FACTORS AFFECTING TIME DEPOSIT: THE CASE OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

The aim of this study is to examine the factors that affect time deposit of commercial banks in Ethiopia. The study is an explanatory type of research which adopted quantitative methods of research approach using secondary panel data of six commercial banks from year 2002 to 2016. The study population is the seventeen commercial banks and one development bank that are currently operating in Ethiopia. The research adopted a non-probability sampling which is purposive sampling by considering the year of establishment and availability of data of banks to select sample from the total population. Accordingly, Commercial Bank of Ethiopia, Awash International Bank, Dashen Bank, Bank of Abyssinia, Wegagen Bank and United Bank were selected. As a main analysis technique, descriptive statistics, correlation and regression were used to come up to the research report. Hence, the dependent variable, time deposit of commercial banks and the independent variables; inflation rate, Gross Domestic Product, liquidity, profitability, lending rate, reserve requirement, and National Bank of Ethiopia Bill were regressed. The results from the regression analysis estimated by pooled panel regression model showed that liquidity and National Bank of Ethiopia bill have positive and statistically significant effect on time deposit. On the other hand, lending rate is found to have negative and statistically significant effect on time deposit of commercial banks whereas Gross Domestic Product, inflation, profitability and reserve requirement have positive but insignificant effect on time deposit of commercial banks. The study concluded that fulfilling the National Bank of Ethiopia bills requirement creates liquidity and maturity mismatch (disparity) for the banks as the National Bank of Ethiopia bill is bought for five years and there is a 40% cap for short term loans. Hence, time deposit is a good option for banks as it makes them safe from withdrawal of money by depositors for a fixed period of time and minimizes liquidity and maturity mismatch. Finally, the study recommended that the banks should study on asset-liability match and maturity match and should lend out their liquidity while mobilizing more time deposit.