Determinants of Commercial Banks Deposit Growth Evidence from Ethiopian Commercial Banks

Abstract

The purpose of this research is to examine major causes of deposit growth in commercial banks in Ethiopia with explicit inference on industry specific and Macro-Economic variables. The research used secondary data from 2010-2019. Macro-economic factors selected under this study consist of age dependency ratio, unemployment rate, population growth, broad money supply, and Inflation. While bank-specific variables included are branch expansion and bank size. Since the study employed panel data in line with the nature and data of the study ordinary least square method estimation were used subsequently after the necessary diagnostic tests and Hausman test performed to determine the appropriateness of fixed effect. The result of the study indicate branch macroeconomic factors such as bank size, broad money supply, and inflation significant positive effect on deposit growth of commercial banks. Contrarily, Age dependency ratio and population growth have a statistically significant negative effect on deposit growth. The unemployment rate, on the other hand, has been found to have a positive but statistically insignificant relationship. The bank-specific factors indicate the branch expansion has a positive significant association while Bank size has a positive but insignificant relationship with deposit growth of commercial banks. Finally, the study suggests there should be a stable macroeconomic environment that reduces the effect of inflation, money supply, population growth, and from a bank-specific perspective aggressive branch expansion is essential for the growth of deposits in commercial banks in Ethiopia.