Ye Abrish Yeteshal New Stationary Ga

ST.
MARY’S UNIVERSTIY
SCHOOL OF GRADUATE STUDIES
MBA IN ACCOUNTING & FINANCE
Determinants of Commercial Banks Deposit

Mobilization
By
Yoseph Ayana Dagnaw
June, 2019
Addis Ababa, Ethiopia
i
ST. MARY’S UNIVERSTIY
Determinants of Commercial Banks Deposit Mobilization
A Thesis Submitted to the School of Graduate Studies of St. Mary’s

University in Partial Fulfillment of the Requirements for Master of
Business Administration in Accounting & Finance.
By: - Yoseph Ayana Dagnaw
Advisor: - Ass Prof. Abraham G.
June, 2019
Addis Ababa, Ethiopia
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ST. MARY’S UNIVERSTIY
Determinants of Commercial Banks Deposit Mobilization
By
Yoseph Ayana Dagnaw
Approved by the Board of Examiners:
__________________ _____________ _______________
Dean of Graduate Studies Signature Date

__________________ _____________ _______________
Internal Examiner Signature Date

__________________ _____________ _______________
External Examiner Signature Date

__________________ _____________ _______________
Advisor Signature Date
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Declaration
I, the undersigned, declare that this thesis is my original work; prepared under the guidance of
Ass Prof. Abraham G. All the sources of materials used for this thesis have been dully
acknowledged. This work is, an original contribution to the existing stock of knowledge making
for its advancement. I further confirm that the thesis has not been submitted either in part or in
full to any other higher institution or university for the purpose of earning any degree.
__________________ __________________
Name Signature and Date
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Endorsement
This thesis has been submitted to St. Mary‟s University, School of Graduate studies for examination
with my approval as a University advisor.
Ass Prof. Abraham G. __________________
Advisor Signature and date
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Dedication
This work is dedicated to Alemitu Ayalew (My Mom), Ayana Dagnaw ( My Dad ), Meseret
Ayana, Tesfanesh Ayana , Mister Abebe (My Wife) , Muse Ayana , H/ Maryam Ayana,
Elizabeth Ayana and all Staff of CBE branch – LVB for their patience, encouragement and
emotional support throughout these three years. God richly bless you all.
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Acknowledgements
I am thankful to the almighty God who saw me through the toughest moments of this program. I
am very grateful to my advisor Ass Prof. Abraham G.who guided and support me right from the
inception of this idea to the end. His comment in assisting me enabled me complete this work in
time.
I thank all my lecturers who thought me throughout the program. I also wish to thank my friends,
particularly those whom I closely shared many special learning experience. I also wish to thank
all the respondents to this study without you this study would not have been complete. I also
appreciate the support and encouragement from my mom Alemitu Ayalew. Finally, I say a big
thank you to all who assisted in diverse ways directly or indirectly in successfully completing
this thesis.
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Abstract
Deposit mobilization is the major services of commercial banks. However,
managing deposits is not possible without knowing and controlling the factors
affecting it. The objective of this study was to identify the determinants of
commercial banks deposit mobilization by considering six independent variables
namely PLS , general inflation rate, the number of branches of banks, per capita
income, deposit (interest) rate, exchange rate to USD. This study had shown that
prize-linked savings , branch expansion, real per capita income and general
inflation are the most significant factors of deposit volume. The deposit volumes of
commercial banks are found to be impacted by the schemes of PLS. From the
questionnaires a small number of employees agreed that customers come to banks
solely due to the existence of PLS. This show there are also other reasons like the
number of branches of banks (accessibility) and quality service by which
customers stimulated to work with banks. Some employees specified that PLS
influenced customers to minimize frequent withdrawal from their accounts.
Employees believe prize-linked saving programs positively affect customers’
attitude towards saving which in turn affects the level of deposits mobilized by the
bank.
Key Words: Prize Linked Saving, Deposits Mobilization, Commercial Banks
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List of Acronyms and Abbreviations
CBE - Commercial Bank of Ethiopia
OLS - Ordinary Least Square
DEP-Deposit
INR - Inflation rate
DIR- Average deposit (interest) rate
RPC- Real GDP per capita growth rate
BRX- Branch expansion of each local bank
EXR - Annual exchange rate of Birr to USD
PLS- Prize linked saving
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Table of Contents
Declaration ................................................................................................................................................. I
Endorsement............................................................................................................................................. II
Dedication ................................................................................................................................................ III
Acknowledgements.................................................................................................................................. IV
Abstract ..................................................................................................................................................... V
List of Acronyms and Abbreviations ........................................................................................................ VI
List of Figures ........................................................................................................................................... X
List of Tables ............................................................................................................................................ XI
Chapter One .............................................................................................................................................. 1
1. Introduction .......................................................................................................................................... 1
1.1 Background of the Study ................................................................................................................. 1
1.2 Statement of the Problem .............................................................................................................. 2
1.3 Research Questions ......................................................................................................................... 4
1.4 Objectives of the Study ................................................................................................................... 4
1.5 Scope of the Study .......................................................................................................................... 4
1.6 Limitation of the Study.................................................................................................................... 4
1.7 Significance of the Study ................................................................................................................. 5
1.8 Organization of the Study ............................................................................................................... 5
Chapter Two .............................................................................................................................................. 6
2. Literature .............................................................................................................................................. 6
2.1 Conceptual Review.............................................................................................................................. 6
2.1.1The Role of Financial Sector for Deposit Mobilization.................................................................. 7
2.1.2 The Function of Banks in Financial Systems................................................................................. 8
2.1.3 Deposit Classifications ................................................................................................................. 9
2.1.4 Purpose of Deposits ................................................................................................................... 10
2.1.5 Determinants of Deposits .......................................................................................................... 11
2.2 Empirical Review ............................................................................................................................... 22
2.3 Summary and knowledge gap ........................................................................................................... 24
2.4 Conceptual framework of the study ................................................................................................. 25
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Chapter Three ......................................................................................................................................... 26
Methodology........................................................................................................................................... 26
3.1. Introduction ..................................................................................................................................... 26
3.2 Research Design ................................................................................................................................ 26
3.3 Research Approach ........................................................................................................................... 26
3.4 Target population ............................................................................................................................. 27
3. 5 Data Types ........................................................................................................................................ 27
3.6 Sample Technique ............................................................................................................................. 28
3.7 Sample size determination ............................................................................................................... 28
3.8 Data Analysis ..................................................................................................................................... 29
3.9 Ordinary Least Square ....................................................................................................................... 30
3.9.1Prize linked saving (PLS) ........................................................................................................... 31
3.9.2 Inflation ...................................................................................................................................... 31
3.9.3 Interest Rates .............................................................................................................................. 32
3.9.4 Exchange Rate.......................................................................................................................... 32
3.9.5 Branch Expansion ...................................................................................................................... 32
3.9.6 Per capita income ..................................................................................................................... 32
3.10 Reliability and Validity Test ............................................................................................................. 33
Chapter Four ........................................................................................................................................... 34
4. Results and Discussions....................................................................................................................... 34
4.1 Analysis of Qualtitative Data............................................................................................................. 34
4.2 Respondents’ personal information ................................................................................................. 34
4.2.1 Age distribution of respondents ................................................................................................ 34
4.2.2 Gender of the respondent ......................................................................................................... 35
4.2.3 Educational background of the respondent: ............................................................................. 35
4.2.4 Duration for Doing Business with CBE ....................................................................................... 36
4.3 Prizes Linked Saving and Deposit Mobilization ................................................................................. 37
4.3.1 Frequency of Savings during Prize Linked Saving ...................................................................... 37
4.3.2 Frequency of Withdrawal during Prize Linked Saving ............................................................... 38
4.3.3 Effect of Prize Linked Saving on Deposit growth ....................................................................... 38
4.3.4 Trend of Prize Linked Saving ...................................................................................................... 40
4.4 Analysis of Quantitative Data ........................................................................................................... 41
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4.4.1 Prize Linked Saving ..................................................................................................................... 41
4.4.2 Deposit Mobilization of Commercial Banks ............................................................................... 43
4.4.3 Branch Expansion ....................................................................................................................... 44
4.4.4 Per Capita Income ...................................................................................................................... 44
4.5 Estimation Techniques ...................................................................................................................... 45
4.5.1 Unit Root Tests ........................................................................................................................... 45
4.6 Correlation results............................................................................................................................ 46
4.7 Regression Analysis ........................................................................................................................... 47
4.7.1 Inflation and Deposit Mobilization ............................................................................................ 48
4.7.2 Interest Rate and Deposit Mobilization ..................................................................................... 49
4.6.3 Per Capita Income and Deposit Mobilization ............................................................................ 49
4.7.4 Exchange Rate and Deposit Mobilization .................................................................................. 50
4.7.5 Branch Expansion and Deposit Mobilization ............................................................................. 50
Chapter Five ............................................................................................................................................ 51
5. Summary of Findings, Conclusion, Recommendation and Further Research Direction ..................... 51
5.1 Summary of Findings ........................................................................................................................ 51
5.2 Conclusions ....................................................................................................................................... 52
5.3 Recommendations ............................................................................................................................ 53
5.4 Direction for Further Research ......................................................................................................... 54
References ................................................................................................................................................. i
APPENDIX 1: Table for Determining Sample Size from a Given Population ............................................ iv
Appendix 2: Questionnaires...................................................................................................................... v
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List of Figures
Figure2.7 Conceptual framework of the study……………………………..…………...……….25
Figure 4.2.1 Age distribution of respondents…..…………………………………………….….34
Figure 4.2.2 Gender of respondents………………………………………………..…….……...35
Figure 4.2.3 educational background of respondents……………………..….………………….36
Figure 4.2.4 shows duration for doing business with CBE.…………………….………..……...36
Figure 4.3.1 frequency of savings during Prize Linked Saving………….…...……..……….…..37
Figure 4.3.2. Frequency of Withdrawal during Prize Linked Saving………...………………….38
Figure 4.4.1.A shows private deposit growth before PLS program…………….….………….…42
Figure 4.4.1.B shows private deposit growth during PLS program ………………….…….……42
Figure 4.4.2 Figure of Total Deposit of local banks in Ethiopia…….…………..………………43
Figure 4.4.3 Branch expansion …………………………………………………..…….…….….44
Figure 4.4.4 per Capita Income …………………………………………………..….…….……45
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List of Tables
Table 3.6.2 Number of employees working in special Grade-4 ……………………..……………...28
Table 4.3.3 : Effect of Prize Linked Saving Deposit Mobilization ………..…..…..….….…….…...39
Table 4.3.4 Trend of PLS ……………………………………………………….…...……….……...40
TABLE.4.5.1 Unit Root Tests ……………….……………………………….…..……..…...….…46
Table 4.5.3 Correlations ……………………………………………….……………….……………47
Table 4.6.1 Regression analysis result …………………………………………………..….…….....48
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Chapter One
1. Introduction
This chapter presents the background of the study, statement of the problem, research questions,
and objectives of the study, scope of the study, limitation of the study, significance of the study
and organization of the study.
1.1 Background of the Study

Deb (1988) stated, mobilization of deposit for a commercial bank is as essential as oxygen for
human being. Deposit mobilization is one of the main functions of banking business and so an
important source of working fund for the bank. Deposit mobilization is the collection of cash or
funds by a financial institution from the public through its current, savings, fixed accounts and
other specialized schemes. Since deposits are normally considered as a cost effective source of
working fund, the bank‟s ability to lend more as well as its success greatly lies on its deposit
mobilization. However, the bank‟s ability to manage and mobilize enough funds from the public
through its current, savings, fixed accounts and other specialized schemes will depend on the
systems employed in this highly competitive industry (Digaria, 2011).
Managing deposits is not possible without knowing and controlling the factors affecting it.
Various studies explained different factors affecting commercial bank deposits. As Desinga,
(1975), the variables of commercial banks deposits determinants classify into two, namely
exogenous and endogenous factors. Exogenous factors are the factors that are not controlled by
bank and endogenous factors are factors that are controlled by the bank. Exogenous factors are
further sub divided into two, i.e. country specific factors and bank specific factors. The bank
specific factors are factors that are specific to the banking system and the country specific factors
are factors that are beyond the banking system. Country specific factors includes saving interest
rate, inflation, real interest rate, population growth of the country, per capita income of the
society, economic growth (as measured by real GDP), consumer price index and shocks. Bank
specific factors include liquidity of the bank, profitability of the bank, security of the bank,
number of commercial bank‟s branches, bank size, reserves and transaction cost. The
endogenous factors include awareness of the society, convenience of bank‟s office and services
in the bank. The significance of each factor differs across group of countries, countries, and time
period (Adams et al, 2012).
Determinants of Commercial Banks Deposit Mobilization Page 1
Categorizing deposit mobilization programs on a spectrum from coercive to exciting, Tufano and
Schneider (2007) consider prize-linked (Herein after PLS) savings a program that could make
deposit exciting, by leveraging the excitement generated by gambling and lotteries.
Prize-linked savings here offered as new exciting deposit mobilization instrument in over twenty
countries around the world including the U.K., Sweden, South Africa and many Latin American
and Middle Eastern countries (Tufano and Schneider, 2007).
PLS account differs from standard deposit account in one specific way. Instead of, or perhaps in
addition to, offering a fixed interest return, PLS accounts offer a specific return in that depositors
periodically receive a chance to win in the form of in kind prizes as in commonly offer by
commercial banks in Latin America or a cash prize awarded to account holders as a part of a
regular drawing, as in the case with Britain‟s premium bonds (Tufano and hurst, 2010).
As predicted by theory and international experience, interest in prize-linked savings is greatest
among people who do not have regular saving habits, who have little actual savings, who play
lotteries extensively, and who are optimistic about their futures. In this regard Commercial
Banks of Ethiopia aimed at increasing house hold saving rates and deposit mobilization through
PLS account target low-savers segment of the population. It started in 2012 by state owned
commercial bank of Ethiopia. (www.cbe.com.et/more/cbenews) Because PLS programs are
fairly new, there is limited research on their influence on deposits growth. Therefore, this study
makes an attempt to examine the determinants (along PLS) of deposit mobilization.
1.2 Statement of the Problem

The successful functioning of commercial banks depends on the extent of funds mobilized and
deposits constitute a vital source of funds required for banking business underscoring the vitality
of sourcing a reliable and low-cost funding for banks to dependably make loans and refinance
their operations. Financial resources of banking systems are naturally provided from people‟s
deposits (Mohammad and Mahdi, 2010). As result, examining factors that can affect deposit
would help for banks to formulate deposit mobilization strategies.
Various researchers tried to study about factors affecting deposit mobilization in Ethiopia. Tizita
(2014) found that branch expansion has negative effect on private saving in the short term. She
also reveals that inflation rate influenced private saving negatively and significantly. However,
Wubetu (2012) found that Branch expansion had positive and significant effect on total deposit
whereas deposit interest rate and inflation rate were insignificant. These contradictory findings

revealed that there is inconsistency among researchers on factors affecting deposit mobilization.
By the same token, Ngula (2012) found that the exchange rate between the Ghanaian Cedi and
US dollar was found negatively and significantly influence bank deposit. As he explained, the
rise in exchange rate might lead to lower levels of deposit. People substitute domestic currency
for foreign currencies as a means of financial saving. He also found that banks‟ ability to
mobilize more deposit is reduced when there is an increase in inflation rate. However, Deposit
interest rate found to have a positive relationship with bank deposit mobilization.
With respect to Ethiopia, according to literatures (Wubetu, 2012; Tizita, 2014; Shemsu , 2015;
Bahredin , 2016) examines the deposit mobilization determinant factors. Determinant variables
commonly explained as factor affecting deposit mobilization are, economic growth, inflation,
interest rate, population growth, money supply growth, exchange rate,) and branch expansion.
However, there are other bank specific and macroeconomic specific variables that were not
included. Thus, this study is undertaking similar study by considering additional macroeconomic
and bank specific variables.
Commercial banks developed a variety of deposit mobilization strategies and programs to meet
their financial targets and ultimately satisfy the economy‟s massive need for financial resources.
Tufano and Schneider (2007) consider prize-linked savings a program that could encourage
saving habit in the country and increase the deposit mobilization of commercial banks.
Despite their successful history in other countries, prize linked saving are relatively unstudied by
Ethiopian scholars. Guillen and Tschoegl (2002) survey programs around the world, describe
Latin American‟s PLS programs in some detail. They report that in Latin America, PLS products
appealed to low income and unbanked individuals. In South Africa, the Million-a-Month
Account offered by South Africa‟s First National Bank (Cole et al., 2007) generated many
accounts and mobilized large amount of deposit in two years‟ time (Mabuza, 2007).
The PLS scheme is started by state owned commercial bank of Ethiopia as a means to achieve
deposit mobilization plan. The Commercial Bank of Ethiopia launched PLS program in 2012 and
had conducted six rounds of the program (www.cbe.com.et/more/cbenews). The program is
linked to all kinds of private deposit accounts through which depositors have a chance to win
prizes without losing the conventional benefits of the products. While international evidence
suggest a PLS positively affect deposit but its effect on deposit mobilization process in Ethiopia
is untouched.

1.3 Research Questions
The following research questions were addressed in the study.
How PLS program trend looks like?
What is the effect of PLS program in deposit mobilization?
How macroeconomic and bank specific factors affect deposit mobilization of commercial
banks in Ethiopia.
1.4 Objectives of the Study

The main objective of this study is to investigate the casual factors of deposit mobilization in
commercial banks Ethiopia.
The specific objectives include;
To assess the trend of PLS program.
To examine the effect of PLS on deposit mobilization.
To investigate the effects of bank specific factor deposit in commercial bank in Ethiopia.
1.5 Scope of the Study

Even though, deposit mobilization program performed by many other banks, this study was
limited to commercial bank of Ethiopia which is the only bank that started PLS in Ethiopia. Due
to time constraints and other resources, the study focuses on CBE Grade-4branches within in
Addis Ababa. The researcher was interested to see the effect of PLS on deposit mobilization.
Additionally, to understand the trend of PLS and drew a more valid inference on deposit
mobilization determinant factors this study incorporates some of the bank specific and
macroeconomic factors. However, this study had conducted on exogenous factors which are
more conducive for deposit mobilization, however endogenous factors such as location, type of
building and window dressing (furniture, cheque books, vouchers, pay slips etc.) were not
included in the research.
1.6 Limitation of the Study

The study had only one dependent variable, deposit of commercial banks and six independent
variables namely inflation rate, per capita income, interest rate, branch expansion, and exchange
rate. Even if there are many different determinant factors, the researcher was interested to see the
effects of the mentioned independent variables on the named dependent variable. Regarding to
PLS data gathered only based on questionnaires responses that might not offered much insight on

its effect on deposit and 255 questionnaires were distributed to the respondents which might not
as much of representative to the whole population. The use of purposive sampling may limit
generalizing research result to the population may rarely limit the study.
1.7 Significance of the Study

Despite the critical role commercial banks play in mobilizing deposit for investment and
economic growth (Wubetu, 2012; Tizita, 2014; Shemsu, 2015; Bahredin, 2016), the literature on
determinants of deposit mobilization did not identify the effect of PLS on deposit mobilization
trend. The experience with PLS accounts in Ethiopia is limited. Consequently, current strategies
to enhance deposit mobilization in Ethiopia remain deficit of such vital evidence which
potentially compromise the prospect for PLS to fuel economic growth through deposit
mobilization. This is a critical information gap which this study sought to fill.
The study also expands the existing body of knowledge on determinants of deposit mobilization.
In the context of Ethiopia‟s financial sectors, the study generates evidence with financial service
providers can produce PLS accounts into their products portfolio to increase in total deposit. The
study is also essential to provide additional findings on the PLS issue and can also be used as
groundwork to do other related research issues.
1.8 Organization of the Study

The rest section of the report organized in to four chapters. Chapter two reviews literature on
both theoretical and empirical studies on the link between bank deposits and economic growth,
assessment of research work on savings and the variables that influence its mobilization and
overview of banking in Ethiopia and the methodology employed for assessing the quantitative
significance of the determinants factors of savings mobilization. Chapter three includes
questionnaire, interviews and the use of statistical tools Chapter four presents the results of
analysis done and Chapter five conclusion and suggests recommendations for policy
consideration.

Chapter Two
2. Literature
This chapter deals with a review of both theoretical and empirical literature on the subject under
study. In the Tables theoretical review part, the theories that states about the commercial banks
deposits and reviewed related literature regarding the role of financial sector for economic
development of a country and included explanations as to what deposits are and the types of
deposits and the variables that is claimed to affect it are discussed. The empirical literature part
discusses past studies that were conducted on the area of factors determining commercial banks
deposits. In this part, the variables of deposit mobilization and the results of the study under
review are discussed.
2.1 Conceptual Review

Commercial Banks deposits are dependent on depositor‟s money as a source of funds. According
to the Keynesian theory of demand for money, there are three main motives why people hold
money: transactions, precautionary and investment motives. In order to cater for these motives,
commercial banks offer three categories of deposit facilities that are demand, savings and time
deposits. Demand deposit facility is most commonly referred to as current account and is
designed for those who need money for transaction purposes. This motive can be looked at from
the point of view of consumers who want income to meet their household expenditure and from
the viewpoint of businessmen who require money and want to hold it in order to carry out their
business activities. Hence, the purpose of deposit facility is for convenience or for making daily
commitments. Bank deposits represent the most significant components of the money supply
used by the public, and changes in money growth are highly correlated with changes in the prices
of goods and services in the economy (Sergeant, 2001).
Bank deposits are made to deposit accounts at a banking institution, such as savings accounts,
checking accounts, time deposit accounts and money market accounts. The account holder has
the right to withdraw any deposited funds, as set forth in the terms and conditions of the account.
The "deposit" itself is a liability owed by the bank to the depositor (the person or entity that
made the deposit), and refers to this liability rather than to the actual funds that are deposited.
For a commercial bank, deposits are the oldest, most stable and, by volume, most significant
source of funding. In the traditional model of the bank as an intermediary between savers and

borrowers, deposit is the counterpart of the loan. Stable funding is vital for banks and the
financial system. This warrants analysis of the significance of a reliable, low-cost way for banks
to refinance their operations. Financial resources of banking systems are naturally provided from
people‟s deposits (Mohammad and Mahdi, 2010).
The bank provides savers with the opportunity to earn interest on surplus funds and make an
investment that is nevertheless readily available for withdrawal and also in safe hands, while
granting longer-term loan on fixed term and condition to person or companies that do not have
enough fund of their own investment or consumption purposes. Deposits are not only a crucial
funding instrument for banks, but also one of the most important forms of investment for private
individuals. Mobilization of deposits for a bank is as essential as oxygen for human beings. As a
result, mobilization of savings is one of the important objectives of the commercial banks and
instruments to expand banking operations, by providing subsidy for branch expansion. The
successful functioning of commercial banks depends on the extent of funds mobilized (Sophie
and Jan, 2012).
2.1.1The Role of Financial Sector for Deposit Mobilization

Financial sector mainly constitutes financial markets and financial institutions. A financial
market is a market in which financial assets (securities) such as stocks and bonds can be
purchased or sold. Financial markets, thus, facilitate the flow of funds and thereby allow
financing and investing by households, firms and government agencies (Madura, 2011).
Examples include commodity markets, money markets and capital markets. Financial institutions
(intermediaries) are institutions that provide financial services for their customers. They play an
important role in the economy because they provide liquidity services, promote risk sharing and
also solve information problems thereby allowing small savers and borrowers to benefit from the
existence of financial markets. Financial institutions can be divided into:
1. Depository institutions (e.g. commercial banks, savings institutions, credit unions) that obtain
funds mainly through deposits from the public; and,
2. Non-depository institutions (e.g. finance companies, mutual funds, securities firms, insurance
companies, pension funds) that finance their investment activities from the sale of securities or
insurances. Commercial banks are the most dominant depository institution. They serve investors
by offering wide variety of deposit accounts, and they transfer deposited funds to deficit units by
providing direct loans or purchasing debt securities

2.1.2 The Function of Banks in Financial Systems
Understanding the many roles that banks play in the financial system is one of the fundamental
issues in theoretical economics and finance. The efficiency of the process through which savings
are channeled into productive activities is crucial for growth and general welfare. Banks are one
part of this process. Lenders of funds are primarily households and firms. These lenders can
supply funds to the ultimate borrowers, who are mainly firms, governments and households, in
two ways. The first is through financial markets, which consist of money markets, bond markets
and equity markets. The second is through banks and other financial intermediaries such as
money market funds, mutual funds, insurance companies and pension funds. Financial sector is
broad which consists of the banking sector and other financial institution (such as insurance
corporations and pension funds, brokers, public exchange and securities markets etc.). However,
in the context of African continent the banking industry carries the greater share of the financial
system (Sheku, 2005). Most of the business relies on banking sector as a source of financing
(Medhat, 2004). Banks have historically been viewed as playing role in financial markets for two
reasons. One is that they perform a critical role in facilitating payments. Commercial banks, as
well as other intermediaries, provide services in screening and monitoring borrowers; and by
developing expertise as well as diversifying across many borrowers, banks reduce the costs of
supplying credit (Samolyk, 2004). Thus, in their role as lenders, banks are often not merely
buying someone‟s debt, rather they are providing significant financial services associated with
extending credit to their customers and to the extent that investors want to hold banks liabilities,
banks can fund borrowers directly. The main providers of additional financing are domestic
commercial banks (Herald &Heiko, 2008).
Banks perform various roles in the economy (Franklin & Elena, 2008): - They improve
the information problem between investors and borrowers by monitoring the latter and
ensuring a proper use of the depositors‟ fund.
They provide inter temporal smoothing of risk that cannot be diversified at a given point
in time as well as insurance to depositors against unexpected consumption shocks.
Because of the maturity mismatch between their assets and liabilities, however banks are
subject to the possibility of runs and systematic risk.
Banks contribute to the growth of the economy.

Russell & Bamindele (2009) states that Commercial banks are institutions that engages in two
distinct types of activities, deposit-taking and lending. So that banks are playing mainly
intermediation function. Mahendra (2005) also states banks as the backbones of the trade and
commerce playing the intermediary role of capital formation and supply. Even if other financial
institutions are available banks play a major role in facilitating the way the financial sector
operates. Therefore, banks are important of all other financial institutions. Adam (2005) argue
banks influence macroeconomic environment, as to, bank failures involve significant
macroeconomic costs. Adam (2005) has developed evidence that bank failures have significant
and apparently permanent effects on real economic activity. Therefore, banks are also important
influencers in macroeconomic environment. Banks mobilize, allocate and invest much of
society‟s savings. Households and businesses are mainly using banks to save their money to get
loan for their project undertakings. Kelvin (2001) said that commercial banks are important
financial intermediaries serving the general public in any society.
2.1.3 Deposit Classifications

Commercial banks offer three categories of deposit facilities that are demand, savings and time
deposits respectively (Desinga, 1975).
A. Saving accounts
These accounts are opened by many people who need to save their wealth usually beyond current
consumption and in anticipation of future investment Such as building own house, buy car and to
self-sponsor education etc. In doing so the account holder earns interest on the saving balance.
Saving accounts are the most favored deposit account for commercial banks as they are cheap
and are usually stable in nature. They are the services with which banks reach out the broad mass
of people.
B. Demand or current accounts
These deposits are generally used by business persons to settle debts usually through use of
cheques. They are most often ready for Payment upon demand anytime and usually no interest is
paid on these accounts.
C. Time or Term Deposits
These deposits are kept by the bank for specified period of time per the agreement between the
bank and depositor. Higher interest rate is paid by the banks for such kinds of deposits depending

upon the amount of deposits and the length of period for keeping the deposits provided there is
no Breach of the agreement.
2.1.4 Purpose of Deposits

From depositors‟ point of view, the key purposes to use deposit in bank are safety of their
money, easy access and a possible real return. In general depositors keep their money in banks
for a motive to undertake some activities in the future.Deposits are the foundation upon which
Banks thrive and grow. They are a unique item on banks‟ balance sheet that distinguishes it from
other types of business firms.
A. Source of Fund for Loan
Herald and Heiko (2009) states deposits are the main source of banks to provide loan. This
deposit is mainly provided by people (Mohammad and Mahdi, 2010). However, deposits can
also be provided by business organizations, NGOs, government and so on. Therefore, whether
deposits are from individuals, businesses and government they are important financial source of
banks.
B. cheaper than raising equity
Banks as any other business organizations can collect funds from debt and/or equity. In the banks
context, raising equity is more expensive or costly than attracting deposits. (Lorenzo et al 2010)
states that, if the lending channel plays a role, the deposit growth should lead to an increase in
the supply of loans due to the additional source of financing for banks. As demand for loan
increases because of the development work done by individuals, businesses and government,
banks should extend their deposit base. When a commercial bank creates a deposit by lending to
a business man, it is clearly performing a function for which it is entitled to a return in the form
of interest payments (Harold, 1946).
C. Fund investment and/or development projects
Debt is largely held by domestic commercial banks which are funded mainly from deposits, the
government demand for bank assets enabled banks to continue to expand their deposit base
rapidly (Herald &Heiko, 2008). Individual investors and government are mainly depending on
the deposits of banks to fund their investments and/or development projects.
D. Profit Making
Deposits provide most of the raw materials for bank loans and thus represent the ultimate source
of the bank‟s profits and growth (Mahendra, 2005). Banks make profit by using their deposits,

therefore it is said that depositors can disciple banks. (Maria & Sergio, 2001), found that
depositors discipline banks by withdrawing deposits and by requiring higher interest rates. For
depository corporations mainly deposit money banks, their principal objectives are undertaking
financial intermediation to make profit and increase their shareholders value (Sheku, 2005). They
achieve their objectives mainly by attracting deposits and investing the money on profitable
investment portfolio.
Generally, the banking system can be viable only if it can mobilize deposits at the required rate.
And this can be done only by making a bank deposit more attractive (Bhatt, 1970). The ability of
a bank‟s management and staff to attract checking and savings accounts from business and
individuals is an important measure of the bank‟s acceptance by the public (Mahendra, 2005).
Banks‟ management major concern is the variability of deposits for several reasons. Kaufman
(1972), mentioned the reasons why the variability of banks‟ deposit is important as follows: -
Deposit variability is frequently included as an important determinant of portfolio

strategy. The more volatile a bank‟s deposits are the more liquid its mix of assets will be.
To the extent deposit variability affects bank holdings of cash and excess reserves,
variability affects the distribution of total member bank reserves within the banking
system and thereby the path and speed of monetary policy actions.
To the extent deposit variability affects the mix of banks assets; it affects the availability
of funds for loans and consequently the loan rate.
To the extent deposit variability affects both the mix of earnings assets and the frequency
of engaging in costly reserve adjustments, variability affects the profitability of individual
banks.
Deposit variability is an important factor influencing bank use of the Federal Reserve
discount window and thereby affects discount administration.
2.1.5 Determinants of Deposits

Currently financial liberalization has intensified competition among financial institutions, thus
forcing commercial banks to compete for deposits in various forms (Sudin et al, 2006). This is
because deposits are the major raw materials for provision of loans on which banks make the
intended profits to the owners.

The success and efficiency of any credit agency, which is also a banking institution is, depend on
the ability to mobilize the savings of the community in the form of deposit. But deposit
mobilization is very difficult task. It depends up on various factors claimed to have effect on the
banking system (Desinga, 1975).
As (N. Desinga, 1975), classify the variables which are claimed to have effect on the commercial
banks deposits into two, namely exogenous and endogenous factors. Exogenous has further
divided into country specific and bank specific factors for clarification purpose. Endogenous
factors can be controlled by the banking system; however, the exogenous factors cannot be
controlled by the banking system.
The bank specific factors are factors that are specific to the banking system and the country
specific factors are factors that are beyond the banking system. Exogenous factors are the general
economic environment of the region, the volume of business transaction of the region, the
confidence of the people on the banking system, the banking habit of the people and the saving
potential of the region. Even when exogenous factors are more conducive for deposit
mobilization, banks may fail because of unfavorable endogenous factors such as location, type of
building and window dressing (furniture, cheque books, vouchers, pay slips etc), which assure
the customers about the physical fitness of a bank (Desinga, 1975).
Endogenous factors can be controlled by the banking system; however, the exogenous factors
cannot be controlled by the banking system. The bank specific factors are factors that are specific
to the banking system and the country specific factors are factors that are beyond the banking
system.
2.1.5.1External Factors (Country &Bank Specific Factor)

These are factors that are from country and banks that can affect the growth of commercial banks
deposits (Herald &Heiko, 2008) There are discussed as follows: -
The country‟s economic, social and political factors can affect the commercial banks deposit.
According to Herald &Heiko (2008), country specific risks such as political, economic and
financial risks may affect the propensity for depositors to place funds in the banking system. Any
single bank operates under the rule and regulation of the country where it belongs, also different
problems and shocks that has happened in the country has its own concern in the banks
operation. Generally, a bank success in their operation is mainly depends on the environment
where the business is undertaken. There are around ten country specific factors that have affected

the commercial banks deposits. They are saving interest rate or PLS, deposit rate, inflation, real
interest rate, number of commercial banks available in the country, population growth, per capita
income of the society, economic growth, consumer price index, gross domestic product (GDP),
shocks and exchange rate.
A. Bank Specific Factor
1. Prize Linked Saving
The survival of every commercial bank highly depends on bank deposit because deposit
mobilization is a major activity of all commercial banks. As the result, the issue of banks deposit
and its determinants is crucial to the financial sector of developing country like Ethiopia.
Prize-linked savings are offered as new exciting saving instrument in over twenty countries
around the world including the U.K., Sweden, South Africa and many Latin American and
Middle Eastern countries (Tufano and Schneider (2007). However, the scheme is at its early
stages in Ethiopia. It started in 2011 by state owned commercial bank of Ethiopia and reward the
winners of the prize for two six and now starting the seventh round „save and win‟ campaign.
Policy initiatives aimed at increasing house hold saving rates like prize –linked saving (PLS)
account that adds a lottery like feature to on other wise standard saving account, creating an asset
structure that might hold great appeal to the target low-savers segment of the population.
PLS account differs from standard saving account in one specific way. Instead of, or perhaps in
addition to, offering a fixed interest return, PLC accounts offer a specific return in that depositors
periodically receive a chance to win in the form of in kind prizes as in commonly offer by
commercial banks in Latin America or a cash prize awarded to account holders as a part of a
regular drawing, as in the case with Britain‟s premium bonds. (Kearnyet al, 2010).The save to
win program was very successful in helping Michigan residents in America learn the habit of
saving. The Michigan program encouraged residents that were classified as non-savers to open
the first saving account specifically ,56% of the Michigan participants in a program were non
savers to prior to the program.
The program successfully attracted non-savers, assert poor and low to moderate income groups
to open an account and also made positive impact on their saving behavior (Doorways, 2010).
PLS products combine saving with the thrill of winning prizes (but without the risk of losing
principal), PLS would appeal to lottery players and gamblers. (Tufano et al, 2010).

Kumar (2000) stated that, these are some of the more important expected changes in banking
industry operations in the near future. Most banks will adopt at least a few of these policies to
maintain enough cash deposit and profitability. Perform a savings account comparison to take
advantage of improved bank rates and terms. Take advantage of the positive changes in this
group and closely examine their new income ideas. Always compare your institution with its
competitors to learn of the best and most cost-effective offers. Go beyond interest rates to attract
new customers. Most banks will not be able to beat the interest rates offered on a national level.
One of the most difficult things for a bank to communicate to potential customers is the quality
of customer service offered. Use testimonial-based advertisements to highlight the benefits of
customer service. This is particularly important for long-term loan relationships such as
mortgages. If customers believe that a loan officer at your bank will be attentive to their
individual needs, they may be more likely to overlook differences in interest rates (Kumar,
2000). Increase customer access to funds by expanding ATM networks and improving online
banking offerings. ATMs and online banking are less expensive than training and paying tellers.
But building an ATM network is expensive, particularly if you're not a franchise of a larger
national bank. Many smaller banks have gotten around this issue by subsidizing fees paid to out-
of-network ATMs. This allows smaller banks to offer the same ease of access as larger banks at a
relatively low cost (Kumar, 2000). Create time-limited marketing incentives to attract new
deposits. Offer to pay termination and transfer fees from old banks. Offer cash payments for
deposits over a certain amount. To maximize effectiveness, limit the offer to a period of 60 days
or less and emphasize that fact in advertisements. Offer tiered rewards depending on the level of
deposit made. In most cases, customers will stay with a bank that they have opened an account
with for years (Kumar, 2000). Measure the effectiveness of your marketing. Try to run only a
few marketing initiatives at any one time so you can more easily measure their effectiveness.
Repeat promotions that have measurable results, and curtail the campaigns that fail. Consider
how profitable a campaign was per dollar amount (Kumar, 2000). Offer higher interest rates on
savings accounts and lower interest on loans to existing customers with high bank balances. It's
much less expensive to keep a customer that you already have than to attract a new one. Tiered
accounts create incentives for your customers to keep their business with you rather than shop
around elsewhere (Kumar, 2000). Adding "rewards" features to transaction accounts (checking,
money market accounts, etc.). The success of rewards credit cards is sparking interest in offering

similar features to other deposit and transaction accounts. Individuals should examine these
offers from their current institution and competing programs from other banks. Compare money
market rates and "rewards" to find the best program for you (Kumar, 2000).
Prize-linked savings (PLS) products offer savers a return in the form of the chance to earn large
prizes, rather than in more traditional forms of interest or dividend income or capital
appreciation. The probability of winning is typically determined by account balances, and the
aggregate prize pool can be set to deliver market returns to all savers. Categorizing savings
programs on a spectrum from coercive to exciting, Tufano and Schneider (2007) consider prize-
linked savings a program that could make saving exciting, by leveraging the excitement
generated by gambling and lotteries. This overlap between prize-linked savings and lotteries is
important as survey results show that low-income families believe they are more likely to build
wealth by playing the lottery than by traditional saving with compound interest (Holton, 2000;
Consumer Federation of America, 2006). This attitude of savers that they can accumulate wealth
by playing lotteries has to change by the increase in promotional efforts of commercial banks
towards bank savings.
The introduction of the PLS program alters the attitude of individuals, who now have the option
of investing in a novel financial product which possesses the salient features of lottery tickets,
with the appeal of skewness, and traditional savings, with liquidity and principal security
(Tufano et.al, 2008). PLS accounts combine the traditional savings account feature that
guarantees the principal investment with a lottery that provides a chance for a life changing
payoff (Kearney et.al, 2011). Hence, a high level of PLS promotional effort by commercial
banks helps change the attitude of savers favorably which intern boosts the level of deposit.
2. Branch Expansion
There is a relationship between commercial banks deposits and commercial bank‟s branch
expansion. Not only are deposits influenced by bank branches, but the expansion of bank
branches is also influenced by the level of deposits in any area (Baquiet al, 1987). It is expected
that banks make decisions on expanding their facilities by considering factors such as level of
competition, deposit potential, regional income and existence of road and vehicles. As deposit
potential is one thing that banks consider in expanding its branches, the deposit can also be a
reason for branch expansion strategy that the banking sector uses. According to Erna and Ekki

(2004), there is a long run relationship between commercial bank branch and commercial banks
deposits.
In the study of Bruce and George (1965), the following variables are mentioned and claimed to
have effect on the banks‟ deposits: - Banking industry is one of the service giving industries.
Consequently, a major factor influencing decisions of whether to hold commercial bank deposits
is convenience of bank offices. Branch expansion are believed to increase total deposit of banks
in an area by capturing some funds which otherwise would have either been placed in banks
outside the area or escape the banking system (Bruce and George, 1965). As to them other things
being equal deposit growth may be expected to be positively associated with increases in the
number of banking offices. Moreover, they conclude that other things being equal states
permitting branch banking would experience faster deposit growth than states which forbid
branch banking and the more liberal the branching regulations, the faster the deposit growth.
Andinet (2016) had examined factors influencing deposit mobilization in private commercial
banks in Ethiopia by explain variables such as number of bank branches, deposit interest rate,
liquid asset to deposit ratio, lagged value of bank deposits, net interest margin, inflation rate and
economic growth (GDP). He showed that number of bank branches was significantly and
positively correlated with total deposit. Sisay (2013) had examined deposit mobilization of
private commercial banks at Awash International Bank S.C. and he had stated aggressive branch
expansion of CBE is strongly influence the deposit mobilization process.
3. Saving Interest rate
One of the most effective factors for deciding to deposit in banking system is the interest rate
(Mohammad & Mahdi, 2010). Herald &Heiko (2008) also mentioned interest as one of the
determining factor for commercial banks deposits. Moreover, Philip (1968) states that the
offering of attractive interest rate on bank deposits may be considered to have had a beneficial
effect. Mustafa &Sayera (2009) said that low deposit rates are discouraging saving mobilization.
Bhatt (1970) said that the banking system is unlikely to be in a position to meet the demand for
bank credit unless concerted policy is pursued to raise the rate of saving generally and the rate of
saving in the form of deposits in particular.
Interest rate in the banking system is held as investment cost from the investor‟s point of view
and opportunity cost from the depositor‟s point of view (Mohammad & Mahdi, 2010). Thus,
capital market forces balance interest rates. In other words, the just and correct interest rate

should be determined through market mechanism, that is, interest rate is balanced in supply and
demand conditions in proportion with the inflation rate. Eustacius& David (1995) states that
deposits are more interest rate sensitive and banks may choose to increase investments in interest
rate sensitive assets and to decrease investments in loans. That is commercial bank deposits are
interest rate sensitive, therefore as the interest rate changes the deposit of the commercial banks
will change.
Other things equal, the alternative offering higher interest rate would be expected to attract the
greater amount of funds (Bruce and George, 1965). Therefore, they state that deposits may be
expected to grow faster where banks offer higher interest.
B. Country specific factors
1. Inflation
As to Herald &Heiko (2008) inflation is one of the factors that determine commercial banks
deposits. Mahdi (2010) showed that in Latin America the effect of inflation on savings and time
deposit to GDP was significantly negative. The classical belief is that, because bank assets and
liabilities are expressed in monetary terms and because these assets will normally grow in line
with growth in money supply, banks are relatively immune from the effects of inflation
(Devinaga, 2010). In brief, monetary policy works by controlling the cost and availability of
credit. During inflation, the Central bank can raise the cost of borrowing and reduce the credit
creating capacity of commercial banks. This makes borrowing costlier than before and thereby
the demand for funds will be reduced. Similarly, with a reduction in their credit creating
capacity, the banks will be more cautious in their lending policies. Since the banks demand for
fund decreases obviously the deposits will decrease. Banking system was affected by inflation in
terms of deposit absorption and facilities grant (Mohammad & Mahdi, 2010). As to Mohammad
& Mahdi (2010) in developed countries negative correlation between inflation and absorbed
deposits and granted facilities has been documented.
Inflation is seen as an economic problem in developed countries in the second half of 20th
century. Inflation with effect in economic growth, employment, income distribution and wealth
as well as social and political conditions of a country can influence its entire dignity
(Mohammad & Mahdi, 2010). Banking system as an important effective factor in economic
performance has also been under the influence of inflation. As far as the effect of inflation on
financial sector conceived the literature demonstrates that inflation affects the capacity of

financial sector for optimal allocating of resources. That is as inflation rate increases, true yield
rate of money and assets decreases; therefore, deposits are no longer attractive. Also the increase
of inflation rate has a negative effect on the performance of financial sector through the market
credits and in turn, on the performances of banks and capital markets and finally on the long term
economic growth (Mohammad & Mahdi, 2010). With respect to the effect of inflation on
savings, it can be mentioned that in general, all individuals who save a part of their incomes in
banks are directly damaged by the inflation and their assets decrease in proportion with money
value decrease (Mohammad & Mahdi, 2010). In that case as Mohammad & Mahdi (2010)
describes people try to change their cashes and savings to more reliable and stable forms such as
land, jewelry, antiques, art collections, foreign currencies that causes to definite decrease in
commercial bank‟s total deposit.
There are many diverse scholarly works to investigate the consequence of several factors on
banking industry. Valahzaghard et al. (2012) explored the influence of macroeconomic
indicators on credit risk in the banking system of Iran and stated that no significant relationship
between the inflation rate, employment rate, unemployment rate, the dollar, the euro, with import
growth of credit risk in the banking system in Iran.
Shemsu (2015) had investigated to identify factors affecting bank deposit in by taking
Commercial Bank of Ethiopia as evidence. He had considered deposit interest rate, overall
inflation rate, and number of branch opening, gross domestic product and individual foreign
remittance as variables. In his findings overall inflation rate affect CBE‟s deposit positively.
2. Per capita income of the society
Income is the consumption and savings opportunity gained by an entity within a specified time
frame, which is generally expressed in monetary terms. It is money that an individual or business
receives in exchange for providing goods, services or through investing capital. For households
and individuals, income is the sum of wages, salaries, profits, interests‟ payments, rents and
other form of earnings received in a given period of time. One assumption would be that as
incomes rises; deposits with banks do so as well. According to the Narasimham Committee
(1991) the growth of bank deposit is a function of the level of income and savings. Poul and
Bhattacharyay (1986) had studied the behavior of bank deposit and their components during
1971-81, and reported as income, either permanent or current, seems to be the dominant variable
affecting bank deposits. The study concluded that, income to deposit ratio is statistically

significant and positively related. According to (Jim, 2008), per capita is the level of GDP
divided by the population of a country or region. Changes in real GDP per capita over time are
often interpreted as a measure of changes in the average standard of living of a country. If
households and firms desire to hold more money, deposits will increase. So the since relationship
between income and deposits is positive that is as the income of the society increases the same
happens for the commercial bank‟ deposits. Income is expected to have a positive effect on
deposits (M. A. Baqui & Richard L. Meyer, 1987). Therefore as society‟s per capita income
increases the same will happen for commercial banks deposits. (Mahendra, 2005), also indicates
that income of the society matters for banks‟ deposit growth.
According to Jim (2008), per capita is the level of GDP divided by the population of a country or
region. Changes in real GDP per capita over time are often interpreted as a measure of changes
in the average standard of living of a country. If households and firms desire to hold more
money, deposits will increase (Evan et al, 2006). So the relationship between income and
deposits is positive, that is as the income of the society increases the same happens for the
commercial bank‟s deposits. Therefore, as society‟s per capita income increases the same will
happen for commercial banks deposits.
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). Exchange rate allows denominating the
cost or price of a good or service in a common currency. As Thomas‟s explanation, the term
depreciation and appreciation is used to show the decrease and increase in the value of currency.
Depreciation is a decrease in the value of currency relative to another currency. Appreciation is
an increase in the value of a currency relative to another currency. As ECONOMIC Help online
explained, the main factors that influence exchange rate are: inflation, interest rate, speculation,
and change in competitiveness, balance of payment, government debt, government intervention
and Economic growth / recession.
According to Nugel (2012) as currencies depreciated in one country deposit will be reduced
since investors tend to withdraw deposit and exchanged to keep it by appreciating currency
(Hard currency) or invest in another form of investment rather than bank deposit. Alemayeh

(2015) also confirms that for developing country in general saving is negatively correlated with
unstable exchange rate.
Herald and Heiko (2009) had written a working paper which empirically examines the demand
for commercial banks deposits in Lebanon, a regional financial center. They classified the
variables into two, i.e. macro and micro level variables. At the macro level, they found that
domestic factors such as economic activity, prices, and the interest differential between the
Lebanese pound and the U.S. dollar are significant in explaining deposit demand, as are external
factors such as advanced economic and financial conditions and variables proxying the
availability of funds from the Gulf.
4. Population growth of the country
The twin objectives of commercial banks, i.e. acquiring deposits and advancing credit cannot be
attained without good banking habits of the people (Mahendra, 2005). Moreover (Mahendra,
2005) states that, the number of deposit accounts is more important because it ensures that the
probability of account is more important because it ensures that the probability of account
holders withdrawing cash at a time decreases as the number of deposit account increase, thereby
creating advantage for banks in terms of increasing the size of the loan able fund. So the higher
number of deposit accounts the greater is the advantage to banks. The number of deposit
accounts depends on the number of deposit account holders.
5. Economic growth
An article from Economic online defined economic growth based on two meanings: Firstly, and
most commonly, growth is defined as an increase in the output that an economy produces over a
period of time, the minimum being two consecutive quarters. The second meaning of economic
growth is an increase in what an economy can produce if it is using all its scarce resources. An
increase in an economy‟s productive potential can be shown by an outward shift in the
economy‟s production possibility frontier (PPF).The simplest way to show economic growth is
to bundle all goods into two basic categories, consumer and capital goods. An outward shift of a
PPF means that an economy has increased its capacity to produce. If there is a real growth in the
economy, the deposit will grow as well. This hypothesis was proved by the Chakravarty
Committee in 1985. The committee reported that the growth rate of deposit in India at an
accelerated pace was attributed to the higher real growth achieved by the economy

According to (Herald & Heiko, 2008), growth is one of the determining factors for commercial
banks deposits. GDP is calculated by adding up the value-added at each stage of production
(deducting the cost of produced inputs and materials purchased from an industry‟s suppliers.
(Erna & Ekki, 2004), finds four variables, GDP, number of Islamic bank‟s branch offices, profit
sharing rate, and interest rate that are thought to have influence on the volume of deposits. So,
GDP can influence the growth of commercial banks deposits.
6. Exchange rate
Exchange rates are quoted as foreign currency per unit of domestic currency or domestic
currency per unit of foreign currency (Bishop, 2006). Exchange rate allows denominating the
cost or price of a good or service in a common currency. As Thomas‟s explanation, the term
depreciation and appreciation is used to show the decrease and increase in the value of currency.
Depreciation is a decrease in the value of currency relative to another currency. Appreciation is
an increase in the value of a currency relative to another currency. According to Nugel (2012) as
currencies depreciated in one country deposit will be reduced since investors tend to withdraw
deposit and exchanged to keep it by appreciating currency (Hard currency) or invest in another
form of investment rather than bank deposit. Alemayeh (2015) also confirms that for developing
country in general saving is negatively correlated with unstable exchange rate.
2.1.5.2 Endogenous Factors

In the literature three endogenous factors are identified that can affect the growth of commercial
banks deposits. They are awareness of the society for using banks to deposit their money,
convenience of Bank‟s office and service in the banks.
a) Awareness of the Society
According to Baqui et al (1987), some analysts argue that demand for deposits is influenced by
education level which in turn increases the awareness of the rural people about banking services.
Since the study of Baqui et al ( 1987) conducted by taking rural area as its base it is obvious that
it considers the awareness as a factor of deposit mobilization. It was also found that literacy as a
proxy for awareness about banking, positively influence deposits.
b) Convenience of Bank’s Office
Road and vehicles directly influence interest bearing deposits because of the reduction in
depositors‟ transaction costs through reduced time spent in travelling to and from banks (Baqui

et al,1987). Banks can mobilize more deposit when they make themselves closer to their
customers (depositors).
c) Services in the Bank
It is known that banks are service giving organizations and the service delivery can affect their
business undertakings. Baqui et al ( 1987) stated that there is some empirical evidence
demonstrating the positive influence of services rendered to depositor.
2.2 Empirical Review

The empirical literature part discusses past studies that were conducted on the area of factors
determining commercial bank deposits. In this Part the variables that were included, the
methodology that is used to undertake the study and the results of the study under review was
discussed. These help to see where the literature on this study is and how this study add to the
existing literature Quite a number of empirical studies have been carried out by different scholars
on the relationship between interest rate and bank deposits or savings; some of these studies are
reviewed below.
Mobilization of deposit for a bank is as essential tool for the survival of the banking industry
(Deb, 1988). Deposit mobilization is one main functions of banking business and so an important
source of working fund for the bank. Mobilization deposit is the collection of cash or funds by a
financial institution from the public through its current, savings, fixed, recurring accounts and
other specialized schemes (Maende, 1992). Since deposits are normally considered as a cost
effective source of working fund, the bank‟s ability to lend more as well as its success greatly
lies on its deposit mobilization. However the bank‟s ability to mobilize enough funds from the
public through its current, savings, fixed, recurring accounts and other specialized schemes will
depend on the systems employed in this highly competitive industry, (Digaria, 2011).
Banking over the years has lived up to its definition of safe keeping of customers funds and
ensuring that the customers get the money upon demand. And this has been the basic function of
banking just as a raw material is for a business; to banking institution is cash (Giovanni, 1985).
Deposit mobilization therefore the world over has continually been part of the primary and
important component of banking. In the past few years, a lot of modifications in the financial
economies have taken place in the world (Hyuya, 1991). The world has witnessed many banks in
North American filed for insolvency. One of such was the Leman Brothers, when the company
declared insolvency security and it became a surprise because their business has been in
operation for past 159 years. This affected banks across Europe and other countries around the
world. The challenges of the banking industry have effects on the performance of other
businesses. Other businesses cannot assess loans to finance their activities thereby disturbing
their production and services operations (Refiee, et al, 2013).
There are many diverse scholarly works to investigate the consequence of several factors on
banking industry Beikzad and Ghorbannejad Maleki (2012) examined the operative factors on
bank resource mobilization and established that, information and communication technology,
service diversity, human resource skills, internal atmosphere service and locations were
considered to be some of the factors influencing cash resource mobilization. Karami et al. (2012)
presented a combination of Balanced Score Card (BSC) and Data Envelopment Analysis (DEA)
method for assessing the activities of banking sector. The study revealed various important
factors related to each of the perceptions of BSC and applied an analytical order process to rank
the methods. Khodaei Valahzaghard et al. (2012) explored the influence of macroeconomic
indicators on credit risk in the banking system of Iran and stated that no significant relationship
between the inflation rate, employment rate, unemployment rate, the dollar, the euro, with import
growth of credit risk in the banking system in Iran.
With respect to Ethiopia, various studies relating to bank deposit growth were carried out.
Bahredin (2016) had studied to find the determinants of commercial banks deposit growth in
Ethiopia by using these variables inflation, deposit interest rate, loan-to-deposit ratio, bank
branches, money supply growth, per capita income growth, and lagged bank deposit. In his study
stated that stimulation of economic growth, banks presence, financial intermediation bank
branches and per-capita-income growth influence is positively and statistically significant on
bank deposit growth; whereas, lagged bank deposit and loan-to-deposit ratio influence is
negatively and statistically significant on bank deposit growth.Andinet (2016) had examined
factors influencing deposit mobilization in private commercial banks in Ethiopia by explain
variables such as number of bank branches, deposit interest rate, liquid asset to deposit ratio,
lagged value of bank deposits, net interest margin, inflation rate and economic growth (GDP).

He showed that number of bank branches, deposit interest rate, net interest margin and GDP
were significantly and positively correlated with total deposit while Lagged value of bank
deposit was significantly and negatively correlated with total deposit. Shemsu (2015) had
investigated to identify factors affecting bank deposit in by taking Commercial Bank of Ethiopia
as evidence. He had consider deposit interest rate, overall inflation rate, number of branch
opening, gross domestic product, individual foreign remittance as variables. In his findings
branch opening, individual remittances from Diasporas, deposit interest rate, overall inflation
rate, number of branch opening and gross domestic product, affect CBE‟s deposit positively.
Sisay (2013) had examined deposit mobilization of private commercial banks at Awash
International Bank S.C. and he had assessed reconstruction of Addis Ababa roads, Aggressive
branch expansion of CBE, condominium house construction program, peoples attitude towards
using private banks and poor parking area are strongly influence the deposit mobilization
process.
The Commercial Bank of Ethiopia has developed a variety of deposit mobilization strategies to
meet its stretched financial targets. As a means to achieve this, the bank launched the Prize
Linked Saving (PLS) program in 2012 and had conducted six rounds of the program.The effects
of PLS on deposit mobilization measured through comparing deposit growth performance during
PLS periods than without it, whether attracting new customers and influence customer to save
regularly and to save extra deposit in the bank.Additionally deposit determined through
introducing a lottery savings among customers with lowest savings and income (Atalay, 2012).
2.3 Summary and knowledge gap

Based on the above theoretical as well as empirical review, deposit mobilization is the major
activities for all banks especially for commercial banks since their function is mobilizing deposit
to meet the required liquidity for credit customers of banks. Commercial banks developed a
variety of deposit mobilization strategies and programs to meet their financial targets and
ultimately satisfy the economy‟s massive need for financial resources. Tufano and Schneider
(2007) consider prize-linked savings a program that could encourage saving habit in the country
and increase the deposit mobilization of commercial banks.
Despite their successful history in other countries, prize linked saving are relatively unstudied by
Ethiopian scholars. The PLS scheme is started by state owned commercial bank of Ethiopia as a
means to achieve deposit mobilization plan. The Commercial Bank of Ethiopia launched PLS
program in 2012 and had conducted six rounds of the program (www.cbe.com.et/more/cbenews).
The program is linked to all kinds of private deposit accounts through which depositors have a
chance to win prizes without losing the conventional benefits of the products. While international
evidence suggest a PLS positively affect deposit but its effect on deposit mobilization process in
Ethiopia is untouched.
2.4 Conceptual framework of the study

From the above theoretical and empirical reviews, there is clear consensus that supports there are
variables that can affect commercial banks deposit positively or negatively. The variables
involved in this particular study are six variables, which is one dependent variable (deposit of
commercial banks) and five independent variables (inflation rate, interest rate, exchange rate,
branch expansion, per capita income). This conceptual framework describes the relationship
among the dependent variable with the independent variables involved in by using the following
figure.
Independent Variables
Dependent Variable
Figure. 2.7 Conceptual framework of the study

Sources :( Tufano et.al, 2008), (Bishop, 2006) , (Jim, 2008) etc.

Chapter Three
Methodology
3.1. Introduction
This chapter presents the research methodology that was used to obtain primary and secondary
qualitative and quantitative data for the study. 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

The study employed both descriptive and explanatory research design. Explanatory research
design is an empirical inquiry that investigates a contemporary phenomenon and examines the
cause and effect relationships between dependent and independent variables (Kothari, 2004).
That is, explanatory research looks for cause and effects. Researcher has intended to describe the
qualitative data received from respondents and explain the relationship between deposit
(dependent variable) and independent variables (explanatory variables (independent variable)
using correlation and the effect of variables using multiple regressions. This shows that the
research was descriptive and explanatory (casual) in nature.
3.3 Research Approach

Researcher adopts mixed approach to achieve the study objective as well as to test the
hypothesis. The motivation of using both quantitative and qualitative research approach in this
study is to deal with a given research question from any relevant angle, making use where
appropriate of previous research and/or more than one type of investigative perspective. The data
collection involves gathering both numeric information as well as text information so that the
final database represents both quantitative and qualitative information. It utilizes the strengths
and overcomes the weaknesses of the two continuum approaches. Therefore, the combination
provides an expanded understanding of the research problems (Greener, 2008).
The qualitative data to be collected were described as explanatory variables. In addition, through
statistics tools, the quantitative data of the dependent variable (explained variable) which is
deposit and the independent variables (explanatory variables) such as inflation rate, per capita

income, interest rate, branch expansion, and exchange rate were used. And also some of the
qualitative data regarding to PLS program in this study cannot be described and manipulated
numerically (Greener, 2008).
The introduction of the PLS program alters the attitude of individuals, who now have the option
of investing in a novel financial product which possesses the salient features of lottery tickets,
and traditional savings. Additionally, PLS influence savers to minimize frequent withdrawal
from their saving accounts. Hence, PLS program helps change the attitude of savers favorably
and which intern determines the level of deposit that banks are able to mobilize. Here to gather
such information and issues concerning the PLZ scheme from customers and employees it was
better deploy questionnaires as data gathering tool (Tufano, 2008; Pfiffelmann, 2008).
3.4 Target population

The study used both primary and secondary data. Commercial bank of Ethiopia is the only bank
that started PLS in Ethiopia. Therefore, the target population of this study was employees of
CBE who are working in Grade-4 branches in Addis Ababa city and purposively selected
customers of CBE. According to the CBE 2019, the bank has a total of 31,146 employees.
However, this research was focus only Grade-4 branch employees. The bank gives ranking for its
branches from Grade-1 up to Grade-4. In CBE Grade-4 branches have larger proportion of bank
deposit high volume of transaction, large number of employees, customers and as well as better
branch facilities than the remaining grade branches. The researcher assumes the selected target
population has well experience and knowledge in CBE about the effect of PLZ scheme on
deposit mobilization. In addition to these to improve the quality of the study the researcher
incorporated customers of CBE. Here in addition to employees the researcher included
purposively 30 customers to improve the quality of the study. The target population under
analysis of secondary data was macroeconomic and bank-specific determinants of bank deposit
over the seventeen years from 2000 - 2017.
3. 5 Data Types
The researcher gathers quantitative data from the year 2000GC to 2017GC. The researcher used
annual reports of all commercial banks as the secondary data sources, data from the regulatory
body of banks in Ethiopia-National Bank of Ethiopia (NBE) and from Central Statistical
Authority (CSA). In addition, deposit mobilization performance was assessed to study the effect

of PLS programs using data from 2012-2017 and comparisons made with the performances of
2006 and 2011 similar periods. Questionnaires were employed in gathering from the clients and
employees of commercial banks of particularly for those employees who actively participated in
PLS programs and deposit mobilization tasks.
3.6 Sample Technique

A purposive sampling technique was used for customers and for employees simple random
sampling technique was used in this study. Purposive sampling was used to select commercial
banks with an objective of ensuring that only those which had operated since 2000 G.C are
included in the sudy to allow analysis of trend in deposit mobilization for the last 17 years.
3.7 Sample size determination

To determine the sample size of the study, the total targeted employees of CBE were being
taken. The employees were selected using random sampling from the different branches in CBE.
The study utilized data from a sample of 225employees determined using the approach
recommended by Krejcie & Morgan (1970) presented in Appendix 1. This sample size was
appropriate to carry out the analysis and generate precise evidence. It gives the researcher an idea
of how large the sample size needs to be to ensure a reasonable accuracy of results.
Table 3.7 Number of employees working in special Grade-4
Branch Name Number of employees
Addis Ababa 174
AradaGiorgis 76
AratKillo 68
Finfine 99
Nefas Silk 79
Selassie 64
Total 560
A total of sample size from employees of CBE are =225 employees and
Purposively selected sample size form CBE customers =30 customers

From the above calculation the sample size of this research was255 employee and customers of
CBE. Therefore, a total of 255 questionnaires were distributed to collect relevant data with
regard to the research purpose
3.8 Data Analysis
Prior to the multiple liner regression, descriptive analysis is used to describe the behavior of the
individual variables over the period under review. The descriptive analysis also included a brief
situation of the bank specific and macroeconomic variables. The data collected was collated and
processed by editing and coding to eliminate all errors. It was then synthesized and analyzed using
both qualitative and quantitative analytical techniques to draw valid conclusions and inferences using
STATA. Cross tabulations were used to bring-out all interrelated inferences. Tables and figures were
used in the case of the quantitative technique, while descriptions were used in the case of the
qualitative analysis.
The questionnaires were analyzed based on Likert scale of five ordinal measures regarding the
relative importance of each variable towards each statement. The questionnaires were rated using
a number scale from 1-5. The numbers indicate the degree of agreement of each variable of the
respondents to each of the specific questions. The degree of agreements or disagreements of the
respondents are outlined as follows.
1= Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree and 5= Strongly Agree.
A Likert scale is a psychometric response scale primarily used in questionnaires to obtain

participants preferences or degree of agreement with a statement or set of statements. Likert
scales are a non comparative scaling technique and are one-dimensional (only measure a single
trait) in nature. Respondents are asked to indicate their level of agreement with a given statement
by way of an ordinal scale. The main reason of selecting this simple scale is first, to make the
respondent feel comfortable and simple in answering those questions and second, for easy
evaluation of the collected answers (Heng, 1988).

3.9 Ordinary Least Square
The model of multiple linear regressions is presented below:
Y= α+ β1X1+ β2X2+ β3X3…. + ε

Where‟ y‟ is the dependent variable
α is the constant term
β are coefficients of each of the independent variables
X1, X2 and X3 are the independent variables.
ε - the error term
Our model for this study can simply be put as follows
DEP= α + β1 INR+ β 2DIR+ β3RPC+β4BRX+ β5EXR + β6 PLS+ ε
DEP -Deposit
INR - Inflation rate
DIR- Average deposit (interest) rate
RPC- Real GDP per capita growth rate
BRX- Branch expansion of each local bank
EXR- Annual exchange rate of Birr to USD
PLS- Prize linked saving
ε: is representing the random error term of the linear regression model. This may include
variables like investment income, population growth, profitability and shocks which is likely to
influence the study. β represent the estimated parameters or represent the slope co-efficient to the
dependent variable.
This paper examines the determinants of banking sector deposit mobilization in Ethiopia. The
researcher has used the determinants from previous studies to guide the choice of independent
variables. While deposit (D) is used as the explained variable between inflation rate (I), interest
rate (R), exchange rate (E), branch expansion (B), per capita income (C) and prize linked saving
(PLS) are used as explanatory variables of the study after a thorough review of extant literature.
Moreover, the study use 17 year annualized economic data spanning from 2000 to 2017 G.C.

Independent Variables in this study are factors that mostly affect the commercial banks deposits.
These are overall between inflation rate, interest rate exchange rate branch expansion per capita
income and prize linked saving (PLS).
3.9.1Prize linked saving (PLS)

Policy initiatives aimed at increasing house hold saving rates like prize –linked saving (PLS)
account that adds a lottery like feature to on other wise standard saving account, creating an asset
structure that might hold great appeal to the target low-savers segment of the population. Prize
linked savings are offered as new exciting saving instrument in over twenty countries around the
world including the U.K., Sweden, South Africa and many Latin American and Middle Eastern
countries (Tufano and Schneider (2007). The program successfully attracted non-savers, assert
poor and low to moderate income groups to open an account and also made positive impact on
their saving behavior (Tufano et.al, 2010).
HA: PLS has a positively and significantly effect on deposit of commercial banks.
3.9.2 Inflation
As to Carroll (2006), inflation can influence saving through its impact on real wealth. As
inflation accelerates, deposits become less attractive, depending on the interest rate. In this case,
the assumption would be that as deposit interest rates rise, deposits would increase in principle as
well. The narrower the spread between deposit rates and inflation, the less attractive it should be
to hold deposits above the required level. Inflation is one of the factors that determine
commercial banks deposits (Herald and Heiko, 2009). Banking system was affected by inflation
in terms of deposit absorption and facilities grant (Mohammad and Mahdi, 2010). As to
Mohammad and Mahdi (2010), in developing countries banks boost deposits and increase self-
sufficiency in a period of inflation. The latter is the persistent increase in the general price level
for a specified period of time. Thus, it is a fall in the market value of money (purchasing power)
as a result of persistent rise in prices. Real value of money declines resulting in benefit to debtors
and loss to creditors (Brealey and Myers 2003).
HA: Inflation positively and significantly affects deposit of commercial banks.

3.9.3 Interest Rates
Deposit interest rate is the rate paid by commercial or similar banks for demand, time, or savings
deposits. The level of inflation has influenced the rate of interest that banks give to their
depositors. According to a NBE report, inflation and investment policy changes directly affect
the bank deposit rate. This means the level of inflation influences that of deposit interest rate,
while deposit interest rate in turn influences bank deposits. The central bank‟s policy on interest
rate is setting the minimum bank deposit rate, currently at 5 %, while the banks are free to pay
above the minimum and to set their own lending rates (NBE Report 2019).
HA: Interest Rates positively and significantly affect deposit of commercial banks.
3.9.4 Exchange Rate

(Hard currency) or invest in other form of investment rather than bank deposit.
HA: Exchange positively and significantly affects the deposit of commercial banks.
3.9.5 Branch Expansion

Branch expansion is opening new branches or service outlets in and outside the country.
According to Baqui (1987) there is a relationship between commercial banks deposits and
commercial bank‟s branch expansion. Deposit is influenced by branch expansion and expansion
of bank branches is also influenced by the level of deposits in any area (Baqui et al, 1987). Banks
usually makes decisions on expanding their branch by considering different factors.
HA: Branch Expansion positively and significantly affects the deposit of commercial banks.
3.9.6 Per capita income

Income and wealth are the prime determinants of saving deposit. The effect of these variables on
the level of saving and rate of saving are assumed to be positive and significant. In essence, as
the disposable income of a household increases, saving increases both marginally and on
average.

According to Jim (2008), the relation between income of the society and deposit volume is
expected to be positive and significant.
HA: Per capita positively and significantly affects the deposit of commercial banks.
3.10 Reliability and Validity Test

Reliability can be equated with the stability, consistency, or dependability of a measuring tool.
To test reliability, the Chronbach's coefficient alpha was calculated for the entire questionnaire.
The most identical values of alpha indicate that the mean and variances in the original scales do
not differ much, and thus standardization does not make a great difference in alpha.For scale
acceptability, Hair et al. (1998) suggested that Cronbach‟s alpha coefficient of construct is 0.6. If
each domain obtains the value 0.6, it means that, the items in each domain are understood by
most of the respondents. For the entire questionnaire of this study Chronbach‟s Alpha value of
STATA result showed 0.874, indicated that a good reliability of the entire questionnaire. If
Chronbach's Alpha result is below than 0.6 the questionnaire showed is rejected. Thereby, it can
be said that it is proved that the questionnaire is valid, reliable, and ready for distribution for the
population sample.

Chapter Four
4. Results and Discussions

This chapter consists of the analysis of qualitative and quantitative data. Firstly, the qualitative
data obtained from questionnaires regarding the qualitative part of deposit mobilization and PLS
was presented. Secondly quantitative data obtained from the National Bank of Ethiopia, CBE
and CSA was analyzed through multiple linear regressions and presented.
4.1 Analysis of Qualtitative Data

This chapter focuses on the analysis of the qualitative data gathered from the study on the topic
„Determinants of Deposit mobilization‟. This chapter gives insight into the background of the
sampled respondents; trend of PLS and effect of PLS on deposit mobilization. The researcher has
used questionnaires to collect data regarding the qualitative aspect of deposit mobilization
through PLS scheme. In total 255 questionnaires were distributed to both CBE employee and
customers, out of these only 206 respondents were properly filled the questionnaires and returned
back to the researcher. This means the overall response rate of the questionnaires were 81.17%.
4.2 Respondents’ personal information
4.2.1 Age distribution of respondents

Figure 4.1 represents the age distribution of the respondents or customers who do business with
the bank. The data gathered indicates that, 12% of the respondents were between the ages of 18-
25 years, 45 % between the ages of 26-35 years, 38 % between the ages of 36-45 years and 5%
of the respondents above 46 years. This is a good indication of the potential future growth of the
bank as majority of their were in the youthful ages and they will be long term clients of the bank.
Figure 4.2.1 Age distribution of respondents
1.5
0.5
Source: Survey result, 2019

4.2.2 Gender of the respondent
Figure 4.2.2 indicates that 68% of respondents were male and 32% respondents were
female.The result shows that the numbers of male respondents were greater than female
respondents both from employees and customers‟ of CBE . This shows that females have a less
inclination to banking and related issues. Here , CBE and concerned bodies should work the gap
between male and female respondents, because female account almost half of the total
population.
Figure 4.2.2 shows Gender of the respondent
Gender of the Respondents

Female
(32%)
Male
(68%)
4.2.3 Educational background of the respondent:

An analysis of the educational status of the respondents was important given the technicalities of
the issues under review. It also revealed the abilities of the customers to understand and
appreciate the issues at hand. Figure 4.6.2 above shows that 23.30%of respondents educational
background were college diploma and below, 50.48%of respondents educational background
were first degree and the remaining 26.21%respondent‟s educational background were master‟s
degree and above. The result showed that the majority of respondents are educated which means
above 76% of respondents educational backgrounds are first degree and masters degree and
above. The fact that majority of respondents are having degree would help respondents
understand and fill the questionnaires correctly so that the findings would be viable.

Figure 4.2.3 shows the frequency and percent of educational background of the respondents.
Educational qualification of respondents

72
80
50.70
60
33 37
40 23.24 26.06 Frequency
20 percentage
0
Diploma and First degree Second degree
below and above
4.2.4 Duration for Doing Business with CBE

Figure 4.6.3 below shows that 67 (32.52%) of respondents were working in CBE as employee or
use service of CBE as customer for less than 5 years, 106 (51.45%) of respondents were working
in CBE as employee or use service of CBE as customer between 5-10 years and the remaining 33
(16.02%) of respondents were working in CBE as employee or use service of CBE as customer
more than 10 years. The result shows that out of the total respondents above 67% of responds
were working in CBE as employee or use CBE as customer for more than 5 years. This indicates
that the respondents are well experienced about PLS program of the bank . Moreover sampled
customers have beendoing business with the bank for more than 5 years.These were loyal
customers who were dedicated to the course of the bank and hence, can be relied upon for a good
review of the operations of the PLS program.
Figure 4.2.4 shows duration for doing business with CBE.
Exposure of Respondnts with CBE

74
80 52.11
46
60 32.39
40 22 15.49 Frequency
20 Percent
0
less than 5 years 5-10 years Greater than 10
years

4.3 Prizes Linked Saving and Deposit Mobilization
The Commercial Bank of Ethiopia has developed a variety of deposit mobilization strategies to
meet its stretched financial targets. As a means to achieve this, the bank launched the Prize
Linked Saving (PLS) program in 2012 and had conducted six rounds of the program.The effects
of PLS on deposit mobilization measured through comparing deposit growth performance during
PLS periods than without it, whether attracting new customers and influence customer to save
regularly and to save extra deposit in the bank.Additionally deposit determined through
introducing a lottery savings among customers with lowest savings and income (Atalay, 2012).
4.3.1 Frequency of Savings during Prize Linked Saving

The frequency of savings has a direct impact on the deposit mobilization of the banks. Hence, the
study sorts to ascertain the rate of savingsduring PLS amongst the sampled respondents. It is
clear from the analysis as presented in figure 4.2.5 that, 18% do their savings with the bank
occasionally, 10% save at the bank every day and 53% do their savings with the bank regularly.
Around 56% of customers replied that the scheme influenced them to save regularly and to save
extra deposit in the bank.
Figure 4.3.1 frequency of savings during Prize Linked Saving
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

4.3.2 Frequency of Withdrawal during Prize Linked Saving
Also, the Frequency of withdrawals has a direct influence on deposit mobilization of banks and
hence all the banks are always bringing out more innovative and enticing products to customers
for minimizing cash withdrawal. Therefore, the study also sorts to identify the cash withdrawal
rate of clients during PLS. It is evident from the figure below that, 18% do their withdrawals
with the bank occasionally, 10 % do withdrawals at the bank regularly 2% daily and 7% never
withdraw at all. Some 63% customers specified that PLS influenced them to minimize frequent
withdrawal from their accounts. This implies that, PLS is appealing products and motivates
customers to keep their money with CBE rather than withdrawing them to other competitors.
Figure 4.3.2. Frequency of Withdrawal during Prize Linked Saving
1.2
0.8
0.6
0.4
0.2
4.3.3 Effect of Prize Linked Saving on Deposit growth

This section highlights the effect of PLS on deposit mobilization. One of the major issues to deal
with the PLS is related to its ability to attracting new customers ,to increase deposit , to minimize
frequent withdrawal and to influence attitude towards saving.The effects of PLS on deposit
mobilization measured through comparing deposit growth , attracting new customers and
influence customer to save regularly and to save extra deposit in the bank (Atalay, 2012).

Table 4.3.3 : Effect of Prize Linked Saving Deposit Mobilization
Effect of PLS on Deposit Mobilization Disagree Not Sure Agree
PLS is attracting new customers in CBE branches. 6% 25% 69%
PLS scheme influenced customers to save regularly and to
save extra deposit in the bank.
Prize-linked saving programs positively affect customers‟
attitude towards saving.
During the PLS periods there was a significant monthly
deposit increment
PLS influenced customers to minimize frequent
withdrawal from their accounts.
From Table 4.3.3 , 69% of the sampled customers agree that PLS was attracting new customers
as a major effect on deposit , 25% were not sure whilst 6% disagree to the assertion. This implies
that, PLS is attracting new customers in CBE branches. This result is consistent with the findings
in Guryan& Kearney (2008), who also find strong same-store effects for selling a winning lottery
ticket and much smaller spillover effects to other nearby stores. The results show that prize
linked savings, can indeed create a “buzz” that results in significant and permanent increases to
savings held in the PLS product even by those who did not win a prize.
About 76% of respondents suggested that the Prize-linked saving programs positively affect
customers‟ attitude towards saving. Atalay (2012) also found an increase in total deposit through
introducing a lottery savings based on an online experiment. These results appear to be stronger
among customers with lowest savings and income.
Around 58% of employees replied that the scheme influenced customer to save regularly and to
save extra deposit in the bank. Atalay (2012) confirm that offering savings products with a
lottery element may increase total savings overall from both existing and new savers. The fact
that PLS accounts have a greater potential in stimulating even individuals in the low-income
segment to save is important. Here, prize linked saving accounts promote positive saving culture
that serves an additional benefit to the society.

About 72.89% employees agreed that PLS influence customers to minimize frequent withdrawal
from their accounts. The introduction of the PLS program influenced savers to minimize frequent
withdrawal from their accounts (Tufano, 2008).
4.3.4 Trend of Prize Linked Saving

This section highlights the trend and success level of PLS program.It is necessary for the
institution to consider marketing strategy for savings mobilization in order to ensure the success
of that scheme. Without ongoing, creative marketing support, prize-based account holders appear
to lose interest in the product or be distracted by competing gaming offerings. While offering
PLS program, CBE should publicize prize winners in a way that connects with their member
community, announce drawings or create countdowns to generate natural reminders and provide
promotional materials to all branches(Gardiol, 2004).
Table 4.3.4 Trend of PLS
Disagree Not Sure Agree
Prize items included in the program are appealing for
savers.
Employees and customers are well aware of the PLS
program and its guidelines.
post-execution of the program like publicizing winners and
conducting promotion using them is sufficient
CBE is arranging reliable prize drawing mechanism.
Coupon distribution via customers mobile is a suitable

arrangement.
CBE is doing sufficient promotion about the PLS program.
In the above table 4.3.4about 60% of customers who have suggested that the prize items included
in the program are attractive and improving through time. Large number of respondents that is
75.11%agreed with the statement both customers and employees are well aware of the PLS
program and its guidelines. This shows that the bank is doing sufficient promotion about the PLS
program. Only 32% of respondents agreed that post-execution of the program like publicizing

winners and conducting promotion using them is sufficient, suggesting that a larger number of
the respondents do not agree on this. About 43% respondents suggested the bank is arrange
reliable prize drawing mechanism .CBE should modify existing type of prizes and drawing.
Some 62% of respondents agreed that coupon distribution via customers mobile is a suitable
arrangement. This shows the bank is doing well in creating suitable platforms by distributing
coupons electronically via customers mobile for successful execution of the program and
working well towards timely distribution of coupons to eligible customers.
A small number of customers agreed that they became customers of CBE solely due to the
existence of PLS. However, service excellence and branch proximity were also reasons by which
customers were stimulated to join CBE. Customers‟ response also indicated that as their length
of business relationship with the bank decreased, the share of customers attracted by the PLS
scheme also decreased. The PLS program successfully attracted non-savers, assert poor and low
to moderate income groups to open an account and also made positive impact on deposit
mobilization process.
4.4 Analysis of Quantitative Data
4.4.1 Prize Linked Saving

CBE has developed a variety of deposit mobilization strategies. As a means to achieve this, the
bank launched PLS program in 2012 and had conducted six rounds of the program. The
program is linked to all kinds of private deposit accounts through which depositors have a
chance to win prizes without losing the conventional benefits of the products.
PLS accounts are a potential solution to the deposit mobilization problem. The effective
implementation of PLS programs encouraged many individuals to save more, and research has
shown that they are especially attractive and beneficial for the financially vulnerable segment of
the population. PLS accounts attract unbanked and under banked individuals into the banking
system and increase overall saving in a given financial institution (Wages, 2018).
This paper made comparisons the below figures show private deposit performance comparisons
from 2012-2018 and with the performances of 2006 and 2011 similar periods. Even though in
Ethiopia there was untapped potential for deposit, figure 4.4.1 A shows private deposit growth
rate was low from 2006 to 2011 when there were no PLS.

Figure 4.4.1.A shows private deposit growth before PLS program
deposit growth before PLS program

1.2
0.8
deposit
yaer
0.6
deposit
0.4
0.2
Source: CBE, 2019

Figure 4.4.1B shows private deposit growth before PLS programsince 2012 shows comparatively
better deposit growth existed during PLS periods than without it. The incremental of deposits
during PLS period show improved performance in deposit mobilization years since 2012. Here in
total deposit of CBE show significant increment during the PLS periods. Kanz (2013) argues that
provision of prizes on savings may enhance long term formal banking interaction and financial
capability. Also, Cole (2011) found an increase PLS accounts a month after a winner is
announced at winners‟ branches.
Figure 4.4.1B shows private deposit growth during PLS program
deposit growth durign PLS program

1.2
0.8
deposit
deposit
0.6
year
0.4
0.2
Source: CBE, 2019

4.4.2 Deposit Mobilization of Commercial Banks
Deposit of commercial banks is the dependent variable in this study. Since the study conducted
by taking commercial banks of Ethiopia as evidence, total deposit was analyzed along with
independent variables. Deposits are mobilized to meet the required liquidity for credit customers
of banks. But, this depends on the availability of credit facilities which in turn depends on the
level of funds loaned (Desinga, 1975).
Figure 4.4.2 shows Total Deposit of local banks in Ethiopia
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
Source: NBE, 2019

Figure 4.4.2 shows that the total deposit balances of commercial banks are growing every year.
The reason for the growing of deposit is partially the result of newly introduced savings
instruments and expansion in financial services through the aggressive opening of banking
branch networks. Today more than ever before commercial banks have emphasized the
mobilization of deposit as an integral part of financial intermediation and an important source of
funds. So that it has aggressively expanded its presence in all directions of the country. In
addition to, improving the outreach of its operation, this is important to reduce transaction costs
for customers. Close geographic proximity to the depositors is also an important step in
establishing a permanent relationship to build confidence between potential depositors and
banks. As banking is all about confidence this is a key factor for successful for mobilizing
deposit.

4.4.3 Branch Expansion
Figure 4.4.3 show that the total number of branches opened by commercial banks is showing
drastic increase since 2010. Before 2009, there was limited branch expansion while during the
period of 2000 and 2009 only forty additional branches were opened throughout the country.
Since 2009, commercial banks aggressively increased the number of its branches, mainly
intended to mobilize deposit.
Figure 4.4.3 branch expansion
Branch expansion
1800
1600
1400
1200
number of Branch
1000
brx
800
YEAR
600
400
200
Source: NBE, 2019
4.4.4 Per Capita Income

If households and firms desire to hold more money, deposits will increase (Evan et al, 2006). So
the relationship between income and deposits is positive, that is as the income of the society
increases the same happens for the commercial bank‟s deposits. Therefore, as society‟s per

capita income increases the same will happen for commercial banks deposits. In Ethiopia, per
capita income of the society has been increasing in the five years.
Figure 4.1.2 per Capita Income
PER CAPITA ( IN BIRR )
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
Source: NBE, 2019
4.5 Estimation Techniques

In studying the determinants of deposit mobilization of conventional banks, the study uses recent
techniques in panel econometrics. The first step of the analysis, using the Augmented Dickey-
Fuller (ADF) test, is to test for the presence of unit roots of the variables in the system.
4.5.1 Unit Root Tests

For pooled data analysis, the variables are expected to be stationary with a mean of zero and
constant variance. In order to examine their stationary, the Augmented Dickey-Fuller test is used
to test the null hypothesis of non-stationary or unit root. A rejection of the null hypothesis
indicates that the series is not stationary at level and therefore requires differencing either in the
first order or second order to achieve stationary. The logarithm values of the time series data
were taking before Ordinary Least Square (OLS) techniques are used for estimating a model for
bank deposits. The logarithm is used in the model in order to transform the nonlinear data into
linear form. All variables in the system have to be stationary in the VAR model before
estimation.
Therefore, it is necessary to test the stationary of each data series. Under the ADF test, the null
hypothesis of a unit root, H0: b1 = 0 (unit root), is tested using the following specification.

The original level data and the first-differenced level data are both tested for unit roots. If the test
statistics (t-ratio) is greater than the critical values given in Fuller (1976), the null hypothesis is
rejected and the data is said to be stationary.
TABLE.4.5.1 Unit Root Tests

VARIABLE VARIABLES METHOED
MODEL
ENTERED REMOVED
Inflation
1
Interest Rate enter
Per Capital Income
Branch Expansion
Exchange Rate
All requested variables entered.

Dependent Variable: DEP
Source: STATA regression out put
Table 4.5.1 displays the variables entered or variables removed from the study at any point in
time from the beginning till the end of the work. As it is indicated in variables entered column
there are six independent variables entered for the study, those are annual exchange rate of Birr
to USD, the number of branches of banks, the per capita income society, annual general inflation
rate and deposit(interest) rate.
4.6 Correlation results

Correlation is a way to index the degree to which two or more variables are associated with or
related to each other. The most widely used correlation statistics is the Pearson product
movement coefficient, commonly called the Pearson correlation which was used in this study.
Correlation coefficient between two variables ranges from +1 (i.e. perfect positive relationship)
to -1 (i.e. perfect negative relationship). From the correlation table we see that the most
significant factors for deposit volume is the branch expansion, the general inflation and per
capita income. Deposit rate and the exchange rate of Birr to USD influences at a lesser

magnitude. All factors are found to have positive relations with the deposit volume except the
deposit rate having a negative relation with deposit volume.
Table 4.6 Correlations (Source: STATA software output)
DEP IFLR BRX EXR PCI IR
Depots 1.0000
Pearson
Inflation Rate 0.8160 1.0000
Correlation
Branch Expansion 0.9333 0.3471 1.0000
Exchange Rate 0.4896 0.1971 0.9411 1.0000
Per Capita Income 0.9590 0.2645 0.9569 0.9710 1.0000
Interest Rate 0.4258 0.2906 0.2253 0.4977 -0.4641 1.0000
Source: STATA regression out put
4.7 Regression Analysis

The main variables in this analysis were dependent and independent variables their relationship
between was regressed using STATA software. Dependent variable was bank deposit which was
determined by independent variables. Independent variables were factors that mostly determine
commercial banks deposits. But for the purpose simplicity the researcher includes only these six
explanatory variables in this model and others are collectively contained in error term. These are
inflation rate, number of branch opening, per capita income, prize linked saving, annual
exchange rate of Birr to USD and deposit interest rate. The STATA software is used for the
purpose to view the standard deviation, standard error, coefficients of the independent variable
included variables that depicted the following Table 4.7: Regression analysis result.
The below table (Table 4.7) shows the results of regression analysis. The coefficient of
determination of Adjusted 0.9259 means that 88.89 % of the variation in deposits is being
explained by the independent variables in the model and there is a strong relationship between
deposits and the independent variables. Moreover, the coefficient estimate of the constant of the

regression is- 3.35714 show that the value of dependent variable if all independent variable
becomes zero. This indicates that the total deposit of commercial banks will be decrease by
3.35714. Given all independent variable zero and this indicate that the dependent variables in the
model is highly depends on the independent variables.
Table 4.7 Regression analysis result

Dependent variable: LNBDEP(Total bank deposit)
Method :Least square
Date: 18/05/2019
Sample: 2000-2017
Variable Coefficient Std.error t-statistic Prob.
Cons -3.35714 1.20756 1.24 0.3056
LNIFL -0.11733 0.19934 -0.59 0.0469
LNIR 0.44971 3.35372 0.53 0.5094
LNPCI 0.68892 0.05382 2.93 0.0375

LNEXC 0.10417 0.16825 2.05 0.5134
LNBRX 0.4966118 0.92835 3.15 0.0260
R-Squared 0.9259
Adjusted r- 0.8889
squared
Source: STATA software output
4.7.1 Inflation and Deposit Mobilization

The regression coefficient for inflation is -0.117336. This indicates that if Inflation decrease by
1% leads to increase in deposits by 11.73%. And also probability value of 0. 0469 is less than
0.05 critical values showed that the variable is significant. Inflation is defined as the persistent
increase in the general prices of goods and services within an economy over a given period of
time. Consistent with economic theory, as inflation soars households forego banking products.
Bank‟s profitability is derived from gathering deposits at one set of interest rates. The finding is

a consistent with the following researches. Giragn (2015) shows inflation is the most significant
factor of deposit mobilization activity. Ngula (2012) also shows that inflation rate significantly
affects the mobilization of financial savings (deposit) in Ghana. Moreover, Athukorala (2004)
found inflation has positive impact on bank deposits of India. In addition, with special emphasis
on rural branches, Khalily (1987) found that, inflation influences deposit. Finally, Elias (2012)
found that branch expansion had positive and significant effect on total deposit whereas deposit
interest rate and inflation rate had positive and insignificant effect on total deposit.
4.7.2 Interest Rate and Deposit Mobilization

Deposit interest rate was found to have a positive relationship with bank deposit. The regression
coefficient for inflation is 0.44971. This indicates that a 1% increase in interest rates leads to a
44.97 % increase in deposits. And also probability value of 0.5094 is greater than 0.05 critical
value showed that this variable was insignificant in assessing the research problem. In developed
countries, the rate of interest is an important determinant of bank deposit. However, in
developing countries it may be different. This result is supported by the findings of Herald and
Heiko (2009); they mentioned interest as one of the most determining factor for commercial
banks deposits. Philip (1968), also states that the offering of attractive interest rate on bank
deposits may be considered to have had a beneficial effect. Rose (2001), said that banks increase
their deposits by offering higher deposit rate. Siyanbola et al. (2012) also showed that there is a
positive relationship between the interest rate has a major influence on deposit mobilization.
4.6.3 Per Capita Income and Deposit Mobilization

Income is expected to have a positive effect on deposits (Baqui & Meyer, 1987). According to
Jim (2008), the level of GDP divided by the population of a country or region is what is known
as per capita income. The regression coefficient of 0.68892 means that 1% increase in per capita
results in 68.89 %increase in CBE deposits. However, there is a positive relationship between
deposits and PCI, then again the probability value of 0.0375 indicated that this variable is
significant for the deposit Mobilization. The finding of Tizita (2014) and Hadush (2012) supports
this result. In growing economy, both individuals and companies‟ corporate income will
increase. This increase leads to increase per-capita income which will intern increase saving.
Loayza and Shankar (2000) used co-integration approach in measuring the relationship between
savings in India per capita income; they found that per capita income had a positive relationship

with savings. Therefore, as society‟s per capita income increases the same will happen for
commercial banks deposits. Mahendra (2005) also indicates that income of the society matters
for banks‟ deposit growth.
4.7.4 Exchange Rate and Deposit Mobilization

A regression coefficient 0.10417 indicates that 1% increase in exchange rate then deposit will
be increase by 10.41 %.And also probability value of 0.5134 is greater than 0.05 critical value
showed that this variable was insignificant relationship. Bishop (2006) quoted exchange rates as
foreign currency per unit of domestic currency or domestic currency per unit of foreign currency
Exchange rate allows denominating the cost or price of a good or service in a common currency.
(Hard currency) or invest in another form of investment rather than bank deposit. Giragn (2015)
shows that exchange rate of Birr to USD is the most significant factor of deposit mobilization
activity.
4.7.5 Branch Expansion and Deposit Mobilization

Conveniently located bank branches can reduce transaction costs significantly and thereby
increases the net return earned on deposits (Ali, 2002). Based on the model in Table 4.6 above,
the relationship between branch opening or addition and bank deposit had a positive association
in commercial banks deposit. The study ascertains that commercial banks aggressive branch
opening that has positive relation with deposit mobilization with respect to widening customer
base and increased financial inclusion through creating accessibilities to the unbanked rural and
urban areas. This is therefore, the study exhibited us branch expansion have positively correlated
and highly significant on commercial banks deposit. And also probability value of 0.0269 is less
than 0.05 critical values showed that this variable was significant relationship. Similar study by
Wubitu (2012) found out that bank branches influence deposit volume. Ukinamemen (2010)
focused on Number of bank branches has a positive but weak relationship with bank deposit.
Shemsu (2015) branch opening is significant and important strategy for deposit mobilization.
Rana, Srinivasan and Meyer, Vasquez, and Wai (1986) found a positive and significant
relationship between demand for deposits and expansion of bank branches.

Chapter Five
5. Summary of Findings, Conclusion, Recommendation and Further Research

Direction
This chapter is presents summary of major findings, conclusions and recommends for financial
institutions to support polices concerning deposit mobilization and PLS program and direction
for further research.
5.1 Summary of Findings

The study revealed that deposit mobilization is the main focus of many banks. However, finding
deposit is becoming a challenging job for the banks in Ethiopia compatible with the growing
need of loans. Owing to the growing need for finances from new and existing businesses of the
country coupled the banks own desire to make profits from those finances, deposit mobilization
is becoming the critical success factor for banks. The fast increasing in expanding number of
branches confirm this fact.
The main factors for deposit mobilization are PLS , general inflation rate, the number of
branches of banks, in per capita income, deposit (interest) rate, exchange rate to USD. The
deposit volumes of commercial banks are found to be impacted by the schemes of PLS.
From the questionnaires a small number of employees agreed that customers come to banks
solely due to the existence of PLS. This show there are also other reasons like the number of
branches of banks (accessibility) and quality service by which customers stimulated to work with
banks. Some 73% employees specified that PLS influenced customers to minimize frequent
withdrawal from their accounts. About 76 % of employees believe prize-linked saving programs
positively affect customers‟ attitude towards saving which in turn affects the level of deposits
mobilized by the bank.
Most banks pay the minimum interest rate on saving accounts set aside by the regulatory body.
The rates are not attractive to the public particularly for those who are saving aiming the interest
income. The branch expansion, general inflation, and per capita income, are the most significant
factors of deposit volume. Besides the other variables exchange rate of Birr to USD and deposit
(interest) have insignificant power to influence the dependent variable. Inflation is also found to

have a significant influence on bank deposits. High inflation rates may cause low savings as
people are forced to hoard cash in other currencies rather than deposit it in banks. In addition,
during times of high inflation, people may prefer to invest their money elsewhere to saving it in a
bank. A stable macroeconomic environment in which inflation is brought under control and
maintained within targets is important in aiding the mobilization of financial savings.
5.2 Conclusions
For successful execution of the program, the bank is doing well in creating awareness
about the PLS program and its guidelines. The prize items included in the program are
appealing and motivate customers to keep their money with CBE and to save extra
deposit in the bank. Deposit mobilization during PLS program is successful because the
program attracting new customers, minimize frequent withdrawal from their accounts and
influenced them to save regularly.
PLS influence customers to minimize frequent withdrawal from their accounts. As a

result of this the account balance of customers shows increase during PLS program
period and deposit growth was better than without PLS period.
A small number of customers agreed that they became customers of CBE solely due to
the existence of PLS. However, service excellence and branch proximity were found to
reasons by which customers were stimulated to join CBE.
It is found out that explanatory variables, inflation, deposit(interest) rate, per capita
income, branches expansion and exchange rate of Birr to USD, are factors that would
influenced the deposit volume at 92.59 %(R2) of the time. Hence, the factors are found to
be influential with this study.
This study has shown that the branch expansion, real per capita income and general
inflation are the most significant factors of deposit volume. Besides, the other variables-
exchange rates and deposit (interest) rate have insignificant power to influence the
dependent variable.
A significant relationship was observed in inflation and deposit, 1 percent increase in

inflation will results in 11.73% percent decrease in deposit. This is the reality on the

ground; both private and government saving has been increasing year to year. The finding
is not in agreement with Tizita (2014) who argued that households in developing
countries such as Ethiopia whose income prospects with inflation and macroeconomic
uncertainty are barely enough for subsistence.
5.3 Recommendations
Based on the research findings and conclusions above, the following are recommended for
commercial banks to mobilize more deposits:
Commercial banks should promote winners using live transmission television channels
and broadcasting so that people can trust the PLS program and employees, are expected
to make customers aware that withdrawal of money from their accounts will result in
disqualification from participation in the program.
Commercial banks need to deliver quality service for their customers. PLS only support
what the branches do in terms of service quality and other sales activities. Banks are
expected to be engaged in promoting the PLS program and provide promotional items to
branches before the launch of the program, in addition to the advertisements disseminated
over the mass media.
Commercial banks should increase their network to all regions in Ethiopia in order to
increase deposits and increase private investment in certain areas. Majority of Ethiopians‟
population remain unbanked and it is reliant on the various banks to increase their branch
network system. This will also educate the unbanked on the essence of the banking
system. Improve infrastructure and incentives for banks to open branches in both remote
(central) area and reach the unbanked society. There should be also an investment in
strengthening the operational capacity of the existing branches. The empirical evidence
indicated that deposit would increase as the number of branch increases.
The banks should also try to introduce new deposit product types that are appealing to the
public to increase market share. There are areas that have to be looked at like online
account opening and account maintenance to attract foreign depositors and in the process
the legal requirements for account opening has to be comfortable
The commercial banks should also provide competitive deposit interest rates on selected
Stable deposits keeping sufficient margin of profitability. The issue of paying fair interest
rates to selected demand deposit customers could also be considered.
The government should continue to control inflation below its threshold or optimal level
because banks ability to mobilize more deposit is reduced when there is an increase in
inflation rate.
5.4 Direction for Further Research

This study has covered some of the factors that determine deposit mobilization activity of banks
and some recommendations are made based on the findings and conclusions. Yet there are
factors such as the level of education and the dependency ratio of the population identified by
some literatures to have impact on saving mobilization. Thus a study has to be further
strengthened on the significance of these factors on deposit mobilization of commercial banks.

References
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Development in Trinidad and Tobago And The Caribbean: A Perspective From The Royal Bank
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accounts”, Journal of Economic Behavior and Organization, Vol.107, pp.86-106
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Deaton, A. (1991), Household saving in LDC'S: Credit markets, insurance, and welfare ,
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Erna, R., &Ekki, S. (2004). “Factors Affecting Mudaraba Deposits in Indonesia. Working Paper
in Economics and Development Studies” Padjadjaran University, Indonesia.
Eustacius, N. B., & David, J. L. (1995). “Factors Affecting Commercial Bank Lending to
Agriculture” .
Franklin, A., & Elena, C. (2008). “The Roles of Banks in Financial Systems” University of
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Fry, M. J. (1997). Money, interest, and banking in economic development. Second Edition. Johns
Hopkins University.
GiragnGaro(2015).” Determinants of Deposit Mobilization and Related Costs of Commercial

Banks in Ethiopia.”
Herald, F., &Heiko, H. (2008). “Lebanon-Determinants of commercial banks Deposits in a
Regional Financial Center” IMF Working paper .
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for Policy Alternatives .
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Websites and others

 Commercial Bank OF Ethiopia www.combanketh.et
Determinants of Commercial Banks Deposit Mobilization Page iii

APPENDIX 1: Table for Determining Sample Size from a Given Population
N S N S N S
10 10 220 140 1200 291
15 14 230 144 1300 297
20 19 240 148 1400 302
25 24 250 152 1500 306
30 28 260 155 1600 310
35 32 270 159 1700 313
40 36 280 162 1800 317
45 40 290 165 1900 320
50 44 300 169 2000 322
55 48 320 175 2200 327
60 52 340 181 2400 331
65 56 360 186 2600 335
70 59 380 191 2800 338
75 63 400 196 3000 341
80 66 420 201 3500 346
85 70 440 205 4000 351
90 73 460 210 4500 354
95 76 480 214 5000 357
100 80 500 217 6000 361
110 86 550 226 7000 364
120 92 600 234 8000 367
130 97 650 242 9000 368
140 103 700 248 10000 370
150 108 750 254 15000 375
160 113 800 260 20000 377
Determinants of Commercial Banks Deposit Mobilization Page iv

170 118 850 265 30000 379
180 123 900 269 40000 380
190 127 950 274 50000 381
200 132 1000 278 75000 382
210 136 1100 285 1000000 384

Note N - is population size.
S - is sample size.
Appendix 2: Questionnaires
St. Mary’s University

School of Graduate Studies
MBA in Accounting and Finance
Questionnaire
Target Respondent: Staff and Customers
I am a university student at St‟s Marry University pursuing a Master‟s degree in accounting and
finance. In partial fulfillment for the award, I am conducting a survey to identify determinates of
deposit mobilization by commercial banks in Ethiopia. You have been selected to participate in
this study as your contribution will important
I request you to spare a few minutes of your busy schedule to fill this questionnaires, your
response is highly appreciated and will be treated with utmost confidentiality. Thank you for
your cooperation.
Section I. Personal Information.

1. Gender
a. male female
2. Age
A.18-25 b.26-35 c.36-45
d. 46-55 e. 56 and above
3. Educational qualification
Determinants of Commercial Banks Deposit Mobilization Page v

a. Diploma and below b. First degree c. Second degree and above
4. Which of the following do you belong?
a. Staff b. Customer c. None
5. IF you are a customer, how long have you been doing business with the bank
a. Less than 1 year b. 1-3 years c. 4-6 years
d. 7-8 years f. 10 and above years
6. If you are a staff of CBE, how many years have you been with the bank?
a. Less than 1 year b. 1-3 years c. 4-6 years
d. 7-8 years e. 10 and above years
7. How frequent do you operate/put money in your account(s) during PLS?
a. Daily b. Regularly c. Occasionally
d. monthly e.e. Never
8. How often do you withdraw from your bank account(s) during PLS?
a. Daily b. Regularly c. Occasionally
d. monthly e.e. Never
Section II. Prize linked saving effect on Deposit Mobilization of CBE

9. Please tick in the appropriate box using a scale of 1-5, where, 1=strongly disagree, 2=
disagree, 3= Not sure, 4= agree, and 5= strongly agree; indicate your level of agreement with
regards to the Effects PLS on Deposited Mobilization of CBE.
1 2 3 4 5
PLS is attracting new customers in CBE branches.
PLS scheme influenced customers to save regularly and to save extra deposit
in the bank.
Prize-linked saving programs positively affect customers‟ attitude towards

saving.
During the PLS periods there was a significant monthly deposit increment
Determinants of Commercial Banks Deposit Mobilization Page vi

PLS influenced customers to minimize frequent withdrawal from their
accounts.
Prize linked saving program affect bank deposit mobilization.
10. Please tick in the appropriate box using a scale of 1-5, where 1=strongly disagree, 2=
disagree, 3= Not sure, 4= agree, and 5= strongly agree; which factor stimulate you to join CBE?
1 2 3 4 5
The existence of PLS
Deposit and withdrawal money using mobile phone
Service excellence
Branch accessibility
Reduce Queuing and waiting time
Availability and functional modern ICT facilities like ATMs
Section III. Performance of Prize Linked Saving

11. Please tick in the appropriate box using a scale of 1-5, 1=strongly disagree, 2= disagree,
3= Not sure, 4= agree, and 5= strongly agree. Do you agree with regards to performance PLS
program?
1 2 3 4 5
Prize items included in the program are appealing for savers.
Employees and customers are well aware of the PLS program and its
guidelines.
Determinants of Commercial Banks Deposit Mobilization Page vii

post-execution of the program like publicizing winners and conducting
promotion using them is sufficient
CBE is arranging reliable prize drawing mechanism.
Coupon distribution via customers mobile is a suitable arrangement.
CBE is doing sufficient promotion about the PLS program.
APENDEX -3
time variable: year, 2000 to 2017
delta: 1 year
year I R C D E B
-
2000 0.641854 2.81341 3.887782 23.52043 2.119611 2.833213
-
2001 0 2.65926 3.901914 23.64454 2.145054 3.295837
-
2002 0 3.50656 3.86244 23.72229 2.149539 3.637586
-
2003 2.879198 3.50656 3.786961 23.81299 2.15405 3.912023
-
2005 0.875469 3.50656 3.856303 23.96355 2.157767 4.219508
-
2006 2.370244 3.50656 3.908123 24.28269 2.161137 4.382027
-
2007 2.379546 3.50656 3.965659 24.44102 2.174104 4.736198
2008 2.714695 - 4.069287 24.62949 2.223986 5.087596
Determinants of Commercial Banks Deposit Mobilization Page viii

3.50656
-
2009 4.010963 3.21888 4.114551 24.801 2.343775 5.4161
-
2010 0.993252 3.21888 4.159047 24.99311 2.556522 5.484797
-
2011 1.987874 3.21888 4.208166 25.20978 2.779924 5.958425
-
2012 3.637586 2.99573 4.366385 26.74656 2.848021 6.385194
-
2014 3.034953 2.99573 4.399394 27.41511 2.90113 6.727432
-
2015 2.00148 2.99573 4.45114 28.09453 2.948368 7.029973
-
2016 2.140066 2.99573 4.490292 28.77961 3.000501 7.269617
-
2017 2.341806 2.99573 4.535017 29.46717 3.042854 7.362645
Unit root test
dfullerifl, lags(2)
Augmented Dickey-Fuller test for unit root Number of obs= 17
---------- Interpolated Dickey-Fuller ---------
Test 1% Critical 5% Critical 10% Critical
Determinants of Commercial Banks Deposit Mobilization Page ix

Statistic Value ValueValue
------------------------------------------------------------------------------
Z(t) -3.236 -3.750 -3.000 -2.630
------------------------------------------------------------------------------
MacKinnon approximate p-value for Z(t) = 0.0180
. dfullerir, lags(5)
Augmented Dickey-Fuller test for unit root Number of obs = 17
------------------------------------------------------------------------------
Z(t) -10.007 -3.750 -3.000 -2.630
------------------------------------------------------------------------------
. dfuller pc, lags(6)
Augmented Dickey-Fuller test for unit root Number of obs= 17
Determinants of Commercial Banks Deposit Mobilization Page x

------------------------------------------------------------------------------
Z(t) -3.434 -3.750 -3.000 -2.630
------------------------------------------------------------------------------
MacKinnon approximate p-value for Z(t) = 0.0099MacKinnon approximate p-value for Z(t) =
0.0000
. dfuller BRX, lags(0)
Dickey-Fuller test for unit root Number of obs = 17
------------------------------------------------------------------------------
Z(t) 4.139 -3.750 -3.000 -2.630
------------------------------------------------------------------------------
MacKinnon approximate p-value for Z(t) = 1.0000
Correlation result
. cor dep iflrbrxexppciir
(obs=17)
Determinants of Commercial Banks Deposit Mobilization Page xi

| D R B E C I
-------------+------------------------------------------------------
dep | 1.0000
inr | 0.8160 1.0000
brx | 0.9333 0.3471 1.0000
exr | 0.4896 0.1974 0.9411 1.0000
pci | 0.9590 0.2645 0.9569 0.9710 1.0000
dir| 0.4258 0.2906 -0.2253 -0.4977 -0.4641 1.0000
reg DEP IFL IR PCI EXC BRX
Source | SS df MS Number of obs = 17
-------------+------------------------------ F( 5, 10) = 25.00
Model | 54.03038 5 10.806076 Prob> F = 0.0000
Residual | 4.32211418 10 .432211418 R-squared = 0.9259
-------------+------------------------------ Adj R-squared = 0.8889
Total | 58.3524942 15 3.89016628 Root MSE = .65743
------------------------------------------------------------------------------
Determinants of Commercial Banks Deposit Mobilization Page xii

D| Coef. Std. Err. t P>|t| [95% Conf. Interval]
I | -.11733 .1993104 -0.59 0.0469 -.5614282 .3267543
R | .44971 30.53726 0.53 0.5094 -64.29155 71.79097
C | .688927 5.05382 2.93 0.0375 -6.571687 15.94954
E | .104178 2.168258 2.05 0.5134 -4.727002 4.935359
B | .496618 .9283549 3.15 0.0260 -1.571885 2.565122
_cons | -3.357145 1.20756 1.24 0.3056 -30.52737 37.24166
------------------------------------------------------------------------------
. tsset year, yearly
time variable: year, 2000 to 2017
delta: 1 year
Determinants of Commercial Banks Deposit Mobilization Page xiii

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Determinants of Commercial Banks Deposit

Determinants of Commercial Banks Deposit Mobilization

A Thesis Submitted to the School of Graduate Studies of St. Mary’s

By: - Yoseph Ayana Dagnaw

Advisor: - Ass Prof. Abraham G.

Determinants of Commercial Banks Deposit Mobilization

Approved by the Board of Examiners:

__________________ _____________ _______________

Dean of Graduate Studies Signature Date

Internal Examiner Signature Date

External Examiner Signature Date

Advisor Signature Date

1.1 Background of the Study

1.2 Statement of the Problem

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1.4 Objectives of the Study

1.5 Scope of the Study

1.6 Limitation of the Study

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1.7 Significance of the Study

1.8 Organization of the Study

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2.1 Conceptual Review

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2.1.1The Role of Financial Sector for Deposit Mobilization

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2.1.3 Deposit Classifications

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2.1.4 Purpose of Deposits

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Deposit variability is frequently included as an important determinant of portfolio

2.1.5 Determinants of Deposits

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2.1.5.1External Factors (Country &Bank Specific Factor)

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2.1.5.2 Endogenous Factors

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2.2 Empirical Review

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2.3 Summary and knowledge gap

2.4 Conceptual framework of the study

Figure. 2.7 Conceptual framework of the study

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3.2 Research Design

3.3 Research Approach

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3.4 Target population

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3.6 Sample Technique

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