thesis -

ADMAS UNIVERSITY
SCHOOL OF POST GRADUATE STUDIES
ACCOUNTING AND FINANCE PROGRAM
DETERMINANTS OF DEPOSIT GROWTH OF PRIVATE COMMERCIAL BANKS

IN ETHIOPIA
A PROPOSAL SUBMITTED TO THE SCHOOL OF POSTGRADUATE STUDIES

PRESENTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE
DEGREE OF MSC IN ACCOUNTING AND FINANCE
BY: GETACHEW MULU
ID NO: PGMKA/2008/20
TEL: 09-38-02-49-90
ADVISOR: GIDEY G. (PHD)
ADDIS ABABA, ETHIOPIA
MARCH, 2022
ACKNOWLEDGMENT
Above all, thanks to almighty GOD and his mother St. Merry for the priceless help during the
entire period of our life. Next, we would like to express our deepest and warmest gratitude
and appreciation to our advisor Giday G. (Ph.D.) for her constructive comment, Suggestion
and advice that greatly enriched this paper. Without her support and guidance this paper
wouldn’t have materialized. Beside to this, thanks to employees of selected private
commercial banks for their cooperation and Willingness to provide us the necessary
information for the Study. Next, we would like to extend our special thanks for our families
to their assistance in many aspects. In addition, our heartfelt appreciation and reputation
passes to those people who helped us by giving supportive ideas and encouragements for
preparing research paper. Lastly, but not least , our deepest gratitude and thanks goes to
Admas University in general, and schools of post graduate studies in particular.
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Contents
CHAPTER ONE..............................................................................................................................1
INTRODUCTION...........................................................................................................................1
1.1 BACKGROUND OF THE STUDY.................................................................................1
1.2 STATEMENT OF THE PROBLEM................................................................................4
1.3 OBJECTIVE OF THE STUDY........................................................................................5
1.3.1 GENERAL OBJECTIVE..........................................................................................5
1.3.1 SPECIFIC OBJECTIVES..........................................................................................5
1.4 RESEARCH HYPOTHESIS............................................................................................5
1.5 SIGNIFICANCE OF THE STUDY..................................................................................6
1.6 SCOPE OF THE STUDY.................................................................................................6
1.7 STUDY LIMITATION.....................................................................................................7
1.8 ORGANIZATION OF THE PAPER................................................................................7
CHAPTER TWO.............................................................................................................................8
REVIEW OF RELATED LITRATURES.......................................................................................8
2.1 THEORETICAL REVIEW...............................................................................................8
2.1.1 THE ROLE OF BANKS IN FINANCIAL SYSTEM...................................................8
2.1.2 CONCEPTS OF DEPOSIT...........................................................................................8
2.1.3 COMMERCIAL BANK DEPOSIT..............................................................................9
2.1.4 THE PURPOSE OF COMMERCIAL BANK DEPOSIT...........................................11
2.1.5 THEORIES OF SAVING...........................................................................................12
2.1.5.1 THE CLASSICAL THEORY OF INTEREST........................................................12
2.1.5.2 NEO-CLASSICAL GROWTH THEORY..............................................................12
2.1.5.3 LIFE-CYCLE HYPOTHESIS THEORY................................................................13
2.1.6 DETERMINANTS DEPOSIT GROWTH OF COMMERCIAL BANKS.................14
2.1.6.2 SAVING HABIT.....................................................................................................14
2.1.6.3 SAVINGS DEPOSIT HABIT.................................................................................14
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2.1.6.4 INFLATION............................................................................................................15
2.1.6.5 EXCHANGE RATE................................................................................................16
2.1.6.6 ADVERTISING AND PUBLICITY.......................................................................17
2.1.6.7 ELECTRONIC BANKING.....................................................................................17
2.2 EMPIRICAL REVIEW......................................................................................................18
2.2.1 EMPIRICAL STUDIES OUTSIDE ETHIOPIA........................................................19
2.2.2 EMPIRICAL REVIEWS IN ETHIOPIA....................................................................20
2.3 KNOWLEDGE GAP..........................................................................................................21
2.4 CONCEPTUAL FRAMEWORK.......................................................................................21
CHAPTER THREE RESEARCH.................................................................................................23
METHDOLOGY...........................................................................................................................23
3.1 DESCRIPTION OF THE STUDY AREA......................................................................23
3.2 RESEARCH DESIGN....................................................................................................23
3.3 RESEARCH APPROACH.............................................................................................23
3.4 DATA TYPE AND DATA SOURCE............................................................................24
3.5 POPULATION AND SAMPLE SIZE............................................................................24
3.5.1 SAMPLE SIZE........................................................................................................24
3.5.2 SAMPLING TECHNIQUE.....................................................................................24
3.6 VARIABLE MEASUREMENT AND INSTRUMENT.................................................25
3.6.1 DEPENDENT VARIABLES..................................................................................25
3.6.2 INDEPENDENT VARIABLES..............................................................................25
3.7 METHOD OF DATA ANALYSIS.................................................................................26
3.8 ETHICAL CONSIDERATIONS....................................................................................27
REFERENCE................................................................................................................................28
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ABSTRACT
This study is entitled as” the determinants of deposit growth in private commercial banks of
Ethiopia.” The main objective of this study is to examine the determinants of deposit growth
in private commercial banks of Ethiopia. The research particularly aims to examine and
identify important factors that influence private commercial banks deposit growth and
examine to what extent the factors determine bank deposit growth. The study will be carried
out through explanatory research design and Quantitative research approach will used. The
target populations were all private commercial banks operating in Ethiopia. Accordingly,
nine private commercial banks were purposively selected for this study. The panel dataset for
the study used consisted annual data spanning from 2010 to 2020. The researcher will collect
quantitative types of data through secondary data source and the Data will collect from
secondary sources; secondary data will collect from annual reports. The researchers used
purposive sampling technique method to answer research questions, and analyzing the
collected data through descriptive and inferential statistics and also the study employs the
regression model of ordinary least square methods.
Key words: bank Deposit growth, Determinants, growth, Private bank
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SYMBOLS AND ABBREVIATIONS
AB - Abay Bank
AIB - Awash international Bank
ATM- Automatic Teller Machine
BOA-Bank of Abyssinia
CBE –Commercial Banks
DB- Dashen bank
E-BANKING-Electronic Banking
GDP- Gross Domestic Product
ICT- Information and Communication Technologies
LIB-Lion international bank
NBE-National Bank of Ethiopia
NIB- Nib international bank
OIB- Oromia international bank
OLS-Ordinary Least Square
POS-Point of Sale
UB -United bank
v
WB-Wegagen bank
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY

Banks immensely make a contribution to monetary growth via their intermediating feature of
linking surplus and deficit fund sectors. The developing variety of banks through the years has
ended in banking area performance and competition. This has caused an increase in banks’
profits. One of the important thing activities of banks contributing to their performance is deposit
mobilization. In emerging markets, deposits are centered on financial institution operations. Most
companies closely motel to financial institution loans as a supply of financing, and deposits in
large part dictate how plenty budgets are to be had for lending sports. Hence, the position of
deposits can't be overemphasized. For banks to correctly mobilize deposits, it's far vital to
perceive the important thing elements affecting them. Thus, this observation seeks to look at the
determinants of financial institution deposits in the case of Turkey (Ünvan and Yakubu, 2020).
Commercial banks are financial institutions that provide financial services to those in need
Serve. Therefore, in order for commercial banks to make loans, they must have deposits in their
vaults. They move funds from those who are not using it effectively to those who are productive
efforts. Deposits are one of the resources that commercial banks actively use Mobilize the most
liquid funds in bank vaults Borrow from funds in need. Mobilizing deposits is the main activity
of commercial banks. Of course, the banking system is funded by people's deposits. Therefore,
the survival of any commercial bank is largely dependent on deposits. Weak growth in
commercial bank deposits means that loans to eligible members cannot be paid on demand and
cannot be cashed Operating expenses, inability to pay debts, board instability due to frequent
reshuffles such as disgruntled members voting out officials, members resigning to become
competitors, Therefore, deposit control is crucial for commercial banks for Competitive and
attractive overall (Tesfahunegn,2015).
Commercial Banks have an essential role in economic development through intermediation and
reallocation of the surplus fund to the deficit sectors. They function through the facilitation of
Determinants of deposit growth of private commercial banks in Ethiopia Page 1

accepting deposits and disbursing a loan enabling the economy to meet the ever-increasing
demand for credit. In countries like Ethiopia, in which the banking industry dominates the
economic sector, the bank's successful and efficient operation performs an important function in
catalyzing financial development. The economic resources of banking systems are commonly
provided through consumer deposits. Low stage of deposit increase in commercial banks results
in the lack of ability to disburse loans, unable to cover operation costs, to pay debts, unstable
board of directors due to frequent reshuffle as disgruntled participants vote officials out, quitting
of members to competitors. In today’s world, the concern of bank resource (deposit) has to
become one of the most essential and important in the area of business due to the greater
ineffectiveness of lots of commercial banks in the world in terms of their operation and its
unfortunate impact on their performance. Lack of sufficient deposits in banks ‘treasury or
incapacity to pay operational expenses and not being able to satisfy customers led to a failure for
the banking industry before, during, and after the economic crisis of 2007-2009 all around the
world. In Ethiopia, there are increasing growths of both public and private investment in the area
of different sectors. So, the bank plays the intermediation functions in the efficient allocation of
those resources to the demanding sector (Legesse, 2021).
Deposit mobilization is the most crucial feature of commercial banks due to the fact their
successful functioning relies upon at the number of finances mobilized. The authorities have
directed banks sometimes to make all viable efforts to mobilize new deposits that can only
expedite the pace of lending activities through banks from the excess units to deficit units in the
development of the financial system. From historic perspectives, commercial banks are the
maximum crucial savings, mobilization, and economically useful resource allocation institutions.
In appearing those roles, banks are predicted to have the ability scope and prospects for
mobilizing economic sources and allocating them to productive investments, consequently
lending, that is underscored through bank deposit determinants on this study, represent the main
source of the introduction of deposits to fulfill the growing needs of the financial system In the
light of the above, therefore, this paper seeks to study the macroeconomic determinants of bank
deposits in the context of banks’ lending behaviors as influenced through the lending policy of
commercial banks in Nigeria(Eriemo, 2014).

Bank Deposits are the heart of financial institutions. Financial systems have been recognized to
play an important role in economic development. One of such important factors in financial
systems that are account for growth in a country’s economy growth is bank deposits. Financial
institutions such as banks put to rights wishes of small savers for high liquidity and low risk with
the needs of investors through reconciliation by taking the deposit. Deposits are subject to
numerous conditions; arguably, the most important and observable one is the rate of the bank
plays over the amount of savings. Bank deposits are important for both developed and
developing countries such that it helps depositors to earn on their own funds which they have no
immediate use for. The banks also create a platform through channel such funds to businesses
and individuals who have urgent use of such funds. The total volumes of Bank deposits
distribution among each bank and other financial sectors such as insurance are normally
determined by market forces. What basically the customers of banks to deposit money in banks
in Ghana is the pillars of this research. However, much interest to our research is the area
whether interest rate liberalization is a determinant factor of bank deposits growth compared to
other empirically identified areas of interest by other researchers as reviewed in the study. The
study’s principal objective is to determine the volatility of interest rate liberalization and gross
domestic product on Banks Deposit (Eric and Yao Li, 2015).
The awareness of the society about the private commercial banking service is affecting the total
deposit of the commercial banks in Ethiopia. It implies that as people become more
knowledgeable about banking and banking services, they develop confidence in banking
institutions, their employees, sense of security in bank deposits, and this leads to the society to
come to its income to deposit in the private commercial banks. So the commercial bank's deposit
is increased gradually (Teshome, 2017).
Generally, the problem of business banks’ deposit increase and its determinants are important to
the economic zone of growing nations like Ethiopia. Thus, this examination permits banks and
regulators to maintain manipulation of the problem of deposit increase which may be very
essential to the safety in their operation in addition to the financial system as an entire within the
country. Therefore, this study aimed to empirically study the commercial bank's particular
determinants of deposit increase of Ethiopian private commercial banks.

1.2 STATEMENT OF THE PROBLEM
Bank deposit is the main component of the banking system in every economy. Identifying the
key factors affecting deposits is essential for banks to formulate workable policies and strategies
to mobilize deposits (uneven and Yakubu, 2020). In any country, commercial banks play a vital
role in the economy through mobilizing financial resources to finance the priorities of the
economy. In the context of Ethiopia, the amount of deposit mobilized is not sufficient to meet the
number of funds the economy requires (Ayen, 2020). Banks are one of the main financial
institutions among all other financial intermediaries. Some borrowers are said to be bank-
dependent instead of being dependent on another financial intermediary. Banks are the financial
institutions that are operating for providing external sources for small and medium-sized firms.
Furthermore, the major function of banks is collecting deposits from surplus units and lending to
deficit units that need financing. By ensuring larger-sized and longer-term financing needs of
borrowers with collecting small-sized and short-term deposits banks perform size, maturity, and
risk transformation (Mohamed, 2016). According to Teshome (2017) banks Deposits play the
most important role in the banking system, whether cooperative or commercial. Deposits offer
limits to the operating capital of the financial institution concerned. The higher the deposit, the
better may be the funds on the disposal of a bank to lend and earn profits. Banks Deposit is the
main component of a bank’s fund. The existence of commercial banks is totally impossible in the
absence of deposits. Thus, every bank expects that deposits will be sufficient, safe and the flow
of deposits will remain smooth. Changes and different mixtures in economic and commercial
activities make deposit management a challenge to the bank managers (Terefe, 2019). One of the
bank resources are mobilized deposit this mobilized deposit facilitate for various country level as
well as individual level investment at most the chine is very high. Ethiopian commercial banks
have a great role to support financial gaps of the all business and Government project but it is not
sufficient to fill those gaps. This problem is arises from very low level of deposit in commercial
banks (Gebre, 2019).
According to simegnew(2020), inflation had a positive and statistically significant effect on the
deposit growth of private commercial banks, and also exchange rate was found to have a positive
and insignificant effect on the deposit growth of private commercial banks in Ethiopia.
Simegnew (2020), Bargicho (2015),Terefe (2019) andGebre (2019) found that Inflation had
positive and statistically significant effect on deposit growth of private commercial banks while

Tesfahunegn (2015),)Abera (2019) and Teshome (2017), found that inflation had negative and
significant effect on deposit growth of Commercial Bank of Ethiopia.Tefera(2020) also revealed
that there is an insignificant relationship between inflation and deposit growth rate.
Inflation was one of the macro-economic factors that affect deposit growth of private
commercial banks in Ethiopia.
Accourding to the studies of Simegnew (2020) and getachew (2017) Deposit interest rate had
positive and statistically significant affects on deposit growth of private commercial banks in
Ethiopia. While according to Teshome (2017) and Gebre(2019) there is no sufficient evidence to
support the positive relationship between deposit interest rate and deposit.
Exchange rate was found to have positive and insignificant effect on deposit growth of private
commercial banks in Ethiopia (Simegnew, 2020) and getachew(2017) but according to Terefe
(2019) exchange rate was found to have a positive effect on CBs‘deposit growth and the
relationship is significant. On the other hand, Tefera (2020) stated that the exchange rate was
also found to have a positive and significant effect on deposit growth.
The finding of Teshome(2017) and Terefe (2019) was Loan to deposit ratio has a positive effect
on deposits of Ethiopian commercial banks. That is there is no sufficient evidence to support the
negative relationship between loan to deposit ratio and commercial bank deposit. Whereas
Gebre(2019) also loan to deposit ratio was negative relationship and insignificant effect on
deposit growth.
According to Legese(2021) bank size has a positive and statistically significant effect on the
deposit growth of commercial banks in Ethiopia. This indicates that larger banks with economies
of scale and a larger branch network are more efficient in collecting deposit deposits than smaller
banks.Moreover, studies conducted on deposit growth in Ethiopian private commercial banks
such as (simegnew, 2020) did not include the effect of liquidity rate and bank size factor on
deposit growth. Thus, in this study, the researcher examines additional variable (bank size ) and
check for the existing variable (inflation, exchange rate, deposit interest rate) with the current
situation on Deposit Growth and full fill previous researchers' gap for determinant factors for
private commercial banks deposit growth. This is the fact that motivates the researcher to study
the factors that are related to determining factors of private commercial banks' deposit growth.

1.3 OBJECTIVE OF THE STUDY
1.3.1 GENERAL OBJECTIVE

The general objective of this study is to examine the determinants of deposit growth in private
commercial banks of Ethiopia.
1.3.1 SPECIFIC OBJECTIVES

1 To examine the effects of Deposit Interest Ratein private commercial banks deposit growth.
2 To examine the effect of Exchange rate on deposit growth of private commercial banks in
Ethiopia.
3 To examine the effect of inflation rate on deposit growth of private commercial banks in
Ethiopia.
4 To examine the effects of loan to deposit ratio on deposit growth of private commercial
banks in Ethiopia.
5 To examine the effect of bank size on deposit growth of private commercial banks in
Ethiopia.
1.4 RESEARCH HYPOTHESIS

This study will be examines the following hypothesis in their null form:
H01: Deposit interest rate has positive and significant impact on Ethiopian private commercial
Banks deposit growth.
H02: Exchange rate has negative and significant effect on Ethiopian private commercial Banks
deposit growth.
H03: inflation rate positive and significant effect on Ethiopian private commercial Banks deposit
growth.
H04: Bank’s liquidity has positive and significant impact on Ethiopian private commercial bank's
deposit growth.
H05: bank size has positive and significant effect on Ethiopian private commercial bank's deposit
growth.

1.3 SIGNIFICANCE OF THE STUDY
The studies paintings are anticipated to offer significance to the financial institutions and
different business banks and banker’s managers, coverage makers, and academicians. Besides,
the really well worth of the observation is specifically for banks and bankers. In addition, it’s
going to be a functioning supply of references for comparative studies in the future.
Consequently, the observation has the subsequent significance:
This research will assist business and other banks to increase their deposit simply to realize what
impacts it and which variable is the maximum critical in order to set due emphasis. Because it's
uncommon problem to observe associated with the issue. The investigation facilitates the sector
of finance and banking additionally it is going to be very critical reference material on the sector.
The observation will provide worth influence to the researcher approximately this unique subject
matter and standard information approximately any studies. Finally, it’s also intended to
facilitate the attempt of coverage makers to pop out with.
Furthermore, the observation will assist in enhancing the manner to folks who are fascinated to
adopt element studies at the equal move with inside the future.
1.4 SCOPE OF THE STUDY

This study was delimited to some internal and external determinants on private commercial
banks' deposit growth. This paper was conducted by using ten years of data only (from 2011/12-
2020/21) and also limited to only selected private commercial banks in Ethiopia. Those are
Awash Bank (AIB), Abay Bank (AB), Wogagen Bank (WB), Lion International Bank (LIB),
Hibret Bank (HB), Nib International Bank (NIB), Oromia Bank (OB), Dashen Bank (DB) And
Abyssinia Bank (BOA). Other commercial banks were not included in the study due to budget
and time constraints. Hence, the data was collected from those selected private commercial
banks in Ethiopia. The research is not include all private commercial banks and all factors which
affects the banks deposit growth of the private banks and also the banks was select purposively
based on establishment period and data availability.
1.5 STUDY LIMITATION

In conducted to the research work, the researcher encountered the following problems, the study
was limited to private commercial banks only not other commercial banks. The observation is

likewise constrained to private commercial banks in Ethiopia, not different public Banks in
Ethiopia. Only deposit increase became considered and credit score operations had been now no
longer undertaken.
1.6 ORGANIZATION OF THE PAPER

The research work consists of five chapters, are chapter one, containing the background of the
study, the background of the organization, statement of the problem, research objectives,
research questions, significance of the study, the scope of the study, limitation of the study, and
the organization of the second chapter examines relevant related literatures. The third chapter
focuses on research methodology. Chapter four provides data presentation and analysis and the
last chapter which is chapter five discuss the summary of the findings, conclusions, and
recommendation.

CHAPTER TWO
REVIEW OF RELATED LITRATURES
2.1 THEORETICAL REVIEW

This chapter mainly gives much attention to what has been said by different authors about the
matter discussed under this study there are some points investigated from different sources
regarding the determinants of banks deposit growth in order to give theoretical background.
2.1.1 THE ROLE OF BANKS IN FINANCIAL SYSTEM

Financial institutions are important role in the development process by transferring funds from
surplus units to deficit units within the economy. The cost of the operations is important to the
efficiency of the financial intermediation process. Financial markets are allocated efficiently
when they channel surplus funds to the most productive and profitable uses of the banks. They
further noted that the intermediation costs of transferring funds from investors to users are low
then; the markets are described as operationally efficient. Monetary intermediation costs refer to
the spread between the net costs of borrowing and the net returns on lending. In case the asset
fetched of data, travel, and time have generally low change or change in a way irrelevant to
intermediation costs, the spread between net borrowing costs and net lending returns vary with
the transaction costs of financial intermediaries (Teshome, 2017).
2.1.2 CONCEPTS OF DEPOSIT

Deposit is one of the essential resources commercial banks are vastly excited to mobilize as it is
the most liquid asset in the treasury of the bank needs to borrow to it is customers. Deposit
mobilization is the main essential activity of the banking sector. In keeping with financing
resources of banks are obviously provided from people’s deposits. The functions of commercial
banks in Ethiopia have clearly stated in Article 2 sub Article 2 of the Banking Business
Proclamation No 592/2000 essential work of the financial bank is tolerating stores from their
clients. The customer's deposit within the commercial banks is to be secure and to be free from
robbery and theft. Particularly, during this time people have developed a culture of saving, which

they utilize even ATM method to make commerce in any general store or the other markets
where such services are provided (Legesse, 2021). There are three types of deposits, Current
account deposits such deposits are payable on demand and are, therefore, called demand
deposits. These can be withdrawn by the depositors at any number of uptimes depending upon
the balance in the account. Fixed deposits of the bank have a fixed period of maturity and are
referred to as time deposits. These are deposits for a fixed term, i.e., a period of time ranging
from a few days to a few years. These are neither payable on demand nor do they enjoy cheque
facilities. Savings account deposits are deposits and their main objective is to save. The savings
account is the most importantly suitable for individual households. Bank Deposits are the
foundation upon which Banks thrive and grow their deposit. They are a unique item on a banks’
balance sheet that separates them from other types of business organizations.
2.1.3 BANK DEPOSIT

A bank deposit is a sum of money held at a financial institution on behalf of an account holder
for safekeeping; most bank deposits are insured through companies to reduce their risk. Bank
deposits are made to deposit money owed at a banking organization, together with savings
accounts, checking accounts, and money market accounts. The account holder has the proper to
withdraw any deposited budget, as set forth in the terms and situations of the account. The
deposit itself is a liability owed through the bank to the depositor (the individual or entity that
made the deposit) and refers to this as a liability instead of to the actual funds which are
deposited (mishauri, 2012).
2.1.4 COMMERCIAL BANK DEPOSIT

Commercial Banks deposits are depending on depositors' money as a source of finances.
According to the Keynesian idea of demand cash, there are three important reasons why human
beings maintain money: transactions, precautionary, and funding motives. In order to cater to
those reasons, commercial banks provide three classes of deposit facilities which can be demand,
financial savings, and time deposits. The demand deposit facility is most generally known as a
current account and is designed for individuals who want money for transaction purposes. This
cause may be checked out from the point of view of customers who need earnings to satisfy their
household expenditure and from the point of view of businessmen who require money and need
to maintain it in order to perform their business activities. Hence, the motive of a deposit facility

is for convenience or for making everyday commitments (Shemsu, 2015). Bank deposits
represent the greatest components of the money delivery utilized by the public, and
modifications in money increase are particularly correlated with changes in the prices of
products and offerings in the economy. Bank deposits are made to deposit accounts at a banking
institution, which includes financial savings accounts, checking accounts, time deposit accounts,
and different accounts. The account holder has the proper to withdraw any deposited funds, as
set forth in the phrases and conditions of the account. The "deposit" itself is a liability owed
through the bank to the depositor (the person or entity that made the deposit) and refers to this
liability as opposed to the actual funds which are deposited (Asnake, 2019). Deposits are the
main provider upon which banks thrive and grow. They are specific objects on a bank's balance
sheet that distinguish them from different forms of business organizations. The capacity of a
bank's control and body of workers to attract checking and savings accounts from organizations
and people is a critical measure of the bank's recognition via way of means of the public.
Deposits offer a maximum of the uncooked materials for bank loans and thus constitute the
ultimate source of bank income and boom (Mahindra, 2005). Important indicators of
management effectiveness in any bank are whether or not or not deposited funds were raised at
the bottom possible cost and whether sufficient deposits are available to fund those loans the
bank needs to make. This final point highlights the two key problems that each bank need to
address in managing its deposits: (i) in which can the bank enhance funds at the lowest possible
cost, (ii) how can management ensure that the bank constantly has enough deposits to help the
number of loans and other economic services demanded through the public. There are three
kinds of deposits, particularly saving, demand the deposit, and time period or fixed time deposit
accounts services. All those deposit accounts are provided through all of the commercial banks
of Ethiopia. Although the types of the three deposits and the way they're being opened and used
differ, they're all established to mobilize deposits to the banks. The definitions of the three
deposit types are stated as follows. Savings AccountsA savings bank account is supposed for
the people of the decrease and middle classes who wish to save part of their current incomes to
fulfill their future wishes and also intend to earn a profit from their savings. The banks, therefore,
impose certain restrictions on the savings bank account and additionally provide a reasonable
rate of interest; the need of maintaining cash reserves against such deposits is relatively large
than the constant deposits however smaller as towards the current deposits due to the regulations

at the variety of withdrawals. Demand or Current Accounts current Account is a running and
active account, which can be operated upon any variety of times during a running day generally
through the usage of cheques. There is no restriction on the variety and the variety of
withdrawals from a current account. Current accounts suit the requirements of massive
businessmen, joint-stock companies, institutions, public authorities, public corporations, etc.,
whose banking transactions occur to be countable on each working day. Time or Term Deposit
Accounts In this category has covered the deposits with the bank for a fixed period that is
particular on the time of making the deposit. Such deposits are, therefore, known as Fixed
Deposits or Term Deposits. A Fixed Deposit is repayable on the expiry of a particular period,
selected through the depositor to fit his motive and to enable him to get returned the money as
and when he needs it (Hailemariam&Teshome, 2017).
2.3.2 Types of Deposit

A savings account is a bank account that allows you to deposit and withdraw money from your
account holder, current account or any other bank account. These transactions are recorded in a
bank account and the balance is calculated by the bank and represents the customer's debt to the
customer. Some banks may charge a fee for the service, while others may charge interest on the
deposit. The following are some common types of bank deposits. Interest bond deposit includes
money that can be withdrawn from the deposit at any time without prior notice. Interest deposits
can be claimed by the accountant at any time. Today, many checking accounts are interest-free
and can be accessed through various banking options such as Teller, ATM, and Online Banking.
Savings Deposit: A deposit that is a major guarantee at a bank or other financial institution. As a
special type of savings account, the account holder may not be able to write checks from the
account (at no extra charge or expense) and the account may have some free
transfers/transactions. Cash deposit: Deposit time or deposit certificate (CD) has been held for
some time, recognizing that the depositor can withdraw money only by giving notice. Bonds are
interest-bearing bank deposits with a certain maturity date. In general, the longer the term, the
better the products (Dereje, 2017).
2.1.5 THE PURPOSE OF COMMERCIAL BANK DEPOSIT

Banks are part of the mechanism of capital formation, for they accumulate the savings of the
community and area them in long-time period investments. In the exercising of this

characteristic, however, banks aren't the only or most important agency. Their leader and
particular characteristic is the creation of deposits via the extension of credit score, both inside
the form of loans or of investments. This is the most important specific obligation of banks from
the economic factor of view due to the fact deposits are the country's fundamental medium of
exchange. Financial intermediation essentially entails deposit mobilization from the excess units
of a financial system and channeling the funds as loans and advances to the deficit units of the
financial system thus, allowing for efficient allocation of economic resources in the economic
system. For the banking sector to remain profitable argues that banks need to effectively
mobilize extra deposits to allow them to provide extra loans and advances. This approaches that
there exists an association between deposits mobilization and bank lending. Furthermore, the
capacity of banks to perform this feature successfully has implications for their profitability. The
finance literature moreover gives some other strand of argument in the guide of the view that
countries with efficient economic systems develop faster, at the same time as inefficient
economic systems stand the perils of bank screw-ups and lag behind in financial growth and
development. The authors in addition examine that the performance of a monetary gadget is
decided via way of means of the cost and speed with which deposits are mobilized and credit
centers extended to customers (Richard and Gladys, 2014).
2.1.6 THEORIES OF SAVING DEPOSIT
2.1.6.1 THE CLASSICAL THEORY OF INTEREST

The classical theory of interest rate is related to the names of David Ricardo, Marshall, A.C.
Pigou, Cassels, Walras, Taussig, and Knight. This theory is also referred to as the actual theory
of interest rate due to the fact in the determination of interest rate only real elements like
productivity and thrift are considered and economic factors aren't given any importance.
According to the classical theory, the rate of interest rate is determined through the intersection
of demand money and deliver of money. Interest is the prices of investment due to the fact firms
borrow money for funding. Thus, households keep their money to earn an interest rate.
According to this principle, High-hobby price ends in high savings and a low-interest rate leads
to low savings. Thus, saving is directly (or positively) associated with the interest rate. Firms’
demand for investment is fulfilled through households’ savings. Thus, the interest rate in the
market of the product is determined by the factor where both component of saving and demand

funding crosses every other or intersect every different. In classical principle, saving is a growing
function of the price of an interest, which may be written as S (r).
2.1.5.2 NEO-CLASSICAL GROWTH THEORY

Theoretically, there's controversy on the connection between inflation and saving. Mundell
(1963) and Tobin (1965) have fruitfully defined the impact of inflation on financial growth and
saving based on Neo-Classical Growth Theory. They agree with the extended nominal interest
due to inflation will make people prefer to save and invest instead of consuming. This will result
in improved capital accumulation which will stimulate savings and economic growth. Mundell
(1963) and Tobin (1965) depict an advantageous relationship between inflation and saving.
Contrary to the conclusion of the Mundell-Tobin Effect, Stockman (1981) develops a long-run
equilibrium growth model with the idea of “cash-in-improve constraint”. In the model of
Mundell (1963) and Tobin (1965), real money balances and investment are substitutions. But in
the model of Stockman (1981), the two variables’ dating is complemented; there is a negative
relationship between the steady-state level of output and the inflation rate. Stockman’s insight is
prompted by the fact that firms put up a few coins in financing their investment projects.
Sometimes the coins are directly a part of the financing package, whereas, at different times,
banks require compensating balances. Stockman fashions this cash investment as a coins-in-
improve restrict on both consumption and capital purchase. Since inflation erodes the purchasing
power of money balances, people reduce their purchases of both coin items and capital while the
inflation rate rises. Correspondingly the steady-country level of output falls in reaction to a boom
in the inflation price (Malla, 1997). If the earnings aren't indexed, unanticipated inflation will
motivate unanticipated cuts with inside the real income and therefore reduced the saving rates.
Also, excessive inflation can grow the opportunity value of conserving cash and boom the
rewards for the quest sports in shopping wasting real resources and thereby decreasing savings
(Miller and Benjamin, 2008). As towards this, another theory proposes that if the actual earnings
are correctly anticipated both through indexation or wage inflation, unanticipated inflation will
grow the saving rate. Inflation is a good proxy for macroeconomic uncertainty. Higher
uncertainty/higher inflation induces people to save a bigger portion of their money for
precautionary motives.

2.1.5.3 LIFE-CYCLE HYPOTHESIS THEORY
Ando and Modigliani (1963) postulate the life-cycle hypothesis of consumption of a person in a
certain period of time. The life-cycle hypothesis has been applied significantly to study the
savings and retirement conduct of older persons. This hypothesis starts with the observation that
consumption wishes and earnings are regularly unequal at various factors in the life cycle.
Younger humans generally tend to have consumption desires that exceed their income. Their
needs have a tendency to be especially for housing and education, and consequently, they've little
savings. In middle age, profits typically rise, enabling money owed collected earlier in life to be
paid off and financial savings to be accumulated. Finally, in retirement, earnings decline, and
individuals consume out of previously accrued savings. This model indicates that in the early
years of a persons’ lifestyle they're internet borrowers. In the middle years, they save to repay the
debts and offer for retirement. The life cycle model predicts that a better interest rate will
increase the current rate of consumption Vis-a-vis the future price, as a result, leading to a boom
in savings. According to Tochukwu, Nwachukwu, and Peter (2009), the life–cycle speculation
theory is a greater focus on what occurs in developed economies but has very little regard for the
peculiarities of developing countries. So, it needs to be modeled one at a time from that during
evolved economies due to the fact Households in developing countries tend to be large than the
ones in developed ones, and there's a greater tendency for numerous generations to stay together.
Such a household has no need for retirement savings due to the fact sources is shared among
people and dependents, and ownership is exceeded from parents to children. This form of the
household can internalize a number of the coverage sports that might in any other case require
saving.
2.1.6 DETERMINANTS DEPOSIT GROWTH OF COMMERCIAL BANKS

Several variables affect the growth of deposits in commercial banks. The variables which can be
stated to have an impact on commercial bank deposits are divided into class’s exogenous and
endogenous factors the previous aspect is further divided into country-particular factors and bank
particular factors that the bank has no managed over while the latter is an internal element of the
bank has to manage over (Legesse, 2021).
LOAN TO DEPOSIT RATIO

LDR can be converted to cash quickly without loss to meet the relative value of cash or short-
term debt. Fluid encompasses three components: market capability, stability, and consensus.
Liquid assets should be more commercially available or transferable. Accordingly, common
stocks are readily available for the market but are not considered high liquid assets. This is
because in some cases the current prices are lower than the original or the price. With those
characteristics in mind, the individuals and organizations decide to hold money as the only
absolute liquidity of the bank. As a result, bank deposits and short-term securities are more liquid
than equitable investments such as joint-stock and real estate. Mohammed and Amir (2013)
Identify the main issues of Pakistan's bank accounts The study examines the cash flow of
commercial banks in Pakistan in bank-oriented and macroeconomic issues. The sample
comprises 26 Pakistani commercial banks. Bank balance is measured in two ways; One is the
cash and cash equivalents of total assets (L) and the other is the advance net supply for assets
(L2). Based on these fluid volume measurements, two models are estimated. The results of
Model 1 (L) indicate that bank-based foundations (NPL and TOA) and monetary policy interest
rates determine the growth of private commercial banks in Ethiopia. The amount of bank money
measured will have a negative and significant impact on the financial crisis. The results of Model
2 (L2) show that the size of the bank and the monetary policy interest rate are positively
determined by the amount of money and the amount of money in the bank. The first is related to
liquid financial markets and financial instruments, smooth transactions, and no obstacles.
According to ISMAL, RIFKI, (2010), banks are later obligated to pay third parties (Fiedler,
2000: 442). Some examples of this include setting up liquid liquidation management policies,
accounting, and balancing the required liquid volume for a deposit ratio. (Devinga, 2010)The
higher the deposit ratio, the lower the amount of money and vice versa .because the ratio of
deposits is the opposite of liquidity (Devinga, 2010). Loans such as Central Bank Credit,
Financial Deposits, and Deposits are essential for open market operations and liquid
management (Sheku, 2005). Bank account management involves obtaining sufficient liquid
assets to meet the Bank's obligations to depositors (Voon-Chong et al, 2010). According to
Dorothy and Andrea (2009), it is more profitable for deposit accounts to hold liquid assets, such
as Interbank's medium-term loans to other lenders. According to the concepts of financial
mediation, the two main reasons for the existence of financial institutions, especially banks, are
the provision of liquid and financial services (ISMAL, RIFKI, 2010). According to Ismail,

RIFKI, 2010, in terms of accounting, banks receive money from depositors by expanding funds
into the real sector, providing liquidity for any deposit, converting short-term deposits into long-
term, making banks vulnerable to liquid risks (Bank for International Settlements (BIS). , 2008
for arrest 1). Individuals, businesses, and governments will be willing to deposit their money into
banks if they make sure they do not withdraw their money at any time, this is a question of bank
flow. Many liquid banks can attract deposits. A higher level of financial intermediate (loan-to-
asset ratio peroxide) may indicate that the bank has been successful in generating revenue and
that additional deposits will be needed to support increased credit activity (Herald and Heiko,
2009). High liquid reserves (measured by liquid asset ratios and deposits) support deposit
demand (Herald and Heco, 2009). Liquid banks, as well as high-risk banks, are associated with
higher deposit growth. Herald and Heiko (2009) point out that the bank's exchange rate plays an
important role in determining bank growth. According to Nada (2010), banks that are considered
to be at risk should have had more difficulty withdrawing and lending than they thought were
safe. When banks fail to pay their deposits, there is an immediate risk that other depositors will
not be able to deposit in that bank.
2.1.6.2 INFLATION
Inflation is defined as an increase in prices accompanied by a decrease in the value of money.
Inflation can have an effect on saving for a variety of reasons. It could be the result of an
excessive amount of money being injected into the market, whether through the authority's
issuance of bonds or through commercial banks’ lending. Another reason may be the significant
growth in the market's combination demand cash; however, the market's aggregate delivery is
underperforming. Greater uncertainty theory postulates the risk of saving growth since customers
deposit their money to hedge against in all likelihood adverse changes in income and other
circumstances. As an end result, change-averse people can also additionally raise their
precautionary financial savings while inflation increases uncertainty approximately destiny
earnings boom. Second, in an inflationary situation, financial savings can also additionally grow
if clients misread a growth withinside the common fee stage for growth in particular relative
prices and chorus from purchasing. Inflation's effect on real wealth can also have an impact on
saving. If consumers try to keep their wealth or liquid assets at a certain level, they will fail. In
order to spice up deposits and boost self-sufficiency, banks must examine depositor behavior

during periods of inflation. Inflation refers to a persistent surge in the general price level over a
defined period of time. As a result of a prolonged rise in prices, the market value of money
(purchasing power) falls. The real value of money decreases, benefiting debtors while harming
creditors (Legesse, 2021). According to yitayew (2021) and Ayen(2020) found that inflation has
a negative significant effect on deposit growth. Whereas, (simegnew, 2020) revealed that
inflation had a positive and statistically significant effect on deposit growth of private
commercial banks. Additionally, teshome(2017) found that the Inflation Rate had a positive and
significant effect on the deposit growth of private commercial banks in Ethiopia.
2.1.6.3 EXCHANGE RATE

Exchange rates are quoted as foreign currency per unit of domestic currency or domestic
currency per unit of foreign currency (Bishop, 2006). The exchange rate allows denominating the
cost or price of goods or services in a common currency. For the main net importing country like
Ethiopia, the variability of the exchange rate of the local Ethiopia money (Birr) to overseas
currency values is enormous. As the exchange rate of Birr to USD ratio grows, local deposits
will expend in the technique of importing items and services. This way because the country does
through away greater imports than exports and the exchange rate of Birr to USD grows, then
local deposits in banks will reduce showing that there's an inverse relationship. There also are
cases in which it shows the alternative trend through growing the overseas direct inflows.
However, the study through Ngula (2012), on the ‘Determinants of deposit mobilization and its
role in economic growth in Ghana has established that a deterioration in the Ghanaian forex with
appreciate to the United States currency resulting in better deposit mobilization. According to
Ngula (2012) as currencies depreciated in one country, the deposit will be reduced since buyers
tend to withdraw the deposit to keep it by appreciating currency (Hard currency) or investing in
another form of investment rather than a bank deposit. Geda (2015) also confirms that for a
developing country in general saving is negatively correlated with the unstable exchange rate.
2.1.6.7 Deposit Interest Rate
The main focus of each financial system is financial intermediation, which aims to facilitate
trade and economic development in line with the country's monetary and fiscal policy of
mobilizing financial resources from profit-making and lending. The supply of money is the
productivity of capital that is expected by time choices and capital demand. Farmers (2017)

&Abera (2019) argue that for the average developing country, the net impact of real interest rates
could have a positive impact on savings. in the case of stocks and bonds, where there is no strong
market and also the balance of money and financial assets in the developing world are relatively
large compared to that in developed countries. Commercial bank deposits are interest-rate, so
when interest rates change, commercial banks' deposits change.
The attraction to forgetting the deposit from the surplus sector is interest payment, which must be
reasonable and acceptable to the owner of the money. The Interest Rate Demand Deposit
Definition 16 in Ethiopia's private commercial banks states that interest rates are measured by
traders and households, respectively. The supply of money is the productivity of capital that is
expected by time choices and capital demand. McKinon (1973) and Shaw (1973) argue that for a
typical developing country, the impact of real interest rates on savings could have a positive
effect on savings. Because in stocks and bonds, where there is no strong market, the balance of
money and financial assets in the developing world are relatively large compared to that in
developed countries.
2.2.7. Bank Size

One of the most notable elements that have been found as affecting deposit variability is bank
size. Evidence suggests that the number and variety of ownership of individual deposit accounts
vary with bank size, as does the distribution of deposits by type. Discover that, even when other
variables are adjusted for, bank size has an impact on deposits. Smaller banks must create fewer
deposits in absolute terms to achieve the same level of deposit growth as larger banks, perhaps
benefiting smaller banks in this regard. However, a larger bank with economies of scale as well
as a larger branch network may be better positioned to attract deposits (Kaufman, 1972).
Herald &Heiko, 2008), found that although insignificant once controlled by other variables bank
size has an effect on deposits. Smaller size banks have to generate fewer deposits in absolute
terms to achieve the same deposit growth as large size banks, thus possibly favoring smaller
banks in achieving higher deposit growth. But a larger bank with economies of scale as well as a
larger branch network might be able to better attract deposits (Herald &Heiko, 2008). According
to Legass(2021)Bank size has a positive but insignificant relationship with deposit growth of
commercial banks. Herald and Heiko, (2009) found that although insignificant once controlled
by other variables bank size have an effect on deposits.

2.2 EMPIRICAL REVIEW
This section explains the relevant empirical review of related to deposit growth and the
determinants of deposit growth in public and private commercial banks. A bank deposit is
money placed into a banking institution for safekeeping, to earn risk-free income in the form of
interest, or to keep for future use.
2.2.1 EMPIRICAL STUDIES OUTSIDE ETHIOPIA

The determinants of commercial banks deposit in Malaysia applying the co integration analytical
technique. Unvan and Yakubu (2020) revealed-the result suggests that bank deposit is positively
influenced by GDP, money supply, interest rates, and bank profitability and return on deposit
and inflation rate have a negative influence on bank deposit . According to Femi, Nwankwoand
James(2021)reveals among others that there exist a significant and negative relationship amongst
demand, savings and time deposit with inflation in Nigeria, and that interest rate impacted
significantly and positively on saving and time deposit and also The effect of advertising and
publicity was found to be positive and insignificant. The Fixed-effect model results show that
bank branch, exchange rate, loan and advances and nominal gross domestic product have
significant positive effect on commercial banks’ deposit growth ((Unvan and Yakubu, 2020)).
According to Abera (2019) inflation and money supply found to have significant negative effect
on bank deposit growth. The dependent variable was proxy as commercial banks’ deposit growth
while explanatory variables include advertising and publicity, bank branches, exchange rate,
inflation rate, loan and advances, money supply and nominal gross domestic product. Different
diagnostic tests namely test for zero mean of error terms, homoscedasticity, no autocorrelation;
nomulti-co linearity and normality were conducted to check the appropriateness of the
model.Yakubu and Abokor (2020) revealed that to examine the key factors determining bank
deposit growth in Turkey for the period 2000–2016. Yakubu and Abokor(2020) study employs
the auto regressive distributed lag approach to investigate the effect of bank-level and
macroeconomic factors on deposit growth and The researchers additionally reveal that bank
stability, banking sector efficiency; wide money supply, economic growth, and inflation are
good-sized determinants of deposit growth in the long run. The findings further show that in the
short run, only branch expansion and broad money supply are relevant for bank deposit
mobilization (Yakubu and Abokor, 2020)). Additionally assess the drivers of bank deposits in
Ghana for the period 2008–2017 by applying Random effect and Controlling for macroeconomic

factors that results show that profitability, bank size, and liquidity are significant determinants of
bank deposit. Macroeconomic instability proxy by inflation also exerts a negative significant
impact on bank deposit. According to Ali and Wafik (2019) Revealed that inflation and growth
of money supply have significant negative short term impact on the bank deposits in Ghana. the
study reveal that an increase in banks’ capital adequacy level does not essentially translate into
deposit.
Electronic banking system as the technological innovative service delivery system that offers
varieties of financial services like cash deposit payment of utility, cash transfer, cash withdrawal,
cash borrowing, cheque and pass book request, account statement request and other necessary
financial enquiries (Akujor& Mbah,2020).
2.2.2 EMPIRICAL REVIEWS IN ETHIOPIA

Tefera(2020) studied that there is also an insignificant relationship between inflation and deposit
growth rate and advertising had positive and significant effect on banks deposit rate; Advertising
had a positive and significant effect on deposit growth, implying that indicating that as the
private banks spend increase their advertising expenditure of the deposit growth respond
positively; the more private banks invest on advertising the more will the deposit of the private
banks. The other significant variable was number of branches; this variable had positive and
significant effect on deposit growth; branch opening is an important strategy for deposit
mobilization, it is highly significant than others. Tenaw (2020) shows that inflation had positive
and statistically significant effect on deposit growth of private commercial banks. However,
different studies showed varying results regarding the directional relationship between inflation
and deposit growth. In many literatures, the effect of inflation was not clearly defined but in this
study the relationship between deposit growth and inflation found to have positive and
significant. Abera (2019) also shows that inflation rate has significant negative effect on bank
deposit growth. Higher inflation induces savers to save less. One of the major causes for increase
in inflation is inflation expectation by the people. If inflation is expected to increase in the future
people (depositors) tend to invest their money on commodities than keep it in bank.
Legesse (2021) conducts to examine the effects of bank specific variables on deposit growth of
commercial banks and to examine the impact of macro-economic variables on deposit growth of
commercial banks. The study shows inflation, GDP and deposit interest rate was found to have a

positive relationship with bank deposit growth although the weight on deposit growth is
insignificant and branch opening has positive correlation with deposit mobilization and deposit
progress in connection with increasing number of customer.
2.3 KNOWLEDGE GAP

The empirical literature on the determinants deposit growth studied in country level and outside
in Ethiopian. Some researchers especially in Ethiopia focus on commercial bank of Ethiopia in
the case of public and private bank. Abera (2019) studied that the determinants of private
commercial banks deposit growth in Ethiopia. Shemsu (2015) study on Determinants of private
commercial banks deposits. Tenaw (2020) Empirical examine determinants of deposit growth in
private commercial banks of Ethiopia using panel data of six private commercial banks from
year 2009/10 to 2018/19. Teshome(2017) stated Deposit is one of the important functions of
banking business and an important source of working fund for the bank. Tefera(2020) study on
Deposit growth is an indispensable factor to increase the sources of the banks to serve effectively
and efficiently. The banks deposit plays an important role in providing any service to different
sectors of the economy. The success of the banking sector is based on the Performances of the
bank’s deposits, as the deposits are normally considered as a cost effective source of working
fund. As it was discussed in the literature review part, Most of study undertaken in our country
related to the topic of determinate of deposit growth focus on a separately treating the total
deposit amount to the private commercial banks and some factors that are reviewed by different
researchers indifferent research techniques also showed different effect on Bank deposit
(tenaw,2020). Thus, the inconsistency finding among researchers, the sample size is limited by
some private bank and little attention given by researcher on the determinate of deposit growth in
private commercial banks of Ethiopia as well as macroeconomic policy difference from country
to country, motivated the researcher to undertake a research in this particular area by adding new
additional variables (bank size) to fill these gap. This study also wants to examine the effect of
bank size on deposit growth of commercial banks in Ethiopia.
2.4 CONCEPTUAL FRAMEWORK

According to Mugenda (2005), a conceptual framework helps the reader to quickly understand
the proposed relationships between variables in the study. Below conceptual framework on

factors affecting deposit growth of private commercial banks in Ethiopian has been discussed.
The variables are referred to as the building blocks of theory. The conceptual framework
comprises of five independent variables which the researcher thinks had an effect on deposit
growth.
Fig.2.1 conceptual framework
Inflation
Deposit Exchange
interst rate Rate
Deposit
Growth
loan to
deposit bank size
ratio
Source: Developed By the Researcher

CHAPTER THREE RESEARCH
METHDOLOGY
This chapter examines the research design, research approach, sampling size and technique, type
of data, methods of data collection, method of data analysis, measurements of the variables, and
ethical considerations. Generally, it provides all procedures employed in determining the
determinant factors of deposit growth of private commercial banks in Ethiopia.
3.1 DESCRIPTION OF THE STUDY AREA

The area of this study is conducted in Ethiopia by determining the factors of deposit growth of
selected private commercial banks in Ethiopia. The study presents the research methodology that
was used to obtain secondary quantitative data for the study. As determinants of deposit growth
of selected private commercial banks in Ethiopia with five explanatory variables such as
exchange rate, deposit interest rate, inflation, liquidity ratio and advertising and publicity was
included. It presents the focus of the study, sampling techniques and sample size, data types and
collection method. The chapter further presents the data analysis procedures employed to
generate results upon which inference were made on the entire population under study.
3.2 RESEARCH DESIGN

This study is accomplished through explanatory research design. As the name implies the
primary goal of the explanatory research design is to examine the cause and effect relationships
among dependent and independent variables. Therefore, due to the fact that this study was
examining the cause and effect relationships among determinants of deposit growth, it is an
explanatory study.
3.3 RESEARCH APPROACH

This study was used Quantitative research approach. The choice of research approach depends
on objectives of the study that the researcher wants to achieve. In quantitative research, the
researcher identifies the research problems based on trends in the field or on the need to explain
why something occurs. In the Quantitative research approach the problems requires that you
explain how one Variable affects another. Variables are characteristic of individuals that the
researcher study by explaining a relation among variables, you are interested in determining
whether one or more variables might influence another variable (Creswell, 2013).
3.4 DATA TYPE AND DATA SOURCE
The researcher was collected quantitative types of data as secondary data from annual audited
financial statements of selected private commercial banks in Ethiopia and annual report of NBE
through document analysis. Secondary data were used to determine those quantitative factors
affecting deposit growth of private commercial banks in Ethiopia. The secondary data for this
study was extracts from the purposively selected private commercial banks in Ethiopia annual
report and NBE annual reports. The annual reports was collected from the purposively selected
nine private commercial banks and NBE‘s public websites and their research and development
offices.
3.5 POPULATION AND SAMPLE SIZE
3.5.1 SAMPLE SIZE

The target population of this study was based on private commercial banks in Ethiopia. The
researcher were used a more feasible approach by selecting a small group from the population as
a sample size; because 17 private commercial banks are private owned bank. in this study focus
on only private commercial Bank since established more than ten years ago from the year
2020/21.
According to the reports of NBE (2020/21) currently seventeen private banks and two
government banks are working in Ethiopia. From these the researcher conducts only nine banks
that are private owned commercial banks by period of establishment and also level of or
representativeness of the other private commercial banks.
3.5.2 SAMPLING TECHNIQUE

In line with balanced panel data approach, to meet the desired objective of this study and to make
generalization from population to sample, the researcher was used to maximum combination of
private banks and achieves the maximum number of observations through purposive sampling
technique. Purposive or judgmental sampling is a strategy in which particular persons are
selected deliberately in order to provide important information that cannot be obtained from
other choices (Taherdoost, H. (2016). the researcher includes participants in the study of the
sample because the researcher believes that they warrant inclusion. The researcher was selected
purposively and in this study from 16 private commercial banks operating in the country this
study takes sample of nine banks. Those are Dashen bank(DB), Awash bank(AIB), Bank of

Abyssinia (BOA), Wegagen bank (WB), United bank (UB), Lion international bank (LIB), Nib
international bank (NIB), Abay bank (AB) and Oromia bank (OB) for the period of 2011/12 to
2020/21.
3.6 METHOD OF DATA ANALYSIS

To achieve the objective of this study the researcher was used both descriptive and inferential
statistics. The regression technique was used to determine the relationship between the multiple
independent and the dependent variable. Upon collection of all data, this study utilized both
descriptive and econometric analysis based on a panel data from Ten Years (2012-2021) to examine
the relationship between deposit growth and its determinant factors in private commercial banks
found in Ethiopia. In panel data regression methodology by estimation model was adopted OLS
(Ordinary Last Square). the data are processed, edited, classified and organized in order to In
descriptive statistic the researcher use mean, median and standard deviation that help to analyze
the data where as in the inferential techniques which is known as regressions in panel data
regression methodology by estimation model was adopted Ordinary Last Square was employed
which shows not only the relationships or associations existing between variables it helps to
analyze the extent to which one (independent) variable predicts the other (dependent) variable.
Further, the collected raw data were classified and compiled to make assessment manageable and
understandable using Eviews8. The dependent variables were the annual banks deposit, and the
independent variables were yearly Bank size, interest rate, liquidity ratio, inflation and exchange
rate.
3.7 VARIABLE MEASUREMENT AND INSTRUMENT
3.7.1 DEPENDENT VARIABLES

In this study they have one dependent variable to examine the determinants of deposit growth in
private commercial banks in Ethiopia with some independent variables.
3.7.2 INDEPENDENT VARIABLES

The independent variables were loan to deposit ratio, deposit interest rate, exchange rate,
inflation, and bank size.
Inflation

Inflation refers to define that in the general price level over a defined period of time. As a result
of a rise in prices, the market value of money (purchasing power) falls. The real value of money
decreases, benefiting debtors while harming creditors (Legasse, 2021).
According to Gebre(2019) Inflation is a sustained rise in the general level of prices in the price
level. Inflation is measured alternatively by Consumer price index. As inflation increase, the
deposits become less attractive, depending on the interest rate. The decreasing spread between
deposit rates and inflation; the less attractive it should be to hold deposits above the required
level. Different studies show varying results regarding the directional relationship between
inflation and deposit volumes.Abera(2019) showed that inflation rate was negative and
significant effect on deposit growth.ontheother hand teshome(2017),simegnew(2020) are
positive and significant effect on deposit growth but getachew(2017) studied that positive and
insignificant effect on deposit growth in private commercial banks in ethiopia.
Deposit Interest Rate
The interest rate in the banking system is held as an investment cost from the investor’s point of
view and an opportunity cost from the depositor’s point of view (Mohammad and Mahdi, 2010).
Deposits are more interest-rate sensitive and banks may choose to increase investment in interest
rate sensitive assets and decrease investments in loans. Commercial bank’s deposits are interest-
rate sensitive; therefore as the interest rate changes, the deposit of the Commercial banks were
changed.
The higher the rate of interest, the more money will be saved, since at higher interest rates people
will be more willing to forgo present consumption. Low interest rates on savings forced
depositors to take their money out of banks and seek out Higher-yielding investments. In other
word when the rate is too high, it damages the margin of the bank. However, when the rate is too
low, customers will take their saving money somewhere else and volume will decline. The
previous researchers studied that simegnew(2020),getachew(2017),teshome(2017),gebre(2019)
studies diipost interest rate was significant effect on deposit growth of private commercial banks
in Ethiopia. In This study considered there is a significant effect and positive relationship
between deposit rate & Bank’s deposit growth and draws the following hypothesis.
Loan to deposit ratio

The formula for the loan to deposit ratio is exactly as its name implies, total loans divided by total
deposits. The loan to deposit ratio is used to calculate a lending institutions ability to cover
withdrawals made its customers. Higher liquidity buffers tend to signal greater bank soundness,
which could be a factor favoring deposit demand. Banks Liquidity High ratios show two things:
First, the bank is issuing large amounts of deposits in the form of interest-bearing loans; second,
the bank generates more revenue. The problem here is the inability to repay the loan, in which
case banks are obligated to repay their deposits to their customers, so the ratio is too high and
puts the bank at high risk. Alternatively, a very low loan to deposit ratio means the bank is at low
risk, at the same time not using assets to generate income. Banks with large loans and deposits
can be considered more secure and secure than low-credit banks because of the external
monitoring of lending and the resulting bank financing. Note that as lenders are accustomed to,
the financial position of banks with large loans and deposits may still be more vulnerable in
general. According to teshome(2017)loan to deposit ratio was positive and significant effect on
deposit growth of commercial banks in Ethiopia, where asgebre(2019) also loan to deposit ratio
was negative relationship with deposit growth and significant effect.
Size of the bank
A smaller bank has to generate fewer deposits in absolute terms to achieve the same deposit
growth than a large bank, thus possibly favoring smaller banks in achieving higher deposit
growth. But a larger bank with economies of scale as well as larger branch network might be
able to better attract deposits, so a priori, the sign of the coefficient is not certain.
Exchange rate
For the major net importing country like Ethiopia, variability of the exchange rate of the local
Ethiopia money (Birr) to foreign currency values is enormous. This is the number of units of
foreign currency that can be purchased for one unit of the domestic currency. Exchange rate is
also known as the rate between two currencies and specifies how much one currency is worth in
terms of the other. An exchange rate quotation is given by stating the number of units of "term
currency" or "price currency" that can be bought in terms of 1-unit currency, also called base
currency. Bilateral exchange rate involves a currency pair while effective exchange rate is the
weighted average of a basket of foreign currencies and can be viewed as an overall measure of

the country's external competitiveness. The National Bank of Ethiopia (Central Bank) follows a
managed floating exchange rate regime where the local currency Birr is pegged to the US Dollar.
Table 3.1 Variable Measurement and Instrument
Variables Measurements
Dependent Variable
Deposit Growth Percentage of total deposit growth
Independent Variables
Deposit interest rate Minimum deposit rate
Exchange Rate Annual exchange rate
Inflation Rate Annual percentage changes in the CPI.
Loan to deposit ratio The fraction of Loan to deposit
Bank Size Percentage change in total asset
3.7 MODEL SPECIFICATION

Different studies determined different factors that affect deposit growth in various countries.
This section presented a framework of analysis on the basis of those studies, and involved
adopting a model that would help to demonstrate the responsiveness of certain key variables that
influence bank deposit growth. The linear equation in order to measure the cause effect
relationship between bank deposits growth and the factors affecting it was developed as follow
DGn,t = αn,t + β1DIRn,t + β2EXRn,t + β3IRn,t + β4LDRn,t + β5BSn,t…….equation1
Where;
DG= Represents percentagechenge of bank deposit growth (Dependent Variable) for period t.
DIR= Represents banks deposit interest rate for period t.
EXR= Represents percentage of exchange rate growth for period t.
IR= Represents annual percentage of inflation rate for period t.
LDR= Represents percentage of loan to deposit ratio for period t.
BS= Represents Percentage change in totalasset for period t.
n= private commercial Bank n, 1, 2 … 6 and t = time index year
α= Intercept, β1, β2, β3, β4, and β5 are regression coefficients.
3.8. Diagnostics Test Analysis PROCEDURE

Diagnostic test is a kind of test in order to check whether the assumptions of OLS are violated or
not. Every estimator of the model should have to meet the OLS assumptions before the
estimation is carried out. If the assumptions are violated the coefficient estimates (βˆs) are
wrong, the associated standard errors are wrong and the distributions that were assumed for the
test statistics are inappropriate. Whereas, if the estimators of the model satisfy the OLS
assumptions it is possible to say the estimators are BLUE (Best Linear Unbiased Estimators).
BLUE stands for Estimator – ˆα and βˆ are estimators of the true value of α and β Linear – ˆα
and βˆ are linear estimators – that means that the formulae for ˆα and βˆ are linear combinations
of the random variables (in this case, DEP) Unbiased – on average, the actual values of ˆα and βˆ
will be equal to their true values Best – means that the OLS estimator βˆ has minimum variance
among the class of linear unbiased estimators; the Gauss–Markov theorem proves that the OLS
estimator is best by examining an arbitrary alternative linear unbiased estimator and showing in
all cases that it must have a variance no smaller than the OLS estimator (Brooks.p91, 2014).
The following CLRM assumptions are:
1. Mean value of the error is zero E (ut) =0
2. HomocedasticityVar (ut) =σ2<∞
3. Autocorrelation Cov (ui,uj)=0 for i ≠ j
4. The assumption of multicoliniarity
5. Normal distribution ut N (0, σ2)

ASSUMPTION 1: ZERO MEAN OF ERROR
The first assumption required is that the average value of the errors is zero. In fact, if a constant
term is included in the regression equation, this assumption will never be violated.
ASSUMPTION 2: HETEROSCEDASTICITY
It has been assumed thus far that the variance of the errors is constant, σ2 – this is known as the
assumption of homoscedasticity. If the errors do not have a constant variance, they are said to be
heteroscedastic. For this study Breusch-Pagan-Godfrey test for heteroscedasticity was used.
ASSUMPTION 3: AUTO CORRELATION Assumed that disturbance terms is that the
covariance between the error terms over time (or cross- sectional, for that type of data) is zero. In
other words, it is assumed that the errors are uncorrelated with one another. If the errors are not
uncorrelated with one another, it would be stated that they are auto correlated or that they are

serially correlated. A test of this assumption is therefore required. This assumption can be tested
by Graphical tests for autocorrelation, Durbin–Watson test and Breusch–Godfrey test. For this
study Breusch–Godfrey serial correlation LM test was used. This method is desirable to examine
a joint test for autocorrelation that will allow examination of the relationship between ˆ utand
several of its lagged values at the same time (Brooks, 2014).
ASSUMPTION 4: MULTICOLLINEARITY
Multicollinearity is a phenomenon where the two or more of the explanatory variables used in a
regression model are very highly correlated with each other. When there is an existence of
correlation of 0.8 or above among independent variables it indicates a problem of
multicollinearity (Brooks, 2014).
ASSUMPTION 5: NORMALITY
A normal distribution is not skewed and is defined to have a coefficient of kurtosis of 3. It is
possible to define a coefficient of excess kurtosis, equal to the coefficient of kurtosis minus 3; a
normal distribution will thus have a coefficient of excess kurtosis of zero (Brooks, 2014). In this
study BeraJarque Test (BJ test) was used to find out whether the error term is normally
distributed or not.
3.8 ETHICAL CONSIDERATIONS

In this study, ethical issues of informed consent, invasion of privacy, confidentiality, and
voluntarism will be catering. Knowledgeable consents on the permissions of all contributors in
the studies earlier than accomplishing the examiner. That is, introductory letters will send to the
management of the selected banks and their approval received before the commencement of the
research. Again individual respondents will approach and debriefing of the purposes of the study
before commencement.

CHAPTER FOUR
RESULTS AND DISCUSSION

This chapter consists and presented of the analysis of quantitative data identified in the
Determinants of private commercial banks deposit growth from 2012-2021 nine private
commercial bank data presented in the given descriptive analysis of mean, media, maximum,
minimum and standard deviation and interpret the result of Testing the Classical Linear
Regression Model. That is test result for heteroscedasticity, autocorrelation, multicolinearity and
normality based on eviews8 regression output results.
4.1 descriptive statistics
The descriptive statistics of the variables (both dependent and independent) have been calculated
over the sample period which offers a general overview of the characteristics of the data
presented on table 4.1.
Table 4.1 Descriptive statistics
DG DIR EXR IR LDR BS

Mean 0.421672 0.059000 0.241661 0.131178 0.622345 0.350772
Median 0.498230 0.055000 0.217600 0.120000 0.620200 0.312025
Maximum 0.803900 0.070000 0.390160 0.300000 0.895200 0.825450
Minimum 0.066000 0.050000 0.162540 0.042000 0.183900 0.039270
Std. Dev. 0.165306 0.009487 0.067013 0.073771 0.122060 0.150442
Observation 90 90 90 90 90 90
s
Source: eviews8 output
The above table 4.1 shows that descriptive statistics mean, median, maximum, minimum and
standard deviation values of the five independent variable on and deposit growth dependent
variable in the collected data for 90 observations.

The value of the Mean Dependent Variable is the mean of the observations of the dependent
variable. The mean value of selected private commercial banks deposit growth is 0.421672 on
average from the year 2012 up to 2021. As stated on the table the median of the DG was
0.498230and the maximum value also 80.39% and standard deviation is 0.165306, this indicates
that most of private commercial banks deposit growth rate is skewed.
The mean value of the bank deposit interest rate over the period under study was on average
5.9% with the maximum values of 7% within study period and 5% minimum values within study
period. The standard deviation of DIR also 0.009487, which is the data are clustered around the
mean. There was little variation of interest rate towards its mean value over the periods under
study with the value of standard deviation 0.009487%. This indicates that the NBE is controlling
the minimum and maximum deposit interest rate for coming years during the research periods of
2012-2021 GC. During the research period, there was no competition amongst private
commercial banks to attract customers with the prospect of a return on deposit.
The mean value of exchange rate was 0.241661and the maximum and minimum value of
exchange rate for the last ten years was 0.390160and 0.162540respectively during the study
period. The standard deviation for exchange rate was 0.067013; this shows that there was also
little dispersion of each observation of exchange rate from its mean value during 2012-2021.
The mean value of inflation rate was 0.131178.the maximum and minimum value of inflation
rate was 0.30 and 0.042000respectively. The standard deviation of inflation was 0.073771, which
indicates that each observation differed from its average inflation value.
The mean value of LDR was 0.622345 it implies that lower amount of volatile liabilities/deposits
ratio were tied up with illiquid loans. There was low dispersion of LDR towards its mean value
among banks that is shown by the standard deviation of 0.122060on the bank to bank loan to
deposit ratio on average. The maximum value of LDR was 0.895200 which is far above the
standard whereas the minimum value was 0.183900 which is far below the standard. This
indicates that there were some commercial banks in Ethiopia having extra and others were going
to face bank intermediation risk. Therefore, it can be concluded that loans to deposit ratio was
moderate among private commercial banks in Ethiopia.
The mean value of bank size was 0.350772, the maximum and minimum value of bank size was
0.825450 and .039270 respectively. The standard deviation was 0.150442, which indicates that
the stability of bank size in terms of total assets for subsequent years under the study periods in a

sense there was a control of minimum and maximum bank size by the Deposit Money banks. So
there was no competition between Deposit Money banks to attract more assets which invariably
will affect deposit under the study period.
4.4. Regression model tests
For valid hypothesis testing and to make data available for reliable results, the test of
assumption of regression model is required. Accordingly, the study has gone through the most
critical regression diagnostic tests consisting of normality, multicollinearity, heteroskedasticity,
autocorrelation and model specification select accordingly.
4.4.1. Model Selection
As Brooks (2008) referring on his book there are two broadly classes of panel estimator
approaches that can be employed in financial research: fixed effects models and random effects
models. The simplest types of fixed effects models allow the intercept in the regression model to
differ cross-sectionally but not over time, while all of the slope estimates are fixed both cross-
sectionally and over time. A fixed effect model is more plausible when the entities in the sample
effectively constitute the entire population.A balanced panel has the same number of time series
observations for each cross-sectional unit (or equivalently but viewed the other way around, the
same number of cross-sectional units at each point in time), whereas an unbalanced panel would
have some cross-sectional elements with fewer observations or observations at different times to
others.The random effects model is more appropriate when the entities in the sample can be
thought of as having been randomly selected from the population while fixed effect model is
more appropriate when the entities in the sample effectively constitutes the entire population
(Brooks, 2008).
according to Gujarati (2004) cited in Mekbib (2016), if the number of time series data is large
than the number of cross-sectional units, there is likely to be little difference in the values of the
parameters estimated by fixed effect model and random effect model.
In this study, the number of Cross-sections included: 9 and the number of is Periods included: 10
years which is more than the cross section unit and as the sample of private commercial banks
were not selected randomly, the fixed effect model is more appropriate than the random effect
model. So in this study fixed effect model is used.

DIAGNOSTIC TESTS Analysis
The diagnostic tests are very important to the model because they validate the parameter
evaluation out comes achieved by the estimated model. This arises because, if there is a problem
in the residuals from the estimated model; it is an indication that the model is not efficient such
that parameter estimates from the model may be biased. Accordingly, the CLRM assumptions
were tested.
TEST FOR THE ASSUMPTION 1: E (UT) = 0
The first assumption required is that the average value of the errors is zero. In fact, if a constant
term is included in the regression equation, this assumption will never be violated (brooks,
2008). This assumption is states that the mean of the disturbance is zero, which provided that the
constant term in the regression output. In this study the constant term was included in the
regression equation, this assumption is not violated.
TEST OF HETROSCEDASTICITY
This assumption is if the variance of the error is not constant and constant, that is
homoscedasticity and hetrocedastiy respectively. To test this assumption the white’s test was
used and following hypothesis was developed to test the absence of hetroscedasticity. According
to Brooks (2008), this assumption requires that the variance of the errors to be constant. If the
errors do not have a constant variance, it is said that the assumption of homoscedasticity has
been violated. This violation is termed as heteroscedasticity. If heteroscedasticity occur, the
estimators of the ordinary least square method are inefficient and hypothesis testing is no longer
reliable or valid as it will underestimate the variances and standard errors. There are several tests
to detect the Heteroscedasticity problem, which are Park Test, Glesjer Test, Breusch-Pagan-
Goldfrey Test, White‟s Test and Autoregressive Conditional Heteroscedasticity (ARCH) test. In
this study, White’s test was employed to test for the presence of heteroscedasticity. The
hypothesis for the Heteroscedasticity test was formulated as follow;
H0: the variance the error is not constant (homoscedasticity)
HA: the variance of the error is constant (hetroscedasticity)
α = 0.05

Decision: if p-value less than significance level, Reject H0. Otherwise, do not reject H0.
Table 4.2 Heteroskedasticity Test: White
F-statistic 0.914913 Prob. F(20,69) 0.5705

Obs*R-squared 18.86456 Prob. Chi-Square(20) 0.5306
Scaled explained SS 18.18339 Prob. Chi-Square(20) 0.5753
Source: Eviews8 Output
From the above table the value of x 2Test statistic is greater than the corresponding value from
the statistical. The p value of the Chi-Square is greater than the significance level; Based on this
the researcher concludes that failed to reject the null hypothesis. This indicates That is there is no
evidence to the existence of disturbance is hetroscedasticity.
TEST FOR AUTOCORRELATION
Autocorrelation or serial correlation can be used to indicate how strongly the present residual
value and the previous residual values are correlated (Brook, 2008). The study assessed
autocorrelation using the Durbin-Watson test (DW test). There is no autocorrelation; hence the
null hypothesis for this test is that the error at the present time and the error at the previous time
are independent of one another. The alternative hypothesis is that the error at the current moment
depends on the error at the previous time (there is evidence for the presence of autocorrelation).
The occurrence of autocorrelation is therefore said to be evidenced if the null hypothesis is
rejected. According to Brooks (2008), the DW test does not follow a standard statistical
distribution such as a t, F, or χ2. DW has 2 critical values: an upper critical value (dU) and a
lower critical value (dL), and there is also an intermediate region where the null hypothesis of no
autocorrelation can neither be rejected nor not rejected. The rejection, non-rejection, and
inconclusive regions are shown on the number line below
Table 4.3 Durbin-Watson test

positive Inconclusive Fail to reject H0 Inconclusive negative
autocorrelation that is no autocorrelation
that is Reject H0 autocorrelation that is Reject
H0
0 DL Du 2 4-Du 4-D 4
Source: Durbin-Watson test (brooks,20014)
 If DW is less than the lower critical value (dL), The null hypothesis is rejected;
 If DW is greater than 4 minus the lower critical value (4-dL), the null hypothesis is
rejected
 If DW is between the upper critical value (dU) and 4 minus the upper critical limits (4-
dU) the null hypothesis is not rejected and no significant residual autocorrelation is
presumed (Brooks 2008).
The study has six explanatory variables with ten years period of time .So it has total of ninety
observations and as per the DW table for 90 observations with five explanatory variables at 1%
level of significance, the dL and dU values are 1.41 and 1.64, respectively Accordingly, the
value of UP and 4-DU are 1.64 and 2.36, respectively. The DW value of this study is 1.795469,
which lies in the no evidence of autocorrelation region where the null hypothesis of no
autocorrelation do not be rejected. Therefore, given these result it can be concluded that there is
no evidence for the existence of autocorrelation.
H0: There is no autocorrelation
H1: There is autocorrelation
This indicates that there is no significant evidence for the presence of autocorrelation.
TEST FOR NARMALITY ASSUMPTION

According to brooks (2008), a normal distribution is not skewed and is defined to have a
coefficient of kurtosis of 3. It is possible to define a coefficient of excess kurtosis, equal to the
coefficient of kurtosis minus 3; a normal distribution will thus have a coefficient of excess
kurtosis of zero. In this study BeraJarque Test (BJ test) was used to find out whether the error

terms are normally distributed or not. The following hypothesis was developed to check this
assumption.
H0: Residuals are normally distributed
H1: Residuals are not normally distributed
Decision: if p-value less than significance level, Reject H0. Otherwise, do not reject H0.
Figure 4.4 Normality Test
Source: Eviews8 Output

According to the above Figure 4.4 normal distribution is not skiwed, which is the kurtosis is 3
and also test corresponding to p-value is 55.65%, which is more than 5% so we cannot reject the
null hypothesis that is residual normally distributed. There is no evidence to Residuals are not
normally distributed.
TEST FOR MULTICOLLINEARITY ASSUMPTION

As stated by Brooks (2008), a phenomenon where the two or more of the explanatory variables
used in a regression model is highly related to one another.the correlation between explanatory
variables will be non-zero, although this will generally be relatively benign in the sense that a
small degree of association between explanatory variables will almost always occur but will not
cause too much loss of precision. However, a problem occurs when the explanatory variables are
very highly correlated with each other, and this problem is known as multicollinearity.
TABLE 4.5 CORRELATION MATRIXES

DG 1.000000
DIR -0.457219 1.000000
EXR -0.521331 0.760340 1.000000
IR -0.342310 0.101562 0.217155 1.000000
LDR 0.205323 0.186621 0.023604 -0.037002 1.000000
BS 0.341201 -0.081394 -0.119523 -0.207693 0.072919 1.000000
Source: eviews8 output result
As a result of the above table 4.5 shows that the highest correlation is 0.760340which is between
EXR and DIR. Thus, it can be concluded using the books of Gujirati, 2004 page 359 each
explanatory variable are high correlation the coefficient values are excess of 0.8 then
multicollinearity is a serious problem. In this study based on Gujiratin rule there is no
multicollinearity problem in the explanatory variables selected to determinants of private
commercial bank deposit growth.
REGRESSION RESULT ANALYSIS AND INTERPRETATION
REGRESSION RESULT ANALYSIS
This section describes the regression results of a fixed effect model used to determine the causes
of deposit growth in Ethiopian private commercial banks. The regression analysis shows that the
relationship between one dependent variable and five independent variables is regressed by using
econometric software called EViews8. The dependent variable is total deposit growth of private
commercial banks and the five independent variables include deposit interest rate(DIR),
inflation rate(IR) ,loan to deposit ratio(LDR),exchange rate(EXR) and bank size(BS). This
regression analysis is based on 9 purposively selected private commercial banks in Ethiopia from
the year 2012 to 2021 for 10 consecutive years.
DGn,t = αn,t + β1DIRn,t + β2EXRn,t + β3IRn,t + β4LDRn,t + β5LogBSn,t
As a result, Table 4.5 below shows the outcome of a fixed effect regression model that
investigates the impact of explanatory variables on bank deposit growth. As a result, DG is a
dependent variable, whereas Inflation (IR), Interest Rate (DIR), loan to deposit ratio (LDR),
Exchange Rate (EXR), and bank size (BS) are independent variables.

TABLE 4.6 Regression Result of Fixed Effects Model
Dependent Variable: DG
Method: Panel Least Squares
Date: 06/18/22 Time: 12:50
Sample: 1 90
Periods included: 10
Cross-sections included: 9
Total panel (balanced) observations: 90
Variable Coefficient Std. Error t-Statistic Prob.
C 0.624291 0.100146 6.233812 0.0000

DIR -4.880915 2.004685 -2.434754 0.0172
EXR -0.594498 0.283813 -2.094681 0.0395
BS 0.241854 0.089089 2.714739 0.0082
IR -0.483447 0.169460 -2.852862 0.0056
LDR 0.333584 0.105222 3.170280 0.0022
Effects Specification
Cross-section fixed (dummy variables)
R-squared 0.610081 Mean dependent var 0.421672

Adjusted R-squared 0.543385 S.D. dependent var 0.165306
S.E. of regression 0.111702 Akaike info criterion -1.403922
Sum squared resid 0.948285 Schwarz criterion -1.015063
Log likelihood 77.17650 Hannan-Quinn criter. -1.247111
F-statistic 9.147113 Durbin-Watson stat 1.795469
Prob(F-statistic) 0.000000
Source: Eviews8 output result

Interpretation of constant term
Coefficient of constant 0.624291this implies that, it is of the dependent value when the
independent value is zero. This indicate that the total deposit growth of private commercial
banks will be increased by the unit 62.4291 given all independent variable zero and this indicate
that the dependent variables in the model is depends on the independent variable.
Interpretation of R-squared
As shown in the Table 4.8 the coefficient of R-squared 0.610081obtained from the estimated
model outcome; revealing that 61.0081 percent of the variation in deposit growth is being
explained by the variables in the model. I.e. IR, DIR, EXR, BS and LDR and there is a strong
relationship between deposit growth and the independent variables. The R-square result makes
sense because there are other factors that were not included in the model but could help in
explaining deposit growth in private Ethiopian commercial banks. These and other remaining
factors can account for the remaining 38.9 percent.
Interpretation of Adjusted R-squared
An adjusted R-squared 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. In other
words, the adjusted R-squared shows satisfactory levels, which mean that nearly 0.543385of the
volatilities in the deposit growth, are explained by the volatilities of independent variables
included in the equation. Therefore, an adjusted R-square having value of 0.543385shows that
54.34 % of dependent variable is explained by the independent variables included in the model.
The F-value is significant at significant level, this implying that all the explanatory variables
jointly influence the dependent variable. Overall, the model is well fitted.
Interpretation of independent variables
Deposit interest rate
The correlation coefficient for deposit rates is 4.880915 indicating that a 1 unit change in deposit
interest rates leads to change deposit growth by 4.880915 in opposite direction of private
commercial banks deposit growth and also probability value of 0.0172 is less than 0.05 critical
value showed that this variable was significant in assessing the research problem and reject the
null hypothesis.Therefore, the researcher reject the null hypothesis that deposits interest rate has

a positive and significance impact on private commercial banks deposit growth. This means,
there is sufficient evidence to support the negative relationship between deposit interest rate and
deposit growth.the positive relationship consistent with the findings of Hibret and Shemsu
(2015) on commercial Bank of Ethiopia and (Andebet, 2016) on Private Commercial Banks,
simegnew (2020)on private commercial banks and also Hailemariam(2017) also shows that,
interest rate on deposit has positive and insignificant impact on commercial banks deposit. Thus,
there is no empirical evidence that supports the influence of interest rate liberalization on bank’s
deposit in Ethiopia.
Exchange rate
Coefficient of exchange rate 0.594498 is indicates that, as the level of exchange rate increases by
one unit or percent, the deposit growth decreased by 0.594498 keeping other things being
constant. Theprobability value of exchange rate 0.0395 is less than 0.05 critical values showed
that, this variable was significant in assessing the research problem and fail to reject the null
hypothesis. The negative result consistent with According to Ngula (2015) inflation has negative
significant effect on deposit growth. Contrary with this result, Abera (2019) revealed that
exchange rate was found to have a positive effect on CBs‘deposit growth and the relationship is
significant.
Inflation rate
Coefficient of inflation rate show that as the level of annual inflation rate increases by one unit,
the deposit growth decreased average of 0.483447 keeping other things or variables constant and
a p-value of 0.0056. The negative coefficient of inflation indicates that there is no direct
relationship between IR and DG. The indirect relationship implies that, at the time of high
inflation, the private commercial banks deposit growth is decreased. The p –value of inflation
show that inflation of banks was significant even at 5%of level of significance. This implies that
persistent inflation has a negative significant effect on growth of bank deposit. So higher
inflation induces savers to save less, perhaps households get stable price prediction from deposit.
This result is consistent with the precautionary motive, suggesting that increased macroeconomic
uncertainty induces people to save a proportion of their incomes. This negative effect of inflation
is consistent with the findings of getachew (2017), abera, (2019) and Hibret (2015). This
indicates that the effect of inflation on the private commercial banks deposit growth is higher.

Those null hypotheses: inflation rate has positive and significant impact on deposit growth of
private CB’s should be rejected.
Bank size
Coefficient of bank size 0.241854 implies that, holding other things constant as the level of total
asset increases by one unit, the deposit growth increased by 24.2% percent. From the above
table, the effect of Bank size (BS), defined as the percentage change of total assets on deposit
growth of private commercial banks was examined. This shows that bank size has a positive and
statistically significant effect at 5% on the deposit growth of commercial banks in Ethiopia. This
indicates that larger banks with economies of scale and a larger branch network are more
efficient in collecting deposit deposits than smaller banks..The finding that bank size plays a
positive role and significant) in determining deposit is consistent with the a priori expectation of
this study. The finding do not confirm the findings of previous empirical work such as Baehaqie,
Fahmi&Beik (2017) who found negative and significant effect of bank size on deposit. Also, the
finding is consistent with studies of Unvan&Yakubu (2020), Al-Harbi (2019),legass (2021 and
Ferrouhi (2017) who found positive and significant effect of bank size and deposit.
Loan to deposit ratio
The coefficient of loan to deposit ratio (LDR) measured by total loan divided by total deposit is
0.333584 and its P-value is 0.0022. Holding other things remain constant at their average value,
when loan to deposit ratio increased by one birr, deposit growth of private commercialbanks
would be increased by 33.340%and statistically significant at 5% level of significant. Therefore,
the researcher failed to reject the null hypothesis that there is positive relationship between loan
to deposit ratio and private commercial bank deposit growth. This means, there is no sufficient
evidence to support the negative relationship between loan to deposit ratio and commercial bank
deposit. The regression output is supported by prior Ethiopian researchers (Bahredin, 2016),
Teshome(2017).
Table 4.7 Summary of Hypothesis Testing
Variable t-Statistic P-Value Observation Decision

reject null hypothesis
DIR -2.434754 0.0172 p-value <0.05

Fail to reject null hypothesis
EXR -2.094681 0.0395 p-value <0.05
BS 2.714739 0.0082 p-value <0.05
reject null hypothesis
IR -2.852862 0.0056 p-value <0.05
LDR 3.170280 0.0022 p-value <0.05
Source:authors analysis of from regression Result

Chapter Five: Conclusion and Recommendation
5.1. Conclusions
The study's goal was to figure out what factors influence commercial bank deposits. Previous
studies have been evaluated in order to achieve the goals. Five explanatory variables are chosen
based on existing literature in accordance with the research objectives, data availability, and
explanatory power of variables. Those variables are deposit interest rate(DIR),exchange
rate(EXR),inflation rate(IR),loan to deposit ratio(LDR) and bank size(BS).
For the variables deposit interest rate(DIR),exchange rate(EXR),inflation rate(IR),loan to deposit

ratio(LDR) and bank size(BS)., a quantitative research approach was employed to conform with
the research question and research objectives. Secondary information was gathered. Secondary
data was gathered from the National Bank of Ethiopian (NBE), the annual reports of selected
private commercial banks and nine private commercial banks with the use of E-views8 software,
multiple regression analysis was used to quantify the effect of five explanatory variables on the
dependent variable of deposit growth. To empirically test the research hypothesis, all essential
data was collected from 2012 to 2021.The study set up out that DIR, EXR, IR, LDR, and
BS had statistically significant effect on the deposit growth.
Based on the findings obtained the following conclusion are drawn.
 Loan to Deposit Ratio (LDR) has a positive and significant effect on deposit growth in
Ethiopian private commercial banks. This suggests that when the loan amount is large, a
large amount of money is circulated around the country. As a result of the large amount
of money in the country, private commercial banks' deposit growth could increase.
 Exchange rate had also negative and significant effect on private banks deposit
growth .this implies that the exchange rate is a measure of the competitiveness of an

economy to international trade, and when an exchange rate is overvalued, it increases the
price of domestic goods abroad leading to lower demands for exports of such country.
 Bank size which is percentage changes of total asset of private commercial banks had a
positive and significant effect on deposit growth of commercial banks in Ethiopia. This
implies that Bank size (BS) does have capacity to influence the deposit in private
Commercial banks and also this result indicates that larger banks with economies of scale
and a larger branch network are better in collecting deposit deposits than smaller banks.
 In terms of deposit interest rates, this means that they are not a major factor in explaining
the rise of commercial banks' deposits in Ethiopia.
The regression outcomes showed that exchange rate, inflation rate and deposit interest rate was
negative and statistically significant effect on deposit growth of private commercial banks of
Ethiopia, contrary to this result loan to deposit ratio, and bank size was positive and significant
effect on deposit growth in Ethiopian private commercial banks.
Recommendations
Based on the conclusions drawn the following recommendations are forwarded;
To encourage deposit growth while maintaining a sufficient margin of profitability, private
commercial banks should offer competitive and attractive deposit interest rates on a variety of
deposits.
The government should keep inflation rate by reducing the amount of money in circulation since
inflation has a negative and significant impact on deposit growth.
The study's findings are important for policy makers at the supervisory levels because they
suggest that in order to increase deposit growth, public policy should be focused on developing
the market conditions required for banks to increase their efficiency. According to the study, it is
crucial to guarantee and promote good economic conditions, such as lower inflation rates and
exchange rate. Overall, the findings show that bank-specific and macroeconomic factors
influence deposit growth in private commercial banks in Ethiopia.
Deposit growth is frequently enhanced by higher total assets, and in Ethiopia's private
commercial banks, the significance of the increase is better than the sum of most other variables,
indicating that the deposit growth of the country's banks is significantly impacted by changes in
total assets. Ethiopia's private commercial bank's deposit may raise their total assets to increase
competition, so banks should therefore create plans that support the government's shift in policy.

For further researchers
Using this study as a starting point, you may be able to gain a deeper understanding, and this
study can be extended in a variety of ways.
This study focused only by quantitative data but other researchers can include qualitative for
examine the more variables that understanding of the Society. If other scholars do research in
this area in the future, the results of this study may be more reliable, given the available
resources. Conduct further research, expand sample size, and assist policy makers and policy
makers, including all private commercial banks in Ethiopia. Other factors that may be explored
in future research include additional variables not included in this study, such as savings
practices, deposit numbers, and digital banking.

REFERENCE
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deposit of Islamic banks and interest rates on deposits of conventional banks in a
dual banking system: A cross country study. International Journal of Economics
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Vuong, B. N., Duy Tung, D., Giao, H. N. K., Dat, N. T., &Quan, T. N. (2020). Factors
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arXiv:1209.2368.
APPENDIX ONE: PANEL RAW DATA

BANK Bank YEAR DG EXR DIR LDR IR BS

Id
AB 1 2012 0.51412 0.16254 0.05 0.74207 0.042 0.39170
AB 2 2013 0.61162 0.18195 0.05 0.63160 0.132 0.57339
AB 3 2014 0.61585 0.19075 0.05 0.62540 0.080 0.51865
AB 4 2015 0.80390 0.20096 0.05 0.76170 0.090 0.43322
AB 5 2016 0.43340 0.21106 0.05 0.55261 0.300 0.35028
AB 6 2017 0.54050 0.22414 0.05 0.59270 0.070 0.39389
AB 7 2018 0.52008 0.26108 0.07 0.57535 0.150 0.42915
AB 8 2019 0.52120 0.28054 0.07 0.74856 0.130 0.22564
AB 9 2020 0.32380 0.31343 0.07 0.53011 0.300 0.33748
AB 10 2021 0.48500 0.39016 0.07 0.54100 0.110 0.63136
DB 1 2012 0.54034 0.16254 0.05 0.70750 0.042 0.51588
DB 2 2013 0.52824 0.18195 0.05 0.65467 0.132 0.26282
DB 3 2014 0.52304 0.19075 0.05 0.75152 0.080 0.51168
DB 4 2015 0.51268 0.20096 0.05 0.51480 0.090 0.57273
DB 5 2016 0.58860 0.21106 0.05 0.79810 0.300 0.53226
DB 6 2017 0.43630 0.22414 0.05 0.61460 0.070 0.20979
DB 7 2018 0.51988 0.26108 0.07 0.77940 0.150 0.31286
DB 8 2019 0.23140 0.28054 0.07 0.67400 0.130 0.23758
DB 9 2020 0.23280 0.31343 0.07 0.67670 0.215 0.51424
DB 10 2021 0.33980 0.39016 0.07 0.73800 0.110 0.38728
AIB 1 2012 0.52655 0.16254 0.05 0.71230 0.042 0.15253
AIB 2 2013 0.62883 0.18195 0.05 0.75617 0.132 0.66915
AIB 3 2014 0.53280 0.19075 0.05 0.54977 0.080 0.40983
AIB 4 2015 0.56730 0.20096 0.05 0.52510 0.080 0.19589
AIB 5 2016 0.18780 0.21106 0.05 0.57760 0.300 0.33492
AIB 6 2017 0.51270 0.22414 0.05 0.65910 0.070 0.19270
AIB 7 2018 0.41550 0.26108 0.07 0.53330 0.150 0.52868
AIB 8 2019 0.42060 0.28054 0.07 0.58180 0.130 0.35279
AIB 9 2020 0.14860 0.31343 0.07 0.55780 0.215 0.27866

AIB 10 2021 0.22080 0.39016 0.07 0.65090 0.110 0.34623
WB 1 2012 0.58560 0.16254 0.05 0.76110 0.042 0.51179
WB 2 2013 0.47980 0.18195 0.05 0.89520 0.132 0.25301
WB 3 2014 0.53067 0.19075 0.05 0.55310 0.080 0.30577
WB 4 2015 0.52838 0.20096 0.05 0.53990 0.090 0.59130
WB 5 2016 0.41140 0.21106 0.05 0.60490 0.300 0.18248
WB 6 2017 0.19330 0.22414 0.05 0.18390 0.070 0.29012
WB 7 2018 0.10440 0.26108 0.07 0.56890 0.150 0.31101
WB 8 2019 0.32560 0.28054 0.07 0.58090 0.130 0.08759
WB 9 2020 0.10450 0.31343 0.07 0.65490 0.200 0.28188
WB 10 2021 0.06600 0.39016 0.07 0.72690 0.110 0.03927
LIB 1 2012 0.52781 0.16254 0.05 0.81000 0.042 0.59728
LIB 2 2013 0.52923 0.18195 0.05 0.60280 0.132 0.38043
LIB 3 2014 0.51434 0.19075 0.05 0.61360 0.080 0.49118
LIB 4 2015 0.51822 0.20096 0.05 0.54850 0.080 0.53846
LIB 5 2016 0.51146 0.21106 0.05 0.57560 0.300 0.22920
LIB 6 2017 0.25470 0.22414 0.05 0.55340 0.070 0.15839
LIB 7 2018 0.10707 0.26108 0.07 0.55640 0.150 0.31119
LIB 8 2019 0.22220 0.28054 0.07 0.53110 0.130 0.14030
LIB 9 2020 0.22640 0.31343 0.07 0.58760 0.200 0.26912
LIB 10 2021 0.25010 0.39016 0.07 0.67280 0.110 0.24372
OB 1 2012 0.60892 0.16254 0.05 0.79110 0.042 0.47977
OB 2 2013 0.56900 0.18195 0.05 0.56660 0.132 0.52852
OB 3 2014 0.52012 0.19075 0.05 0.63060 0.080 0.51725
OB 4 2015 0.52031 0.20096 0.05 0.48850 0.080 0.54981
OB 5 2016 0.23074 0.21106 0.05 0.61920 0.300 0.18331
OB 6 2017 0.31130 0.22414 0.05 0.62120 0.070 0.43832
OB 7 2018 0.41104 0.26108 0.07 0.54920 0.150 0.46642
OB 8 2019 0.17730 0.28054 0.07 0.21510 0.130 0.33529
OB 9 2020 0.62230 0.31343 0.07 0.67750 0.200 0.64506

OB 10 2021 0.26530 0.39016 0.07 0.73010 0.110 0.23234
BOA 1 2012 0.53145 0.16254 0.05 0.85580 0.042 0.34641
BOA 2 2013 0.53346 0.18195 0.05 0.67360 0.132 0.23301
BOA 3 2014 0.52520 0.19075 0.05 0.61690 0.080 0.41112
BOA 4 2015 0.52496 0.20096 0.05 0.54000 0.080 0.21346
BOA 5 2016 0.13200 0.21106 0.05 0.64000 0.300 0.22628
BOA 6 2017 0.21400 0.22414 0.05 0.69700 0.070 0.50774
BOA 7 2018 0.31905 0.26108 0.07 0.68000 0.150 0.26254
BOA 8 2019 0.23360 0.28054 0.07 0.71000 0.130 0.22858
BOA 9 2020 0.27100 0.31343 0.07 0.60110 0.200 0.44795
BOA 10 2021 0.32150 0.39016 0.07 0.66500 0.110 0.82545
HB 1 2012 0.61010 0.16254 0.05 0.65790 0.042 0.49612
HB 2 2013 0.60990 0.18195 0.05 0.75570 0.132 0.23272
HB 3 2014 0.65120 0.19075 0.05 0.52610 0.080 0.38938
HB 4 2015 0.54436 0.20096 0.05 0.40110 0.080 0.20916
HB 5 2016 0.41260 0.21106 0.05 0.49010 0.300 0.20258
HB 6 2017 0.59610 0.22414 0.05 0.47010 0.070 0.26828
HB 7 2018 0.45010 0.26108 0.07 0.67010 0.150 0.25925
HB 8 2019 0.35190 0.28054 0.07 0.89010 0.130 0.29587
HB 9 2020 0.45000 0.31343 0.07 0.70110 0.200 0.23391
HB 10 2021 0.62120 0.39016 0.07 0.68010 0.110 0.22676
NIB 1 2012 0.61230 0.16254 0.05 0.54863 0.042 0.30778
NIB 2 2013 0.52130 0.18195 0.05 0.66820 0.132 0.10997
NIB 3 2014 0.54462 0.19075 0.05 0.57390 0.080 0.41752
NIB 4 2015 0.52750 0.20096 0.05 0.51990 0.080 0.23346
NIB 5 2016 0.33860 0.21106 0.05 0.55990 0.300 0.19418
NIB 6 2017 0.21260 0.22414 0.05 0.25630 0.070 0.33291
NIB 7 2018 0.12076 0.26108 0.07 0.56890 0.150 0.24645
NIB 8 2019 0.15120 0.28054 0.07 0.76400 0.130 0.28137
NIB 9 2020 0.42090 0.31343 0.07 0.67950 0.200 0.26113

NIB 10 2021 0.38550 0.39016 0.07 0.62520 0.110 0.27529
APPENDIX TWO: REGRESSION OUTPUT

Dependent Variable: DG
Method: Panel Least Squares
Date: 06/18/22 Time: 12:50
Sample: 1 90
Periods included: 10
Cross-sections included: 9
Total panel (balanced) observations: 90
C 0.624291 0.100146 6.233812 0.0000

DIR -4.880915 2.004685 -2.434754 0.0172
EXR -0.594498 0.283813 -2.094681 0.0395
BS 0.241854 0.089089 2.714739 0.0082
IR -0.483447 0.169460 -2.852862 0.0056
LDR 0.333584 0.105222 3.170280 0.0022
Effects Specification
Cross-section fixed (dummy variables)

Adjusted R-squared 0.543385 S.D. dependent var 0.165306

APENDIX THREE: Descriptive statistics

Mean 0.421672 0.059000 0.241660 0.131188 0.622345 0.350771
Median 0.498230 0.055000 0.217598 0.120000 0.620200 0.312024
Maximum 0.803900 0.070000 0.390163 0.300000 0.895200 0.825453
Minimum 0.066000 0.050000 0.162536 0.042100 0.183900 0.039267
Std. Dev. 0.165306 0.009487 0.067015 0.073759 0.122060 0.150442
Skewness -0.437953 0.200089 0.935588 1.142263 -0.820199 0.548789
Kurtosis 2.166497 1.153516 2.928681 3.517116 5.507087 2.876994
Jarque-Bera 5.482267 13.38617 13.14894 20.57427 33.66147 4.574272

Probability 0.064497 0.001239 0.001396 0.000034 0.000000 0.101557
Sum 37.95050 5.310000 21.74938 11.80690 56.01106 31.56942

Sum Sq. Dev. 2.432008 0.008010 0.399702 0.484197 1.325975 2.014313
Observations 90 90 90 90 90 90
APENDIX FOUR: TEST OF MULTICOLLINIARITY

DG 1.000000 -0.457218 -0.521335 -0.342251 0.205323 0.341202
DIR -0.457218 1.000000 0.760346 0.101593 0.186621 -0.081395
EXR -0.521335 0.760346 1.000000 0.217031 0.023607 -0.119525
IR -0.342251 0.101593 0.217031 1.000000 -0.036885 -0.207661
LDR 0.205323 0.186621 0.023607 -0.036885 1.000000 0.072913
BS 0.341202 -0.081395 -0.119525 -0.207661 0.072913 1.000000

APPENDIX FIVE:HETEROSKEDASTICITY TEST
Heteroskedasticity Test: White
F-statistic 0.914913 Prob. F(20,69) 0.5705

Obs*R-squared 18.86456 Prob. Chi-Square(20) 0.5306
Scaled explained SS 18.18339 Prob. Chi-Square(20) 0.5753
Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 06/18/22 Time: 13:00
Sample: 1 90
Included observations: 90
C -0.616413 6.658435 -0.092576 0.9265

DIR^2 152.1344 2441.859 0.062303 0.9505
DIR*EXR -97.06196 177.7648 -0.546013 0.5868
DIR*IR 1.879639 95.53122 0.019676 0.9844
DIR*LDR -3.962854 4.032273 -0.982784 0.3291
DIR*BS -1.993141 3.432480 -0.580671 0.5634
DIR 5.805945 240.3737 0.024154 0.9808
EXR^2 3.698140 11.24913 0.328749 0.7433
EXR*IR 1.059880 20.23711 0.052373 0.9584
EXR*LDR 0.766861 0.847813 0.904517 0.3689
EXR*BS 0.185920 0.396274 0.469170 0.6404
EXR 3.786656 3.026484 1.251173 0.2151
IR^2 -1.299993 2.718191 -0.478257 0.6340
IR*LDR 0.071957 0.493157 0.145910 0.8844
IR*BS -0.226854 0.333633 -0.679952 0.4988
IR 0.174102 1.594086 0.109218 0.9133
LDR^2 0.031184 0.107362 0.290454 0.7723
LDR*BS 0.154303 0.197438 0.781525 0.4372
LDR -0.013343 0.190471 -0.070054 0.9444
BS^2 -0.057700 0.100999 -0.571289 0.5697
BS 0.046233 0.175300 0.263737 0.7928

Adjusted R-squared -0.019493 S.D. dependent var 0.022183
APPENDIX SIX: TEST OF NORMALITY

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ADMAS UNIVERSITY

SCHOOL OF POST GRADUATE STUDIES

ACCOUNTING AND FINANCE PROGRAM

DETERMINANTS OF DEPOSIT GROWTH OF PRIVATE COMMERCIAL BANKS

A PROPOSAL SUBMITTED TO THE SCHOOL OF POSTGRADUATE STUDIES

BY: GETACHEW MULU

ADVISOR: GIDEY G. (PHD)

ADDIS ABABA, ETHIOPIA

1.1 BACKGROUND OF THE STUDY.................................................................................1

1.2 STATEMENT OF THE PROBLEM................................................................................4

1.3 OBJECTIVE OF THE STUDY........................................................................................5

1.3.1 GENERAL OBJECTIVE..........................................................................................5

1.3.1 SPECIFIC OBJECTIVES..........................................................................................5

1.4 RESEARCH HYPOTHESIS............................................................................................5

1.5 SIGNIFICANCE OF THE STUDY..................................................................................6

1.6 SCOPE OF THE STUDY.................................................................................................6

1.7 STUDY LIMITATION.....................................................................................................7

1.8 ORGANIZATION OF THE PAPER................................................................................7

REVIEW OF RELATED LITRATURES.......................................................................................8

2.1 THEORETICAL REVIEW...............................................................................................8

2.1.1 THE ROLE OF BANKS IN FINANCIAL SYSTEM...................................................8

2.1.2 CONCEPTS OF DEPOSIT...........................................................................................8

2.1.3 COMMERCIAL BANK DEPOSIT..............................................................................9

2.1.4 THE PURPOSE OF COMMERCIAL BANK DEPOSIT...........................................11

2.1.5 THEORIES OF SAVING...........................................................................................12

2.1.5.1 THE CLASSICAL THEORY OF INTEREST........................................................12

2.1.5.2 NEO-CLASSICAL GROWTH THEORY..............................................................12

2.1.5.3 LIFE-CYCLE HYPOTHESIS THEORY................................................................13

2.1.6 DETERMINANTS DEPOSIT GROWTH OF COMMERCIAL BANKS.................14

2.1.6.2 SAVING HABIT.....................................................................................................14

2.1.6.3 SAVINGS DEPOSIT HABIT.................................................................................14

2.1.6.5 EXCHANGE RATE................................................................................................16

2.1.6.6 ADVERTISING AND PUBLICITY.......................................................................17

2.1.6.7 ELECTRONIC BANKING.....................................................................................17

2.2 EMPIRICAL REVIEW......................................................................................................18

2.2.1 EMPIRICAL STUDIES OUTSIDE ETHIOPIA........................................................19

2.2.2 EMPIRICAL REVIEWS IN ETHIOPIA....................................................................20

2.3 KNOWLEDGE GAP..........................................................................................................21

2.4 CONCEPTUAL FRAMEWORK.......................................................................................21

CHAPTER THREE RESEARCH.................................................................................................23

3.1 DESCRIPTION OF THE STUDY AREA......................................................................23

3.2 RESEARCH DESIGN....................................................................................................23

3.3 RESEARCH APPROACH.............................................................................................23

3.4 DATA TYPE AND DATA SOURCE............................................................................24

3.5 POPULATION AND SAMPLE SIZE............................................................................24

3.5.1 SAMPLE SIZE........................................................................................................24

3.5.2 SAMPLING TECHNIQUE.....................................................................................24

3.6 VARIABLE MEASUREMENT AND INSTRUMENT.................................................25

3.6.1 DEPENDENT VARIABLES..................................................................................25

3.6.2 INDEPENDENT VARIABLES..............................................................................25

3.7 METHOD OF DATA ANALYSIS.................................................................................26

3.8 ETHICAL CONSIDERATIONS....................................................................................27

Key words: bank Deposit growth, Determinants, growth, Private bank

AIB - Awash international Bank

ATM- Automatic Teller Machine

CBE –Commercial Banks

DB- Dashen bank

GDP- Gross Domestic Product

ICT- Information and Communication Technologies

LIB-Lion international bank