Drivers of Deposit Mobilization in Private Commercial Banks of Ethiopia

Abstract

Deposit mobilization is a deep-seated part of banking activity. Banks have a decisive implication in enlightening economic efficiency by creating channel between lender and borrower via transferring funds from resource surplus unit to deficit resource unit that have better productive investment opportunities. Therefore, it is indispensable to examine the drivers of Commercial banks deposit mobilization in Ethiopia. To conduct the study, the panel data type from 2010-2019 has been used. Also, for this study the fixed effect model with the application of some diagnostic tests like langragian test, hausman test, unit root test heteroskedasticity test and autocorrelation tests have been used. The data has been analyzed by the descriptive and econometrics analysis. The descriptive analysis of the study shown that the average rate of commercial banks deposit mobilization in Ethiopia in the last nine subsequent years was growing by 9.7 percent and the rate of growth of branch expansion growing by 1.413 percent. In general, inflation rate rate of risk, the rate of return to asset, and Liquidity ratio altered by 137, 0.39, 0.31&0.003 percent, respectively. The result of fixed effect model indicates that, among seven explanatory variables four variables such as government expenditure, interest rate, and return on asset positively and significantly affect at 5% and 10% deposit mobilization but inflation rate is statistically and negatively affected deposit mobilization at 5% level of significance. Given the result of the study, the following recommendations have been forwarded: the responsible agent shall be increase government expenditure of infrastructure, increase interest rate and decrease inflation rate to raise deposit mobilization in Ethiopia.