FACTORS AFFECTING DEPOSIT MOBILIZATION IN ETHIOPIAN PRIVATE COMMERCIAL BANKS

Abstract

The study sought to find out the factors that affect deposit mobilization of selected private commercial banks in Ethiopia. In order to fulfill the stated objective an explanatory research design with quantitative approach was used. Five explanatory variables were taken; those are number of branches, inflation, GDP, liquidity and deposit interest rate. The secondary data were collected from audited annual reports of selected private commercial banks and data from National Bank of Ethiopia. Balanced panel regression model was used for data covered from 2011/12-2015/16. Hetroscedasticity, auto-correlation, multi-collinearity and normality tests were performed to test whether the variables satisfy the assumptions of the research. The regression results showed that three variables, number of branches, inflation and liquidity had statistically significant effect on deposit mobilization. Among these variables that affect deposit mobilization, number of branches, inflation and interest rate had positive effect whereas, GDP and liquidity had negative effect on deposit mobilization. Hence, based on the findings of the study the researcher suggests that management of private commercial banks should give an adequate emphasis to deposit mobilization through expanding their branches by introducing a segmented customer targeting business model, coming up with new, innovative and low cost services, giving more attention to small business and low income groups and broadening its customer base by focusing on the unbanked population in order to increase their deposit.