variations in private commercial bank deposit
mobilization were explained by independent variables included in the model. However, the
remaining 19.3% changes in private commercial bank deposit mobilization are caused by other
factors that are not included in the model. , the coefficient of loan to deposit ratio (LDR)
measured by loan divided by deposit is -0.0207774 and its P-value is 0.951. The p-value is
greater than 0.05, this indicates that the loan to deposit ratio has no significant effect on deposit
mobilization. The regression result shows 0.1725961 that, return of asset has positive and
statistically significant impact on Bank’s deposit. The result shows the effect of economic growth
measured in terms of GDP on DM with a coefficient of 0.0365512. The Ethiopian private
commercial banks have to give loan by considering their deposit and the risk of high loan to
deposit ratio.

Keyword: Bank Deposit Mobilization, Private Commercial Banks in Ethiopia

xiii
 CHAPTER ONE

INTRODUCTION
1.1. Background of the Study
A commercial bank is a type of financial entity that has legal authority to transfer funds from
surplus units to deficit units. In order to raise money, banks solicit deposits from individuals and
companies through time or term deposits, savings accounts, checkable deposits, and other
deposit options. They then lend money to these parties. They also purchase government and
corporate bonds. Deposits are a bank's main liability, whereas loans and advances are its main
assets (Drogemuller, 2021). Banks are financial intermediaries that work in the financial system
to help clients move from short-term to long-term borrowing (Adula, 2022).

Deposit is one of the assets that banks are highly motivated to mobilize, the most liquid money
that is available in the treasury of the bank, which is ready to be borrowed in need of the funds
(Yusuf, 2001). Therefore, the development of financial institutions and the level of deposit
mobilization add a lot to the economic growth of developing countries where the level of
monetization is weak (Gebeyew, 2013). Nowadays, the activities of all commercial banks are
primarily focused on deposit mobilization and providing loans (Otu & Peter, 2015). Thus,
without enough bank deposits, financial institutions might fail to attain their business targets and
economic growth enhancement (Viswanadham et al., 2013). Thus, the extent to which banks
play as an intermediary depends on the level of advancement of the financial sector and the level
of deposit mobilization (Bahiredin, 2016).

One of the most important aspects of banking operations is deposit mobilization. The primary
responsibility of banks has long been thought to be the mobilization of savings through
aggressive deposit collection. The mobilization of deposits for a bank is as necessary as oxygen
for human beings, according to Banson F. et al. (2012). One of the primary responsibilities of the
banking industry is deposit mobilization, which makes it a crucial source of operating capital for
banks. Deposit mobilization is the process by which a financial institution gathers money from
the general public through its current, savings, fixed, and recurring accounts as well as the
specialized programs offered by other banks.

1
An efficient financial system is essential for sustainable economic growth and building a
dynamic economic system, and countries with well-developed financial institutions tend to grow
faster (Oluseyi, 2013). In developing countries where the banking industry dominates the
financial sector, such as Ethiopia, commercial banks are the primary controllers of the financial
system, performing financial intermediation, and their effective and efficient operation plays a
vital role in accelerating economic growth.

In the modern economy, banks act as middlemen by obtaining savings from savers, or people
with extra income, and lending it to investors, which can include both individuals and companies
(Mbera, 2015). The main source of income for banks is the granting of loans and advances,
which they may often accomplish if they have gathered sufficient deposits from the available
market (Balaji & Kumar 2015). Deposits are therefore a crucial source of funding for banking
operations and are seen as a crucial resource for commercial banks in order to meet the financial
resource requirements of banking systems (Salehi, 2010).

Time deposit account offers customers the opportunity to invest a fixed amount for a fixed
period at a fixed rate of interest. Hence, the funds placed in a time deposit cannot be withdrawn
during the term before maturity but can be pre-terminated subject to penalty fees (Adula & Kant,
2022). Moreover, the author stated that time deposit accounts are best suited for individuals and
business entities; these are depositors who want to enjoy high returns but would also want to
have some flexibility in terms of withdrawing the funds (Ayenew & Kant, 2023). Banks, all over
the world, thrive on their ability to generate income through their lending activities. Since
commercial banks depend on depositor's money as a source of funds, it means that there are
some relationships between the ability of the banks to mobilize deposits (Asefa & Kant 2022). In
Ethiopia, how deposit works is guided by the NBE bill purchase regulation of 2011 which was
later amended in 2013 NBE (Fikadu &Kebede, 2023).

2
 1.2. Statements of the Problem
The Commercial Bank of Ethiopia is anticipated to mobilize a substantial quantity of deposit and
foreign currency for the megaprojects that the Ethiopian government is pursuing in order to
fulfill its five-year reform and growth strategy. Nonetheless, banks only mobilized 11.6% of
deposits in Ethiopia (Abbasnejad, 2021). Mobilizing deposits is a crucial aspect of banking
operations. The primary responsibility of banks has always been seen as the mobilization of
savings through extensive deposit collection (Adula, 2022). The fact that banking operations in
developing nations are restricted to officially sanction marketing campaigns and that citizens of
those nations are not well-versed in all banking services when it comes to savings is one of the
issues with deposit mobilization. (Ayenew, 2023).

Endogenous factors can be controlled by the banking system; however, exogenous factors cannot
be controlled by the banking system (Kant, 2020). The bank-specific factors include the liquidity
of the bank, the profitability of the bank, the security of the bank, the number of commercial
bank branches, bank size, reserves, transaction cost demand deposit capital adequacy ratio,
liquidity risk, and credit risk, number of bank branches, have a positive and statistically
significant impact on deposit mobilization. Whereas loan loss provision, agent transaction,
lagged value of bank deposit, and lending rate, have negative and statistically significant impacts
on deposit mobilization (Wakjira, 2023).

According to Pham Minh Dat (2020) and P. M. Dinh Tran Ngoc Huy (2020), to provide the
required service to customers and to satisfy their needs, the commitment of commercial banks is
crucial. In addition, it is necessary to coordinate synchronously between the management and
administration of commercial bank policies with fiscal policies, monetary policies (used as
effective tools to stimulate bank over all products), and other economic development policies to
limit the negative effects of the lending rate, risk-free rate and exchange rate on commercial
banks performance.

In Ethiopia as far as the knowledge of the researcher is concerned, there are very few researches
related to determinants of private commercial banks deposit, Kibebe (2016), Fisseha (2017) and
Ketema (2017). A few studies corresponding with this research is that, the research conducted by
Kibebe (2016) on determinants of commercial bank’s deposit mobilization in Ethiopia evidence

3
from private commercial banks. Kibebehas used four independent variables through quantitative
research approach; Per Capita Income, Investment, Age Dependency Ratio and Money supply
and bank deposit as dependent variable. However, it couldn’t assess the effect of loan loss
provision, loan to deposit ratio, profitability and gross domestic product on determinants of
private commercial bank deposits in Ethiopia. Hence, this research incorporates these four
important variables. In addition other study conducted by Fisseha (2017) on determinants of
commercial banks deposit mobilization in Ethiopia, he used six independent variables include
number of branch, interest rate, loan to deposit ratio, inflation rate, gross domestic product and
midyear population number. However it couldn’t assess the effect of loan loss provision and
profitability of bank on determinants of commercial bank deposit in Ethiopia. Hence these
researches also incorporate these two important variables.

In addition except Kibebe, almost all of the researcher conduct study on all commercial bank in
Ethiopia including the government bank that is, commercial bank of Ethiopia and other studies
are conducted in reference to one specific commercial bank whether it is public or private bank.
However, this study is different since it considers only private commercial banks in Ethiopia.

Based on the aforementioned problem, this study was important to fill the information gap by
identifying variables influencing Ethiopia's commercial bank's deposit mobilization. Ultimately,
the following fundamental research topics will be the focus of these investigations.

1.3. Research Question

 What is the level of deposit mobilization of private commercial banks in Ethiopia?
 What are the external factors affecting deposit mobilization of private commercial banks
in Ethiopia?
 What are the internal factors affecting deposit mobilization of private commercial banks
in Ethiopia?

4
 1.4. Objective of the Study
1.4.1. General objective of the Study
The general objective of the study was to assess the determinants of deposit mobilization of
private banks in Ethiopia.

1.4.2. Specific Objectives of the Study

 To examine the level of deposit mobilization of private commercial banks in Ethiopia
 To explore the internal factors affecting deposit mobilization of private commercial
banks in Ethiopia.
 To identify the external factors affecting deposit mobilization of private commercial
banks in Ethiopia.

1.5. Significance of the Study

The study has broaden our understanding of the factors that influence deposit mobilization,
which is now lacking. Additionally, the study provides stakeholders in private commercial banks
with improved understanding of bank deposit mobilization strategies. The study was used to
inform future investigations into the variables influencing deposit mobilization and to assist
banks in developing and putting into practice efficient deposit mobilization plans. Also To
increase the stability and growth of deposits in private commercial banks, all other private and
public deposit-taking institutions must identify and evaluate the factors that influence private
commercial banks' financial savings.

1.6. Scope of the Study

The study pinpoints the origin of the variables (gross domestic product, inflation rate, population
growth, money supply, interest rate, Profitability of bank, loan to deposit ratio and number of
branch) that determine deposit mobilization. The study evaluated both external and internal
factors that could influence the mobilization of deposits. The activities of all privately held
commercial banks that are registered with the NBE and are currently in operation was
specifically covered by the research, which evaluated using secondary data from 2012 to 2022.

5
 1.7. Limitation of the study
The researcher has faced different challenges while writing this thesis. Among the challenges:
lack of sufficient articles, lack of access to reputable journals in the study area, lack of potential
researchers in the case area, and lack of electric power and connection can be mentioned as a
limitation in this study.

1.8. Organization of the Study

This study was organized into five chapters. The first chapter contains an introduction to the
study, a statement of the problem, the research objective, the research question, and significance
of the study, limitation of the study and the scope of the study. In Chapter Two, theoretical,
empirical literature, Conceptual Frame Work, and knowledge gap conducted was reviewed,
Chapter three is devoted to research methodology, research design, research approach, sampling
design, source of data, method of data collection, method of data analysis, ethical consideration,
definition of variables, summary of definition of variables including, model specification, data
types, collection methods, and estimation issues and procedures was discussed in detail. In
chapter four, the result discussion, introduction, descriptive analysis, regression analysis result and in
chapter five, the summary of research findings, conclusion and recommendation are discussed.

6
 CHAPTER TWO

LITERATURE REVIEW
2.1. Introduction
This chapter presents, literature on private commercial banks deposit aspects was reviewed. The
views of other authors and previous researches on deposit were discussed. The first sub part
discussed about definition of the therm. The second sub part present review of theoretical
literature. Conceptual frame work described in the third part. The fourth sub part present review
of empirical studies.

2.2. Definition of terms

Commercial Bank is a financial institution that is authorized by law to receive money from
surplus units and channel to deficit unit.

Deposit is one of the assets that banks are highly motivated to mobilize, the most liquid money
that is available in the treasury of the bank, which is ready to be borrowed in need of the funds
(Yusuf, 2001).

Deposit mobilization is the process in which customers are encouraged to deposit cash with the
bank or attracting new clients to come and open accounts with the bank.

2.3. Theoretical Literature Review

By taking deposits from depositors and lending money to borrowers, banks are successful
financial organizations that provide banking and other financial services to their clientele (Islam
&Wafk 2019). To service their clients' financial demands, commercial banks must mobilize and
amass sufficient deposit volumes, as deposits have become their most valuable financial
resource. (Namazi &Salehi 2010).

Consequently, client deposits provide the majority of a banking system's financial resources.
Every commercial bank's ability to continue operating depends largely on the deposits that it
receives from clients (Namazi &Salehi 2010). The process by which financial organizations
transfer money from their surplus units to their deficit units in order to improve their chances of
making profitable investments is known as deposit mobilization (Iswarya, 2015). Deposit
growth and profitability are mostly derived from a bank's ability to recruit new customers, which
7
in turn determines the bank's lending capacity (Ayene, 2020). On the other hand, deposit
mobilization need to entice existing clients to make cash deposits or draw in new ones to create
bank accounts. (Memba & Mbera, 2015).

2.3.1. Role of Banks in Financial System

Financial institutions play a significant role in the economy by shifting funds from surplus to
deficit units, according to Oyewole (1994). When they allocate extra money to the most lucrative
and productive uses, this will work well. They added that markets are deemed operationally
effective if there are little expenses associated with the transfer of funds from investors to users.
The disparity between gross borrowing costs and net lending returns fluctuates with the
transaction costs of financial intermediaries if the resource costs of information, travel, and time
vary in a manner unrelated to intermediation costs, or if they vary with relatively little variety.

To function properly one country's economies require well-developed financial systems. Within
the economies corresponding to their broad functions articulated financial systems contain at
least three elements as studied by Christopher G. (1995).To proceed smoothly with the discharge
of debts and the transfer of assets and commodities a good payment system is required. The
system has to allow different forms of trade and consumer credit and it must utilize money forms
that are easily recognizable and widely acceptable to banks to develop efficient clearing systems
that will furnish these services to households, merchants, and producers. The second essential
element of an economy is financial intermediation which can provide several interrelated
services for economic development. They match the preferences of ultimate borrowers with
ultimate lenders concerning time, liquidity, and amounts by pooling funds and lending them out.

The third is that, with the necessary institutional arrangements, financial intermediaries, or
"banks," can produce credit money through lending, weakening the bonds between saving and
investing. A collection of regulatory organizations makes up the fourth component of modern
financial systems. These organizations are thought to be essential to the stability and effective
operation of the financial sector within the broader economy.

2.3.2. Major Types of Deposit Products

Savings accounts, demand deposits, and term or fixed-term deposit account services are the three
categories of deposits. All of Ethiopia's private commercial banks offer these deposit accounts.

8
All three deposits are set up to mobilize deposits to the banks, notwithstanding the differences in
their forms, opening procedures, and intended uses. The following is a mention of the definitions
of the three deposit typos (Mulunesh, 2019).
1. Saving Accounts
People in the poor and middle classes who want to save aside money from their current
paychecks for future needs and who also hope to generate income from their savings can do so
by opening a savings bank account. Due to the limitations on the number of withdrawals, the
banks must maintain cash reserves against savings bank accounts, which are relatively larger
than fixed deposits but smaller than current deposits. As a result, the banks place restrictions on
savings bank accounts and also offer a competitive rate of interest (Mulunesh, 2019).
2. Demand or Current Accounts
A current account is one that is open and in use, typically through the usage of checks, and can
be accessed multiple times in a typical workday. The quantity and frequency of withdrawals
from a current account are unrestricted. Big business owners, joint stock firms, institutions,
public authorities, public corporations, etc., whose financial transactions are countable on a daily
basis, find that current accounts are ideal for their needs (Mulunesh, 2019).
3. Time or Term Deposit Accounts
Deposits made with the bank for a predetermined amount of time that is stated at the time of the
deposit fall under this category. As a result, these deposits are known as term or fixed deposits.
Repayment of a Fixed Deposit is contingent upon the depositor selecting a term that best serves
their needs and allows them to withdraw funds as needed (Mulunesh, 2019).

2.3.3. External Environment for Deposit Mobilization

A macroeconomic climate that permits the savings institution to function at rates that are viable
and sustainable while offering a genuine positive return to safeguard the value of client assets is
the first prerequisite for an institution's ability to successfully mobilize saving ([Link] al,
2002). The microfinance organizations have no control over some external circumstances. For
instance, savers who support the impoverished may choose to avoid formal financial institutions
in the event of unpredictable macroeconomic and financial sector conditions. Adams (1978)
asserts that in order for the pro-poor institution to mobilize local deposits from the public, it is
imperative to implement the requisite legislative changes.
9
As to the findings of CGAP's (1998) research, political unrest, elevated rates of inflation, and
widespread government interventions like as interest rate regulations and subsidized loans can
significantly impede MFIs' ability to mobilize savings. "An MFI must be operating in a nation
where the financial sector has been liberalized in order to mobilize deposits successfully
(Ledgerwood, 1998).

2.3.4. Saving Mobilization Strategies

According to Martin (2013), financial institutions are actively seeking innovations that
demonstrate promise of reducing the costs of servicing large numbers of low-balance deposit
accounts. Examples of these innovations include mobile technology, information management,
and agent distribution systems. The microfinance community was expected to learn during the
ensuing years if cutting transaction costs for both providers and savers enhances access to
savings accounts and helps the impoverished make better use of them.

i. Transactions costs of clients

Despite the expected long-term benefits of savings, using savings accounts may cost clients
either directly or indirectly. It has long been recognized that transportation costs in particular
may be responsible for a large share of usage and uptake shortfalls. As stated by (Martin, 2013).

ii. Transaction costs of providers

Minimizing the expenses incurred by savings providers is critical to ensuring the sustainability of
savings products, passing on lower costs to consumers who would not be able to pay for
financial services, and charging higher interest rates to customers who already own savings
accounts. Millions of the poorest potential customers are thus excluded, despite the fact that they
still want access to savings (Martin, 2013).

iii. Lack of trust

Savings must be mobilized through trust. It is rare for first-time clients to instantly trust an
establishment with their hard-earned money. Following the financial crisis, many consumers in
the developed world have avoided financial products altogether due to a lack of faith in them.
Local populations who are not exposed to financial services may harbor some doubts or mistrust,
whether in industrialized or developing nations (Martin, 2013)
10
 iv. Education challenges and illiteracy and/or innumeracy

According to Martin,( 2013) lack of basic education—including financial literacy—can also

impede the establishment of such savings programs in the first place, leading to low uptake and
usage rates. Part of the difficulty may be due to low literacy rates in most of the developing
world:

These tactics are effective in getting savers to deposit money with banks and other savings
institutions. To connect with their target clientele, banks employ a variety of techniques. An
economy needs a high enough deposit rate and stable inflation to provide a high enough positive
interest rate that encourages savers to take money out of their disposable income (Abayomi,
2011) asserts that a few elements are guaranteed to be successful in helping banks mobilize
savings:

Setting Interest Rates: It determines the returns savers earn on their deposits and the price that
the institution pays for the use of the fund. According to Branch, (2002), interest rates should be
competitive with market rates, cost-based, and positive in real terms above inflation banks offer
high interest rates on accounts with higher balances and lower interest rates on accounts with
lower balances to encourage savers to increase their deposits.

2.4. Empirical Literature Review

According to Pham Minh Dat (2020) and P. M. Dinh Tran Ngoc Huy (2020), to provide the
required service to customers and to satisfy their needs, the commitment of commercial banks is
crucial. In addition, it is necessary to coordinate synchronously between the management and
administration of commercial bank policies with fiscal policies, monetary policies (used as
effective tools to stimulate bank over all products), and other economic development policies to
limit the negative effects of the lending rate, risk-free rate and exchange rate on commercial
banks performance.

Another study conducted by El (2017) examined the factors determining the bank deposit in
Morocco from 2003–2014. The researcher employed panel data regression for analysis purposes.
The study result shows that a bank's deposits are significantly determined by bank size, both
internal and external funding, and interest rate on deposits. Finally, the researcher concluded that

11
customers as well as bank deposits are strongly determined by the unemployment rate rather than
other variables.

The study by Mamo (2017) and another study by Giragn (2015) concluded that commercial bank
deposit mobilization is significantly and negatively affected by branch expansion, inflation,
exchange rate, and money supply growth.

The study by Bahiredin (2016) empirically analyzed determinants of commercial bank deposit
growth in Ethiopia. The regression result showed that the number of branches and growth of per
capita income have a positive and significant influence on bank deposit growth in Ethiopia,
whereas the loan-to-deposit ratio and lagged bank deposits have a negative and significant
influence on bank deposit growth.

Research conducted by Andinet (2016) showed that the explanatory variables deposit interest
rate; number of bank branches, GDP, and net interest margin were significantly and positively
correlated with the explained variable, while the lagged value of bank deposit was significantly
and negatively correlated with total deposit.

Yitbarek, (2015) investigated the short and long-run impacts of endogenous and exogenous
factors on the deposit growth of the Commercial Bank of Ethiopia for the period 1974/75 -
2013/14. The paper also established the causal relationships that exist between the antecedents
and the consequent. In the empirical VECM model, the control variables: Economic Growth,
Interest Rate, Population Growth, and Branch Expansion were used to establish the causal
relationship and measure their impact on the outcome variable. The estimated results suggest
Interest Rate has a positive but insignificant impact on deposit growth both in the long run and
short run while Branch Expansion significantly increases bank deposits contemporaneously both
in the short run and long run. Moreover, Population and Economic Growth have a positive
relationship with deposit growth but significant only in the long run.

Ayalew (2013) conducted a study focusing on macroeconomic variables in determining domestic

savings in Ethiopia, using time series data from 1970/71- 2010/11 and found that the growth rate
of income positively and significantly influenced to increase in domestic savings, whereas the
deposit interest rate and degree of financial depth variables was statistically insignificant to
increase in domestic savings.
12
Mohammad, (2010). Thus, capital market forces balance interest rates. In other words, the just
and correct interest rate should be determined through the market mechanism, that is, the interest
rate is balanced in supply and demand conditions in proportion with the inflation rate. David et
al, (1995) state that deposits are more interest rate sensitive, and banks may choose to increase
investments in interest rate sensitive assets and to decrease investments in loans. That is
commercial bank deposits are interest rate sensitive, therefore as the interest rate changes the
deposit of the commercial banks change.

13
 2.5. Conceptual Frame Work
The following conceptual schema derived from theoretical and empirical literature review that
determine the deposit mobilization of the dependent variable ( banks deposit) and independent
variables loan to deposit, capital adequacy, number of customer, Interest rate, Bank
Profitability(return of asset), Money Supply, Inflation rate and gross domestic product ( GDP)
and population growth) variables are depicted here below.

Dependent Variable
Deposit Mobilization

External Variables
Internal Variables
 Gross domestic product
 Loan to deposit ratio  Interest rate
 Number of branch
 Inflation rate
 Profitability of Bank
 Population growth

Independent Variables

Figure 2.1: Conceptual Frame Work

Source: Own Researcher, 2024

14
 2.6. Knowledge gap

Mobilization of deposit provides satisfactory service to different sectors of the economy. The
success of the banking greatly lies on the deposit mobilization. As deposits are normally
considered as a cost effective source of working fund, performances of the bank depend on
deposits.

As it was discussed in the above literature review part, Most of study undertaken in Ethiopia
related to the topic of determinants of deposit mobilization focus on treating the total deposit
amount to the commercial banks and some internal and external factors that are reviewed by
different researchers indifferent research techniques also showed different effect on Bank deposit
mobilization. Thus, the inconsistency finding among researchers and little attention given by
researcher on the determinants of the deposit mobilization in private commercial banks of
Ethiopia motivated the researcher to undertake a research in this particular area by adding
additional variable to fill this gap.

15
 CHAPTER THREE

RESEARCH METHODOLOGY
3.1. Introduction
In this chapter the description of the study area and different method of research like research
design, data type and sources, method of data collection, sample size and sample size
determination, definition of variable, model specification and diagnostics test were discussed.

3.2. Description of the Study Area

Nekemte town is one of the oromia regional state towns found in eastern wollega zone at 328km
from Addis Ababa, the capital city of Ethiopia. The town has an area of 5380 ha as of 2008
structure plan which covered six kebele (the lowest level of administration) with the total
population of 76,917. According to the revised structure pal of 2020 the total area of Nekemte
town reached 8204 ha with the total population of 128,268. The town has four main exits: to
Amahara Region (Nekemte-Bure-Bahirdar), to Benishangul Gumuz (Nekemte-Gimbi-Asosa), to
Gambela Region (Nekemte- Mettu-Gambela) and the exit to Addis Ababa (Nekemte-Ambo-
Addis Ababa). There is an active neighbourhood linkage with Jimma, Dambidolo, shambu,
Gimbi and Bedele. Moreover, the city is a huge economic corridor for the great Ethiopian
renaissance dam, coffee and crop production area of Wollega zones, Buno-bedelle, Ilu Aba Bora
and Jimma zone and western Ethiopia in general. The recent developments like Wollega
Multipurpose International Stadium in the North, Wollega University Referral Hospital in the
West, and Nekemte Specialised Hospital in the South and Wollega University in the East are
important and active socioeconomic corridors of the city that helped as the pull factors of overall
socio-economic developments.

3.3. Research Design

The research type used in the investigation will be explanatory. Since the researcher reasonably
educated about the phenomena's characteristics but not much about its nature, explanatory
research were appropriated for this study. Its objective is to describe the cause and effect
relationship between dependent and independent variables. Furthermore, the study were directed
using a purely quantitative research methodology.

16
3.4. Research Approach
The selection of research approach was determined for different variables focus on the nature of
the research, the target objectives that was the study possible for achieve, considered to the
resource availability and time constraints. According to Creswell (2014), there are three
approaches to research; those are qualitative, quantitative, and mixed approaches.

A qualitative research approach is an approach used for exploring and understanding the
meaning individuals or groups ascribe to a social or human problem. The process of research
involves emerging questions and procedures, data typically collected in the participant’s setting,
data analysis inductively building from particulars to general themes, and the researcher making
interpretations of the meaning of the data. The final written report has a flexible structure. Those
who engage in this form of inquiry support a way of looking at research that honors an inductive
style, a focus on individual meaning, and the importance of rendering the complexity of a
situation. In this approach, the researcher's intention is theory development, by analyzing the
situation from particular to general activities (Creswell, 2014).

A quantitative research approach is an approach for testing theories by examining the

relationship among variables. These variables can be measured, typically on instruments, so that
numbered data can be analyzed using statistical procedures. The final written report has a set
structure consisting of an introduction, literature, theory, methods, results, and discussion. Unlike
qualitative researchers, the ones who engage in this form of approach have assumptions about
testing theories deductively, building in protections against bias, controlling for alternative
explanations, and being able to generalize and replicate the findings. It is also called the theory
testing approaches, instead of the theory developing approach (Creswell, 2014).

The mixed methods research approach is an approach to an inquiry involving the collection of
both quantitative and qualitative data, integrating both two forms of data, and using unique
designs that may involve philosophical assumptions and theoretical frameworks. The core
concept of this form of inquiry is that the combination of the two approaches that are qualitative
and quantitative gives the best and most complete understanding of a research problem than
either approach alone (Creswell, 2014).

17
Hence, based on the above discussions of the three research approaches and by considering the
research problem and objective, in this study, the quantitative method was proposed to use
primarily.

3.5. Sampling Design

The study took sample size using the judging technique, which employs nonprobability
sampling. A bank with a lengthy history of operation is likely to have more customers and
deposits than a young one, according to the researcher's analysis of the bank's year of creation.
Thus, seven private commercial Banks will be taken as samples namely, Awash International
Bank S.C, Bank of Abyssinia S.C, Wegagen Bank S.C, United Bank S.C, Nib International Bank
S.C, and Dashen Bank S.C and Cooperative Bank of Oromia.

3.6. Sources of Data

Secondary data was used for this investigation. The audited financial statements from the chosen
private commercial banks covering the years 2012 to 2022 served as the secondary data. The
National Bank of Ethiopia and MoFED provided the statistics.

3.7. Method of Data Collection

The secondary data were gathered from the national bank of Ethiopia by the researcher. The
collected data will be computed to express the study's independent and dependent variables from
the collected financial statement through the theoretical concept of each variable calculation.

3.8. Method of Data Analysis

Data analysis were conducted using the STATA 15 software package when the required data has
been gathered. Both descriptive and econometric (inferential) statistics were used to analyze the
data. Additionally, correlation analysis is employed. The econometric model and hypothesis test
were used to produce the main conclusions.

3.9. Ethical Consideration

Johnes and Phillip (2012) noted that ethical issues which occur during a data collection are
complex. However, they suggested unintended harm on the participants can be reduced by
following appropriate ethical principles. A way of solving this potential problem is by
having a clear understanding of how to conduct the study. Therefore, the study started its

18
operation after official letter was issued by Wallaga University, Accounting and Finance. The
researcher took the letter to secure approval of concerned administrative structures and the
research participants during data collection.

3.10. Definition of Variables

The study's dependent variable was bank deposit mobilization which was measured by the total
amount of deposits through the natural logarism concept. The independent variables are
categorized as micro (internal or bank-specific) variables and macro (external) variables.

3.10.1. Internal Variables

1. Loan to Deposit Ratio: The ratio of the bank's total loans to its total deposits is known
as the loan-deposit ratio. If the ratio is less than 1, the bank does not borrow from outside
sources; instead, it uses its deposits to fund consumer loans. However, if the ratio is
larger than 1, the bank did not just rely on its deposits; instead, it borrowed money and
relined it at higher rates. By dividing the total amount of loans by the total number of
deposits, the ratio is computed. (Michael & T. et al, 2014).

2. Profitability of Bank: The long-term connection between bank profitability and deposits
in commercial banks (Ekki, 2004). A bank's ability to attract new deposits may be
facilitated by higher earnings, which are typically interpreted as an indication of the
bank's stability or strength (Heiko, 2008). Since ROA is unaffected by high equity
multipliers and provides a more accurate indication of a company's capacity to earn
returns on its asset portfolio, Hassan O. et al. (2003) contend that ROA is the most
appropriate metric for gauging bank profitability. The researcher employed return on
assets (ROA), which is defined as earnings before interest and tax divided by total assets,
as a measure of profitability for this study.
Mathematically,

19
3.10.2. External Variables
1. Gross Domestic Products: Commercial banks are essential to a nation's ability to allocate its
economic resources, according to Ongore et al. (2013). They constantly transfer money from
depositors to investors. If they are able to make enough money to pay for their operating
expenses over time, they will be able to do so. Put another way, banks must be profitable in
order to continue serving as a means of intermediation. Beyond their role as intermediaries,
banks' financial success has a significant impact on a nation's ability to prosper economically.
Strong financial results give stockholders a return on their investment. Consequently, this
stimulates further investment and results in economic expansion. Conversely, subpar banking
operations can result in crises and bank failure, which can harm economic expansion.

As ( Zhang et al, 2013) mentioned GDP is one of the most commonly used macroeconomic
variables to measure cyclical output effects within an economy where GDP is expected to
influence numerous factors related to the supply and demand for loans and deposits. Favorable
economic conditions affect positively the demand for banking services but may have either a
positive or negative influence on bank profitability levels. In general, we expect a positive
relationship between GDP and bank performance.

2. Inflation Rate: It is described as the steady rise in the average prices of goods and services
over a specific time frame within an economy. It is widely believed that there should be a
negative correlation between inflationary expectations and the growth of total deposits.
People are tempted to move their money from bank accounts to any other type of tangible
asset because they operate as a hedge against inflation as rates rise.

3. Interest Rate: The interest rate is one of the most important considerations when choosing
whether to deposit money into a bank (Mohammad et al, 2010). This article also
demonstrates how interest rates affect the financial system's ability to meet its expectations
and accomplish its objectives. Interest was also listed by Herald F. et al. (2009) as a
determining factor for commercial bank deposits. According to Philip (1968), it might be
argued that providing bank deposits with competitive interest rates had a positive outcome.
Furthermore, Mustafa et al. (2009) claimed that low deposit rates deter people from
mobilizing their savings.
20
Bhatt (1970), said that the banking system is unlikely to be in a position to meet the demand for
bank credit unless a concerted policy is pursued to raise the rate of saving generally and the rate
of saving in the form of deposits in particular. According to (Tareq, 2015) Interest rates on
deposits have a profound impact on savings mobilization. People deposit with the banks with the
expectation of getting some return. Low interest rates discourage savings. In this model average
interest rate has been taken. Interest rates for both urban and rural has assumed to be the same.
According to (Khalai et al, 2014) Low rates of interest on deposits have always been an obstacle
to savings mobilization. The classical theory of interest otherwise called the demand and supply
theory of interest, maintains that the rate of interest is determined by the demand for and the
supply of funds by businessmen and households respectively.

4. Population Growth: Without consumers having sound banking practices, banks will not be
able to increase their deposit base or fulfill their credit goals (Varman [65]. As a result, the
number of deposit account holders determines the deposit amount. According to (Hibret,
2015) population growth would also result in a larger labor force that could draw in
investments, generate wealth, and have a positive impact on overall economic growth. As a
result, deposits would rise because larger populations typically have higher rates of income
generation and savers. Thus, (Hibret, 2015) revealed that population growth had a positive
and significant impact on deposits. (Teshome, 2017) also found a positive relationship
between population growth and bank deposits.

5. Money Supply: Money supply is one of the tools used by the government in the conduct of
its monetary policy. Hence, any changes in the money supply can have a major impact on
economic conditions. An increase in money supply makes loanable funds cheaper, thus
reducing the cost of borrowing for corporate and individual customers. In this case, it is
expected that people will increase consumption and reduce savings, and thus money supply
will have an inverse relationship with deposits. On the other hand, it could also be argued as
well that as more money is supplied to the economy, more deposits could be put in banks
accumulating the funds for transactional and investment purposes.

21
3.11. Summary of Definition of Variables
Table 3.1: Summary of measure of variables

Variables
Variables Measure of Variable Expected Sign
Dependent Bank deposit Natural logarithm of total deposit
variable mobilization mobilized

Number of branch Number of branch positive

Loan To Deposit Total Loans and Advances/ Total Negative
Ratio deposit

Interest rate As per each bank through time positive

Independent variable

Profitability of ROA = Earnings before interest and Positive

bank measured by tax /Total asset
return on asset
Inflation Rate Average Annual Inflation Rate Negative

Gross Domestic GDP Growth Percent Positive

Product
Population Population Growth Rate Positive
Growth
Money supply The Growth of Broad Money Supply Positive
Source: Developed by researcher from different literature, (2024)

3.12. Model Specification

Panel data models are the type of data that are used in this study since they are thought to have
advantages over cross-sectional and time series data methodologies. The pooling of cross-
sectional observations over multiple time periods is known as panel data. According to Brooks
(2008), there are several benefits to utilizing a panel data collection. Firstly, and perhaps most
significantly, panel data may address a wider range of topics and solve more complicated

22
problems than pure time-series or pure cross-sectional data alone. Second, analyzing how
variables, or the connections between them, evolve dynamically over time, is frequently
interesting.

In order to accomplish this utilizing pure time-series data, a lengthy run of data is necessary in
order to obtain a sufficient number of observations for conducting any significant hypothesis
testing. However, by combining time series and cross-sectional data, one can use data on the
dynamic behavior of several entities at once to increase the number of degrees of freedom and,
hence, the test's power. The extra variation brought forth by this method of merging the data can
also aid in reducing multi-collinearity issues that could occur from modeling time series
separately. Third, we can eliminate the bias in regression results caused by some types of omitted
variable bias by properly designing the model.

The study will use a fixed effect regression model after the Housman Test is conducted.

According to Brooks, (2008), the general multiple linear regression models with Yi independent
variables can be written as follows:-

Where

Where Yi is the ith observation of the dependent variable, X1i,…Xki is the i th observation of the
independent variables, β0,…,βk are the regression coefficients, εi is the i th observation of the
stochastic error term, and n is the number of observations. Hence, the determinant of deposit
mobilization (DM) can be modeled as described below:-

Where:

BDM - Bank deposit mobilization

The following independent variables are referred as:

NoBr- Number of branch

23
LDR - Loan to deposit ratio

IR - Interest Rate

PB - Profitability of bank

I NF - Inflation rate

GDP-Gross Domestic Product

MS: Money Supply

PG: Population Growth

ε– Error term

3.13. Diagnostics Tests

Prior to doing the estimation, each model estimator must satisfy the Ordinary Least Squares
(OLS) assumptions. According to Brooks (2008), the estimators of the model can be referred to
be blue (best linear unbiased estimator) if they meet the OLS requirements. Ordinary least
squares is the econometric estimating method utilized in this investigation (OLS). There are five
presumptions made about the traditional linear regression model, according to Brooks (2008).
(CLRM). If these presumptions are not met, the researcher will test the model. The researcher's
approach to testing these hypotheses is outlined as follows:

3.13.1. Homoscedasticity Test

The homoscedasticity assumption states that the variance of the mistakes should be constant.
Heteroscedasticity is the state in which mistakes lack a consistent variance. It would be
determined that there is strong evidence of heteroscedasticity, making the assumption that the
error variance is constant implausible.

3.13.2. Normality Test

The dependent variable is defined as a linear function of the independent or predictor variables
by linearity. For every increase in the predictor or predictors, the mean values of the outcome
variable follow a straight line. The conclusions are not as broad if we use a linear model to
represent a non-linear connection.

24
3.13.3. Multi-collinearity Test
There is no correlation between the explanatory variables when utilizing the OLS estimation
method. The explanatory variables are said to be orthogonal to one another if there is no link
between them. The values of the coefficients on the other variables would not change if a
variable was added or removed from the regression equation if the explanatory variables were
orthogonal to one another. Consequently, no perfect linear relationship should exist between any
two or more of the explanatory factors. Thus, there shouldn't be a strong correlation between the
explanatory variables. It is difficult to acquire unique estimates of the regression coefficients
when there is perfect collinearity between the explanatory variables since there are an endless
number of combinations of coefficients that would perform equally well.

25
 CHAPTER FOUR

RESULT AND DISCUSSION

4.1. INTRODUCTION
This chapter presents the study results and analysis of the findings. The section contents four
major parts. The first part presents descriptive analysis of both dependent and independent
variables of the study; the second part presents correlation analysis between dependent and
independent variables; the third part; presents the result of the diagnostic test of the classical
linear regression model (CLRM) assumptions and the fourth part presents results of the
regression and detail interpretations.

4.2. Descriptive Analysis

Table 4.1 presents a descriptive statistics result of the both variables for the selected private
commercial banks from the year 2012 to 2022 with a total of 77 observations. The summery
presents the descriptive statistics tools like number of observations, mean, standard deviation
minimum and maximum of the dependent variable deposit mobilization (DM) and independent
variables of deposit mobilization, Loan to Deposit Ratio, Interest Rate, return of asset , Inflation
Rate ,broad money supply, population growth and Gross Domestic Product.

Table 4.1: Descriptive Analysis Result

Variable Obs Mean Std. Dev. Min Max

depm 77 9.898065 0.9252918 7.657897 11.90516
ldr 77 4.20269 0.168964 3.858411 4.531093
roa 77 0.8981851 0.4130319 -1.108663 1.597365
gdpgr 77 2.08452 0.2482726 1.667707 2.358965
infr 77 2.621344 0.551749 1.891605 3.523415
intr 77 1.823557 0.1629199 1.609438 1.94591
pg 77 3.382249 0.0842252 3.229618 3.51631
brms 77 0.9878165 0.0274799 0.9321641 1.040277

Source: Own Researcher Calculation, 2024

26
The result from table 4.1 indicates that the mean and standard deviation of deposit mobilization
is 9.898065 and 0.9252918 respectively. The minimum and maximum value of deposit
mobilization is 7.657897 and 11.90516 respectively. The mean and standard deviation of Loan to
Deposit Ratio is 4.20269 and 0.168964respectively. The minimum and maximum value of loan
to deposit ratio is 3.858411and 4.531093 respectively.

The mean and standard deviation of return of asset is 0.8981851and 0.4130319respectively. The
minimum and maximum value of return of asset is -1.108663and 1.597365respectively. The
mean and standard deviation of GDP growth rate is 2.08452and 0.2482726 respectively. The
minimum and maximum value of GDP growth rate is 1.667707and 2.358965respectively.

Regarding inflation rate the mean score shows 2.621344 from the period of 2012 to 2022. The
descriptive statistics result also shows minimum and maximum value of 1.891605 and 3.523415
respectively. Regarding interest rate the mean score shows 1.823557of the sample period. The
descriptive statistics result also shows minimum and maximum value of 1.609438 and 1.94591
respectively. The standard deviation among private commercial banks in terms of interest rate is
0.1629199 during the study period.

The mean and standard deviation of population growth is 3.382249 and 0.0842252 respectively.
The minimum and maximum value of population growth is 3.229618 and 3.51631 respectively.
Regarding the broad money supply the mean score shows 0.9878165 from the period of 2012 to
2022. The descriptive statistics result also shows minimum and maximum value of 0.9321641
and 1.040277respectively.

4.3. Diagnostic Test

4.3.1. Correlation Analysis
As noted in Brooks (2008), Correlation between two variables measures the degree of linear
association between them. The study used product moment of correlation coefficient to look the
association of the dependent variable (deposit mobilization) and independent variables (Loan to
deposit ratio, interest rate, return of asset, Inflation Rate and gross domestic product). The
following table 4.2 presents the correlation coefficient summery result as shown below

27
 Table 4.2. Correlation Analysis
Variables (1) (2) (3) (4) (5) (6) (7) (8)
(1) logdepm 1.000

(2) logldr 0.770 1.000

(3) Lroa -0.138 -0.272 1.000

(4) loggdpgr -0.774 -0.701 0.233 1.000

(5) loginfr 0.584 0.578 -0.104 -0.853 1.000

(6) logintr 0.727 0.632 -0.405 -0.649 0.388 1.000

(7) logbrms 0.537 0.389 -0.235 -0.329 0.086 0.709 1.000

(8) logpg -0.830 -0.746 0.278 0.772 -0.519 -0.629 -0.453 1.000

Source: Own Researcher Calculation, 2024

4.3.2. Heteroscedasticity Test Result
According to Brooks (2008), Heteroscedasticity means that error terms do not have a constant
variance. If heteroscedasticity occur, the estimators of the ordinary least square method are
inefficient and hypothesis testing is no longer reliable or valid as it was underestimate the
variances and standard errors. In this study as shown in table 4.4 the Chi-Square result of the test
statistic shows that there is no evidence for the presence of heteroscedasticity, since the p-values
were in excess of 0.05.

Table 4.3: Heteroscedasticity Test Result

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Ho: Constant variance
Variables: fitted values of logdepm

chi2(1) = 1.23
Prob > chi2 = 0.2671

Source: Own Researcher Calculation, 2024

4.3.3. Normality Test Result

It is assumed that the distribution of residuals is normal. If the residuals are normally distributed,
the histogram should be bell-shaped and the Bera-Jarque statistic would not be significant at 5%
significant level. This means that the p-value given at the bottom of the normality test screen
28
should be bigger than 0.05 to not reject the null of normality at the 5% level (Brook, 2008). The
test result for the model provides a p-value of greater than 5% evidencing that residuals were
normally distributed. As per table 4.6 below the Jarque-Bera statistic had a P-value of 0.3806 and
both the probability of skewness and kurtosis was above 5% which implied that there was no
evidence for the presence of abnormality in the data. Thus, the null hypothesis that the data was
normally distributed was failed to reject since the p-value exceeded 0.05.
1.5
1
Density
.5
0

-1 -.5 0 .5 1
Residuals

Figure 4.1: Normality Test

Source: Own Researcher Calculation, 2024

Table 4.4: Normality Test Result

Skewness/Kurtosis tests for Normality

joint
Variable Obs Pr(Skewness) Pr(Kurtosis) adj chi2(2) Prob>chi2

resid 77 0.2111 0.4785 2.14 0.3436

29
Source: Own Researcher Calculation, 2024

The above result shows the data was normally distributed

4.4. Regression Analysis Result

After checking for all CLRM assumptions, a regression models used to find the determinants of
private commercial banks’ deposit mobilization. A regression model is created by adding one lag
of the dependent variable on the right hand side of the equation which is log of total deposit
mobilized. The regression coefficients are analyzed the independent and dependent variables
and identify both magnitude and the direction of impact.

Under the following regression outputs the beta coefficient may be negative or positive; beta
indicates that each variable’s level of influence on the dependent variable. P-value indicates at
what percentage or precession level of each variable is significant. R 2 values indicate the
explanatory power of the model and in this study adjusted R 2 value which takes into account the
loss of degrees of freedom associated with adding extra variables were inferred to see the
explanatory powers of the models.

30
 Table 4.5: Fixed Effect Regression Result
Fixed-effects (within) regression Number of obs = 77
Group variable: no_banks Number of groups = 7

R-sq: Obs per group:

within = 0.9341 min = 11
between = 0.5628 avg = 11.0
overall = 0.8071 max = 11

F(7,63) = 127.58
corr(u_i, Xb) = 0.0197 Prob > F = 0.0000

logdepm Coef. Std. Err. t P>|t| [95% Conf. Interval]

logldr -.0207774 .3393306 -0.06 0.951 -.6988755 .6573206

Lroa .1725961 .079279 2.18 0.033 .0141697 .3310225
loggdpgr .0365512 .3637812 0.10 0.920 -.6904074 .7635099
loginfr .3521998 .1206901 2.92 0.005 .1110198 .5933797
logintr 1.573317 .34964 4.50 0.000 .8746174 2.272017
logbrms 1.141882 .4970929 2.30 0.025 .1485216 2.135243
logpg -17.91668 2.124795 -8.43 0.000 -22.16274 -13.67062
_cons 19.79816 3.211414 6.16 0.000 13.38067 26.21566

sigma_u .36752161
sigma_e .24043145
rho .70029315 (fraction of variance due to u_i)

F test that all u_i=0: F(6, 63) = 21.40 Prob > F = 0.0000

Source: Own Researcher Calculation, 2024

According to the final results above by applying panel data to study the determinants of the
private commercial banks’ deposit mobilization in Ethiopia for the period 2012-2022. The
Adjusted R-squared values of 0.807 is an indication that the model is a good fit. This means
80.7% of variations in private commercial bank deposit mobilization were explained by
independent variables included in the model. However, the remaining 19.3% changes in private
commercial bank deposit mobilization are caused by other factors that are not included in the
model. Furthermore, the F-statistic was 21.4 and the probability of not rejecting the null
hypothesis that there is no statistically significant relationship existing between the dependent
variable and the independent variables, is 0.0000. Indicates that the overall model is highly
significant at 1% and that all the independent variables are jointly significant in causing variation
in bank deposit growth means there is significant relationship between the dependent variable
and the independent variables.

31
4.4.1. Interpretation of Results
As it presented Table 4.11 above, the coefficient of loan to deposit ratio (LDR) measured by loan
divided by deposit is -0.0207774 and its P-value is 0.951. The p-value is greater than 0.05, this
indicates that the loan to deposit ratio has no significant effect on deposit mobilization.

According to the regression result of this study, Inflation has positive and statistically significant
impact on deposit of private commercial banks. The negative relation of the inflation and
Commercial Bank’s deposit is consistence with our expectation. The coefficient of this
relationship of 0.3521998 indicates that holding other things constant, a unit change in inflation
rate was result in (0.3521998) unit increase on the level of DM. This implies that persistent
inflation has a positive insignificant effect on mobilization of bank deposit.
The result shows the effect of economic growth measured in terms of GDP on DM with a
coefficient of 0.0365512. This implies that for one unit change in GDP, keeping the other things
constant had resulted (0.0365512) unit increases on the level of DM.
The regression result shows 0.1725961 that, return of asset has positive and statistically
significant impact on Bank’s deposit. The positive sign of the coefficient indicates a directly
relationship between return of asset and banks deposit. According to the regression result, a one
unit change in the return of asset, keeping other things constant, has resulted in 17.25% unit
change on the level of deposit of private commercial banks in Ethiopia
The regression result shows -17.91668 population growth has positive and statistically
significant impact on Bank’s deposit. The positive sign of the coefficient indicates a directly
relationship between return of asset and banks deposit.
According to the regression result of this study, broad money supply has positive and statistically
significant impact on deposit of private commercial banks.
The regression result shows 0.1725961 that, interest rate and statistically significant impact on
Bank’s deposit. The positive sign of the coefficient indicates a directly relationship between
interest rate and banks deposit

32
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1. Summary of Research Findings
The goal of the study was to identify the determinants of private commercial banks deposit
mobilization in Ethiopia. To achieve the objectives, previous studies have been reviewed. Based
on the previous literature two internal explanatory variables and five external explanatory
variables are selected in line with the research objectives, availability of data and explanatory
power of variable. Accordingly, from internal variable loan to deposit ratio (LDR) and Return of
Asset (ROA) were selected. From bank external factor saving deposit interest rate (IR) inflation
rate (INFR), Growth rate of gross domestic product (GDPGR), Broad Money Supply (BMS),
Population Growth (PG) were selected.

To comply with the research question and research objectives, quantitative research approach
was used for the variables of LDR, ROA, IR, INFR and GDPGR, BMS and PG and Secondary
data were collected. The secondary data were collected from National bank of Ethiopia (NBE),
from Ministry of finance and economic development office (MOFED), and seven private
commercial banks in Ethiopia are selected as sample. Fixed effect regression analysis was
adopted to measure the effect of seven explanatory variables on dependent variable i.e. private
commercial banks deposit with the help of Stata version 15 software. To test the research
hypothesis empirically, all necessary data were collected for the period of 2012 to 2022.

5.2. Conclusion
From the above finding, the following conclusionis drown:

 Loan to deposit ratio has negative significant impact on bank deposit mobilization. This
indicates increasing deposit make private commercial bank to increase their loan
provision that helps for different economy supports.

 Saving Deposit interest rate has positive significant impact on bank deposit mobilization.
This shows as deposit interest rate increase the customers are more forced to have saving
, this makes the private commercial bank deposit level to increase.

33
  Return on asset has positive significant impact on bank deposit mobilization. This
indicates the private commercial bank profitability will add customer’s reliance on
private commercial bank where they going for saving and bank deposit to increase.

 Inflation rate has positive significant impact on bank deposit mobilization. This result
indicates private commercial bank deposit is directly affected by the rate of deposit
where the government required minimizing it at large.

 Gross domestic product has positive significant impact on bank deposit mobilization.
This shows increase in GDP causes income level to increase, this cause private
commercial bank deposit to increase.

 Population growth has negative significant impact on bank deposit mobilization.

 Broad money supply has positive significant impact on bank deposit mobilization.

5.3. Recommendation
The general objective of the study was to assess the determinants of deposit mobilization of
private banks in Ethiopia. Based on the research findings, the study makes the following
recommendations:
 The Ethiopian private commercial banks have to give loan by considering their
deposit and the risk of high loan to deposit ratio.
 They should have to newly introduce various types of special deposit accounts
through which they are going to mobilize deposit.
 Also they should have to develop deposit mobilization team at all levels where they
work consistently and effectively since deposit mobilization is not a onetime activity,
it should be done throughout the year.
 All private commercial banks should have to hardly bring different bank product like
full e -banking service, interest free banking etc that support for deposit mobilization.
 For national banks and government
 Since large part of deposit comes from bank sector, the national banks and government
should give attention toward this development.

34
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36
Appendices
Appendix1: Diagnostic Test

Heteroscedasticity

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of logdepm

chi2(1) = 1.23
Prob > chi2 = 0.2671

Normality Test

Skewness/Kurtosis tests for Normality

joint
Variable Obs Pr(Skewness) Pr(Kurtosis) adj chi2(2) Prob>chi2

resid 77 0.2111 0.4785 2.14 0.3436

Appendix2: Correlation Test

. corr logdepm logldr Lroa loggdpgr loginfr logintr logbrms logpg

(obs=77)

logdepm logldr Lroa loggdpgr loginfr logintr logbrms logpg

logdepm 1.0000
logldr 0.7697 1.0000
Lroa -0.1382 -0.2717 1.0000
loggdpgr -0.7739 -0.7010 0.2331 1.0000
loginfr 0.5842 0.5784 -0.1036 -0.8535 1.0000
logintr 0.7268 0.6323 -0.4049 -0.6494 0.3882 1.0000
logbrms 0.5366 0.3888 -0.2349 -0.3291 0.0863 0.7090 1.0000
logpg -0.8305 -0.7455 0.2780 0.7724 -0.5191 -0.6286 -0.4527 1.0000

Appendix3: Multi-Collinearity test result

37
. corr logldr Lroa loggdpgr loginfr logintr logbrms logpg
(obs=77)

logldr Lroa loggdpgr loginfr logintr logbrms logpg

logldr 1.0000
Lroa -0.2717 1.0000
loggdpgr -0.7010 0.2331 1.0000
loginfr 0.5784 -0.1036 -0.8535 1.0000
logintr 0.6323 -0.4049 -0.6494 0.3882 1.0000
logbrms 0.3888 -0.2349 -0.3291 0.0863 0.7090 1.0000
logpg -0.7455 0.2780 0.7724 -0.5191 -0.6286 -0.4527 1.0000

Appendix4: Fixed Effect Regression Result

Fixed-effects (within) regression Number of obs = 77
Group variable: no_banks Number of groups = 7

R-sq: Obs per group:

within = 0.9341 min = 11
between = 0.5628 avg = 11.0
overall = 0.8071 max = 11

F(7,63) = 127.58
corr(u_i, Xb) = 0.0197 Prob > F = 0.0000

logdepm Coef. Std. Err. t P>|t| [95% Conf. Interval]

logldr -.0207774 .3393306 -0.06 0.951 -.6988755 .6573206

Lroa .1725961 .079279 2.18 0.033 .0141697 .3310225
loggdpgr .0365512 .3637812 0.10 0.920 -.6904074 .7635099
loginfr .3521998 .1206901 2.92 0.005 .1110198 .5933797
logintr 1.573317 .34964 4.50 0.000 .8746174 2.272017
logbrms 1.141882 .4970929 2.30 0.025 .1485216 2.135243
logpg -17.91668 2.124795 -8.43 0.000 -22.16274 -13.67062
_cons 19.79816 3.211414 6.16 0.000 13.38067 26.21566

sigma_u .36752161
sigma_e .24043145
rho .70029315 (fraction of variance due to u_i)

F test that all u_i=0: F(6, 63) = 21.40 Prob > F = 0.0000

Appendix5: Data used for this study

38
Year Banks DepM LDR ROA GDPGR INFR INTR PG BRMS
59.80 25.27
2012 AIB 9204.36 3.58 8.65 23.60 5.00 2.83
61.46 27.06
2013 AIB 12545.21 3.13 10.58 7.46 5.00 2.75
61.01 28.05
2014 AIB 15039.71 3.42 10.26 6.89 5.00 2.71
67.40 28.60
2015 AIB 18520.42 2.94 10.39 9.57 5.00 2.70
67.67 28.40
2016 AIB 22832.03 2.78 9.43 6.63 7.00 2.72
73.80 31.28
2017 AIB 30590.90 2.80 9.56 10.69 7.00 2.72
72.04 33.66
2018 AIB 43451.38 3.76 6.82 13.83 7.00 2.67
79.28 32.95
2019 AIB 59616.06 3.17 8.36 15.81 7.00 2.66
81.15 30.75
2020 AIB 70577.90 3.17 6.06 20.36 7.00 2.65
85.59 31.06
2021 AIB 102281.00 3.12 5.64 26.84 7.00 2.60
87.31 27.86
2022 AIB 148028.00 3.42 5.30 33.90 7.00 2.54
57.76 25.27
2012 DB 14065.60 4.05 8.65 23.60 5.00 2.83
15851.26 55.91 27.06
2013 DB 3.26 10.58 7.46 5.00 2.75
54.34 28.05
2014 DB 17681.34 3.42 10.26 6.89 5.00 2.71
58.18 28.60
2015 DB 19814.11 3.12 10.39 9.57 5.00 2.70
55.78 28.40
2016 DB 22758.50 2.73 9.43 6.63 7.00 2.72
65.09 31.28
2017 DB 27782.52 2.39 9.56 10.69 7.00 2.72
64.71 33.66
2018 DB 35986.80 2.32 6.82 13.83 7.00 2.67
72.84 32.95
2019 DB 44721.51 2.00 8.36 15.81 7.00 2.66
78.81 30.75
2020 DB 53493.87 2.47 6.06 20.36 7.00 2.65
83.15 31.06
2021 DB 74553.51 2.12 5.64 26.84 7.00 2.60
82.66 27.86
2022 DB 91235.88 2.92 5.30 33.90 7.00 2.54
49.45 25.27
2012 CooP 2797.54 3.31 8.65 23.60 5.00 2.83
47.39 27.06
2013 CooP 4465.04 3.70 10.58 7.46 5.00 2.75
68.12 28.05
2014 CooP 5450.10 4.94 10.26 6.89 5.00 2.71
91.46 28.60
2015 CooP 7367.89 3.32 10.39 9.57 5.00 2.70
72.77 28.40
2016 CooP 8488.32 0.35 9.43 6.63 7.00 2.72
70.05 31.28
2017 CooP 14276.79 1.46 9.56 10.69 7.00 2.72
39
 58.38 33.66
2018 CooP 25807.59 1.84 6.82 13.83 7.00 2.67
61.27 32.95
2019 CooP 36168.28 1.84 8.36 15.81 7.00 2.66
66.31 30.75
2020 CooP 45510.89 2.51 6.06 20.36 7.00 2.65
76.64 31.06
2021 CooP 71118.40 1.98 5.64 26.84 7.00 2.60
86.79 27.86
2022 CooP 96769.02 2.09 5.30 33.90 7.00 2.54
57.56 25.27
2012 BoA 6771.46 2.79 8.65 23.60 5.00 2.83
55.34 27.06
2013 BoA 8496.15 2.88 10.58 7.46 5.00 2.75
56.65 28.05
2014 BoA 9096.48 2.53 10.26 6.89 5.00 2.71
53.93 28.60
2015 BoA 11118.17 2.34 10.39 9.57 5.00 2.70
59.56 28.40
2016 BoA 13634.96 2.36 9.43 6.63 7.00 2.72
68.14 31.28
2017 BoA 20700.81 2.71 9.56 10.69 7.00 2.72
69.75 33.66
2018 BoA 25794.54 1.96 6.82 13.83 7.00 2.67
73.83 32.95
2019 BoA 32146.45 2.18 8.36 15.81 7.00 2.66
78.21 30.75
2020 BoA 47627.61 1.78 6.06 20.36 7.00 2.65
86.15 31.06
2021 BoA 88884.13 1.67 5.64 26.84 7.00 2.60
92.86 27.86
2022 BoA 122045.42 2.55 5.30 33.90 7.00 2.54
60.46 25.27
2012 UB 6757.51 3.61 8.65 23.60 5.00 2.83
58.42 27.06
2013 UB 8063.47 3.00 10.58 7.46 5.00 2.75
53.92 28.05
2014 UB 9402.46 2.54 10.26 6.89 5.00 2.71
58.11 28.60
2015 UB 11804.36 2.14 10.39 9.57 5.00 2.70
65.46 28.40
2016 UB 13037.64 2.14 9.43 6.63 7.00 2.72
72.68 31.28
2017 UB 16505.15 1.95 9.56 10.69 7.00 2.72
65.28 33.66
2018 UB 23079.05 2.30 6.82 13.83 7.00 2.67
74.70 32.95
2019 UB 29079.85 2.36 8.36 15.81 7.00 2.66
79.01 30.75
2020 UB 34771.65 2.27 6.06 20.36 7.00 2.65
81.87 31.06
2021 UB 43826.74 1.80 5.64 26.84 7.00 2.60
85.37 27.86
2022 UB 53810.17 2.13 5.30 33.90 7.00 2.54
25.27
2012 WB 5758.18 61.92 4.10 8.65 23.60 5.00 2.83
27.06
2013 WB 7550.66 62.12 3.66 10.58 7.46 5.00 2.75
40
 28.05
2014 WB 8385.11 54.91 2.91 10.26 6.89 5.00 2.71
28.60
2015 WB 9870.94 62.50 2.79 10.39 9.57 5.00 2.70
28.40
2016 WB 11078.55 68.87 2.51 9.43 6.63 7.00 2.72
31.28
2017 WB 14018.23 74.03 2.87 9.56 10.69 7.00 2.72
33.66
2018 WB 20506.13 73.38 3.28 6.82 13.83 7.00 2.67
2.17 32.95
2019 WB 23545.28 69.87 8.36 15.81 7.00 2.66
30.75
2020 WB 30094.08 78.80 2.45 6.06 20.36 7.00 2.65
31.06
2021 WB 31491.19 86.66 0.33 5.64 26.84 7.00 2.60
27.86
2022 WB 33915.74 89.26 1.33 5.30 33.90 7.00 2.54
25.27
2012 OiB 2117.30 48.16 2.09 8.65 23.60 5.00 2.83
27.06
2013 OiB 3050.44 53.15 2.00 10.58 7.46 5.00 2.75
28.05
2014 OiB 5004.00 51.26 3.06 10.26 6.89 5.00 2.71
28.60
2015 OiB 8005.99 59.55 2.83 10.39 9.57 5.00 2.70
28.40
2016 OiB 9348.10 56.25 1.49 9.43 6.63 7.00 2.72
31.28
2017 OiB 13414.13 53.49 2.09 9.56 10.69 7.00 2.72
33.66
2018 OiB 19927.02 58.62 3.63 6.82 13.83 7.00 2.67
32.95
2019 OiB 26589.12 65.77 2.68 8.36 15.81 7.00 2.66
30.75
2020 OiB 27730.86 62.73 2.62 6.06 20.36 7.00 2.65
31.06
2021 OiB 34345.51 75.04 2.31 5.64 26.84 7.00 2.60
27.86
2022 OiB 43521.32 73.85 2.56 5.30 33.90 7.00 2.54

41