ADMAS UNIVERSITY

SCHOOL OF POST GRADUATE STUDIES

ACCOUNTING AND FINANCE PROGRAM

DETERMINANTS OF DEPOSIT GROWTH OF PRIVATE

COMMERCIAL BANKS IN ETHIOPIA

A PROPOSAL SUBMITTED TO THE SCHOOL OF

POSTGRADUATE STUDIES PRESENTED IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE
DEGREE OF MSC IN ACCOUNTING AND FINANCE

BY: GETACHEW MULU

ID NO: PGMKA/2008/20

TEL: 09-38-02-49-90

ADVISOR: GIDEY G. (PHD)

ADDIS ABABA, ETHIOPIA

MARCH, 2022
 ACKNOWLEDGMENT
Above all, thanks to almighty GOD and his mother St. Merry for the priceless help during the
entire period of our life. Next, we would like to express our deepest and warmest gratitude
and appreciation to our advisor Giday G. (Ph.D.) for her constructive comment, Suggestion
and advice that greatly enriched this paper. Without her support and guidance this paper
wouldn’t have materialized. Beside to this, thanks to employees of selected private
commercial banks for their cooperation and Willingness to provide us the necessary
information for the Study. Next, we would like to extend our special thanks for our families
to their assistance in many aspects. In addition, our heartfelt appreciation and reputation
passes to those people who helped us by giving supportive ideas and encouragements for
preparing research paper. Lastly, but not least , our deepest gratitude and thanks goes to
Admas University in general, and schools of post graduate studies in particular.

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Contents
CHAPTER ONE............................................................................................................................................1

INTRODUCTION.........................................................................................................................................1

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

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

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

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

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

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

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

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

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

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

CHAPTER TWO...........................................................................................................................................8

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

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

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

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

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

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

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

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

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

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

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

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

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

2.1.6.4 INFLATION........................................................................................................................15

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

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

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

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

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

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

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

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

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

METHDOLOGY.........................................................................................................................................23

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

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

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

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

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

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

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

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

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

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

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

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

REFERENCE...............................................................................................................................................28

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 ABSTRACT
This study is entitled as” the determinants of deposit growth in private commercial banks of
Ethiopia.” The main objective of this study is to examine the determinants of deposit growth
in private commercial banks of Ethiopia. The research particularly aims to examine and
identify important factors that influence private commercial banks deposit growth and
examine to what extent the factors determine bank deposit growth. The study will be carried
out through explanatory research design and Quantitative research approach will used. The
target populations were all private commercial banks operating in Ethiopia. Accordingly,
nine private commercial banks were purposively selected for this study. The panel dataset for
the study used consisted annual data spanning from 2010 to 2020. The researcher will collect
quantitative types of data through secondary data source and the Data will collect from
secondary sources; secondary data will collect from annual reports. The researchers used
purposive sampling technique method to answer research questions, and analyzing the
collected data through descriptive and inferential statistics and also the study employs the
regression model of ordinary least square methods.

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

iv
 SYMBOLS AND ABBREVIATIONS
AB - Abay Bank

AIB - Awash international Bank

ATM- Automatic Teller Machine

BOA-Bank of Abyssinia

CBE –Commercial Banks

DB- Dashen bank

E-BANKING-Electronic Banking

GDP- Gross Domestic Product

ICT- Information and Communication Technologies

LIB-Lion international bank

NBE-National Bank of Ethiopia

NIB- Nib international bank

OIB- Oromia international bank

OLS-Ordinary Least Square

POS-Point of Sale

UB -United bank

WB-Wegagen bank

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 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Banks immensely make a contribution to monetary growth via their intermediating feature of
linking surplus and deficit fund sectors. The developing variety of banks through the years has
ended in banking area performance and competition. This has caused an increase in banks’
profits. One of the important thing activities of banks contributing to their performance is deposit
mobilization. In emerging markets, deposits are centered on financial institution operations. Most
companies closely motel to financial institution loans as a supply of financing, and deposits in
large part dictate how plenty budgets are to be had for lending sports. Hence, the position of
deposits can't be overemphasized. For banks to correctly mobilize deposits, it's far vital to
perceive the important thing elements affecting them. Thus, this observation seeks to look at the
determinants of financial institution deposits in the case of Turkey (Ünvan and Yakubu, 2020).

Commercial banks are financial institutions that provide financial services to those in need
Serve. Therefore, in order for commercial banks to make loans, they must have deposits in their
vaults. They move funds from those who are not using it effectively to those who are productive
efforts. Deposits are one of the resources that commercial banks actively use Mobilize the most
liquid funds in bank vaults Borrow from funds in need. Mobilizing deposits is the main activity
of commercial banks. Of course, the banking system is funded by people's deposits. Therefore,
the survival of any commercial bank is largely dependent on deposits. Weak growth in
commercial bank deposits means that loans to eligible members cannot be paid on demand and
cannot be cashed Operating expenses, inability to pay debts, board instability due to frequent
reshuffles such as disgruntled members voting out officials, members resigning to become
competitors, Therefore, deposit control is crucial for commercial banks for Competitive and
attractive overall (Tesfahunegn,2015).

Commercial Banks have an essential role in economic development through intermediation and
reallocation of the surplus fund to the deficit sectors. They function through the facilitation of
Determinants of deposit growth of private commercial banks in Ethiopia Page 1
accepting deposits and disbursing a loan enabling the economy to meet the ever-increasing
demand for credit. In countries like Ethiopia, in which the banking industry dominates the
economic sector, the bank's successful and efficient operation performs an important function in
catalyzing financial development. The economic resources of banking systems are commonly
provided through consumer deposits. Low stage of deposit increase in commercial banks results
in the lack of ability to disburse loans, unable to cover operation costs, to pay debts, unstable
board of directors due to frequent reshuffle as disgruntled participants vote officials out, quitting
of members to competitors. In today’s world, the concern of bank resource (deposit) has to
become one of the most essential and important in the area of business due to the greater
ineffectiveness of lots of commercial banks in the world in terms of their operation and its
unfortunate impact on their performance. Lack of sufficient deposits in banks ‘treasury or
incapacity to pay operational expenses and not being able to satisfy customers led to a failure for
the banking industry before, during, and after the economic crisis of 2007-2009 all around the
world. In Ethiopia, there are increasing growths of both public and private investment in the area
of different sectors. So, the bank plays the intermediation functions in the efficient allocation of
those resources to the demanding sector (Legesse, 2021).

Deposit mobilization is the most crucial feature of commercial banks due to the fact their
successful functioning relies upon at the number of finances mobilized. The authorities have
directed banks sometimes to make all viable efforts to mobilize new deposits that can only
expedite the pace of lending activities through banks from the excess units to deficit units in the
development of the financial system. From historic perspectives, commercial banks are the
maximum crucial savings, mobilization, and economically useful resource allocation institutions.
In appearing those roles, banks are predicted to have the ability scope and prospects for
mobilizing economic sources and allocating them to productive investments, consequently
lending, that is underscored through bank deposit determinants on this study, represent the main
source of the introduction of deposits to fulfill the growing needs of the financial system In the
light of the above, therefore, this paper seeks to study the macroeconomic determinants of bank
deposits in the context of banks’ lending behaviors as influenced through the lending policy of
commercial banks in Nigeria(Eriemo, 2014).

Determinants of deposit growth of private commercial banks in Ethiopia Page 2

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 3

 1.2 STATEMENT OF THE PROBLEM
Bank deposit is the main component of the banking system in every economy. Identifying the
key factors affecting deposits is essential for banks to formulate workable policies and strategies
to mobilize deposits (uneven and Yakubu, 2020). In any country, commercial banks play a vital
role in the economy through mobilizing financial resources to finance the priorities of the
economy. In the context of Ethiopia, the amount of deposit mobilized is not sufficient to meet the
number of funds the economy requires (Ayen, 2020). Banks are one of the main financial
institutions among all other financial intermediaries. Some borrowers are said to be bank-
dependent instead of being dependent on another financial intermediary. Banks are the financial
institutions that are operating for providing external sources for small and medium-sized firms.
Furthermore, the major function of banks is collecting deposits from surplus units and lending to
deficit units that need financing. By ensuring larger-sized and longer-term financing needs of
borrowers with collecting small-sized and short-term deposits banks perform size, maturity, and
risk transformation (Mohamed, 2016). According to teshome (2017) bank Deposits play the most
important role in the banking system, whether cooperative or commercial. Deposits offer limits
to the operating capital of the financial institution concerned. The higher the deposit, the better
may be the funds on the disposal of a bank to lend and earn profits. Banks Deposit is the main
component of a bank’s fund. The existence of commercial banks is totally impossible in the
absence of deposits. Thus, every bank expects that deposits will be sufficient, safe and the flow
of deposits will remain smooth. Changes and different mixtures in economic and commercial
activities make deposit management a challenge to the bank managers (Terefe, 2019). According
to Ahmed (2014) E-banking has improved the bank-customer relationship. Internet and mobile
phones have become common media of information used by banks in getting across to their
customers. Monthly account statements are dispatched to customers through e-mails and mobile
telephones through banks freed from charge. E-banking has come to be an essential promoting
factor for deposit money banks in Nigeria. Banks that need to survive, develop, and continue to
be relevant must provide efficient services via e-banking. According to Tenaw (2020), inflation
had a positive and statistically significant effect on the deposit growth of private commercial
banks, and also exchange rate was found to have a positive and insignificant effect on the deposit
growth of private commercial banks in Ethiopia. On the other hand, Tefera (2020) stated that the
exchange rate was also found to have a positive and significant effect on deposit growth and

Determinants of deposit growth of private commercial banks in Ethiopia Page 4

there is also an insignificant relationship between inflation and deposit growth rate. According to
Terefe (2019) inflation rate has a significant negative effect on commercial bank deposit growth
and the exchange rate was found to have a positive effect on CBs‘deposit growth and the
relationship is significant. Thus, in this study, the researcher examines additional variable(saving
habits of household, e-banking) and check for the existing variable (inflation, exchange rate,
advertising and publicity) with the current situation on Deposit Growth and full fill previous
researchers' gap for determinant factors for private commercial banks deposit growth. This is the
fact that motivates the researcher to study the factors that are related to determining factors of
private commercial banks' deposit growth.

1.3 OBJECTIVE OF THE STUDY

1.3.1 GENERAL OBJECTIVE

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

1.3.1 SPECIFIC OBJECTIVES

1 To examine the effect of saving habits using banking services of private commercial banks.
2 To examine the effect of Exchange rate on deposit growth of private commercial banks in
Ethiopia.
3 To examine the effect of inflation rate on deposit growth of private commercial banks in
Ethiopia.
4 To examine the effect of E-banking on deposit growth of private commercial banks in
Ethiopia.
5 To examine the effect of advertising and publicity on deposit growth of private commercial
banks in Ethiopia.

1.4 RESEARCH HYPOTHESIS

This study will be examines the following hypothesis in their null form:

H01: saving habit has not significant effect on Ethiopian private commercial Banks deposit
growth.

H02: Exchange rate has significant effect on Ethiopian private commercial Banks deposit growth.

Determinants of deposit growth of private commercial banks in Ethiopia Page 5

H03: inflation rate significant effect on Ethiopian private commercial Banks deposit growth.

H05: E –banking has significant effect on Ethiopian private commercial bank's deposit growth.

H05: advertising and publicity have significant effect on Ethiopian private commercial bank's
deposit growth.

1.5 SIGNIFICANCE OF THE STUDY

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

1.6 SCOPE OF THE STUDY

This study will be delimited to some internal and external determinants on private commercial
banks' deposit growth. This paper will be conducted by using five years of data only (from
2015/16-2019/20) and also limited to only private commercial banks in Ethiopia. And also other
commercial banks were not included in the study due to budget and time constraints. Hence, the
data were collected from selected banks of private commercial banks that were being undertaken
for three years and above services in the bank.

Determinants of deposit growth of private commercial banks in Ethiopia Page 6

 1.7 STUDY LIMITATION
In conduct to the research work, the researcher encountered the following problems, the study
will be limited to private commercial banks only not other commercial banks. The observation is
likewise constrained to private commercial banks in Ethiopia, not different public Banks in
Ethiopia. Only deposit increase became considered and credit score operations had been now no
longer undertaken.

1.8 ORGANIZATION OF THE PAPER

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 7

 CHAPTER TWO

REVIEW OF RELATED LITRATURES

2.1 THEORETICAL REVIEW

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

2.1.1 THE ROLE OF BANKS IN FINANCIAL SYSTEM

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

2.1.2 CONCEPTS OF DEPOSIT

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 8

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

2.1.3 BANK DEPOSIT

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

2.1.4 COMMERCIAL BANK DEPOSIT

Commercial Banks deposits are depending on depositors' money as a source of finances.
According to the Keynesian idea of demand cash, there are three important reasons why human
beings maintain money: transactions, precautionary, and funding motives. In order to cater to
those reasons, commercial banks provide three classes of deposit facilities which can be demand,
financial savings, and time deposits. The demand deposit facility is most generally known as a
current account and is designed for individuals who want money for transaction purposes. This
cause may be checked out from the point of view of customers who need earnings to satisfy their
household expenditure and from the point of view of businessmen who require money and need
to maintain it in order to perform their business activities. Hence, the motive of a deposit facility
is for convenience or for making everyday commitments (Shemsu, 2015). Bank deposits

Determinants of deposit growth of private commercial banks in Ethiopia Page 9

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 10

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

2.1.5 THE PURPOSE OF COMMERCIAL BANK DEPOSIT

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 11

 2.1.6 THEORIES OF SAVING

2.1.6.1 THE CLASSICAL THEORY OF INTEREST

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

2.1.5.2 NEO-CLASSICAL GROWTH THEORY

Theoretically, there's controversy on the connection between inflation and saving. Mundell
(1963) and Tobin (1965) have fruitfully defined the impact of inflation on financial growth and
saving based on Neo-Classical Growth Theory. They agree with the extended nominal interest
due to inflation will make people prefer to save and invest instead of consuming. This will result
in improved capital accumulation which will stimulate savings and economic growth. Mundell
(1963) and Tobin (1965) depict an advantageous relationship between inflation and saving.
Contrary to the conclusion of the Mundell-Tobin Effect, Stockman (1981) develops a long-run
equilibrium growth model with the idea of “cash-in-improve constraint”. In the model of
Mundell (1963) and Tobin (1965), real money balances and investment are substitutions. But in
the model of Stockman (1981), the two variables’ dating is complemented; there is a negative
relationship between the steady-state level of output and the inflation rate. Stockman’s insight is
prompted by the fact that firms put up a few coins in financing their investment projects.
Sometimes the coins are directly a part of the financing package, whereas, at different times,
banks require compensating balances. Stockman fashions this cash investment as a coins-in-

Determinants of deposit growth of private commercial banks in Ethiopia Page 12

improve restrict on both consumption and capital purchase. Since inflation erodes the purchasing
power of money balances, people reduce their purchases of both coin items and capital while the
inflation rate rises. Correspondingly the steady-country level of output falls in reaction to a boom
in the inflation price (Malla, 1997). If the earnings aren't indexed, unanticipated inflation will
motivate unanticipated cuts withinside the real income and therefore reduced the saving rates.
Also, excessive inflation can grow the opportunity value of conserving cash and boom the
rewards for the quest sports in shopping wasting real resources and thereby decreasing savings
(Miller and Benjamin, 2008). As towards this, another theory proposes that if the actual earnings
are correctly anticipated both through indexation or wage inflation, unanticipated inflation will
grow the saving rate. Inflation is a good proxy for macroeconomic uncertainty. Higher
uncertainty/higher inflation induces people to save a bigger portion of their money for
precautionary motives.

2.1.5.3 LIFE-CYCLE HYPOTHESIS THEORY

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 13

people and dependents, and ownership is exceeded from parents to children. This form of the
household can internalize a number of the coverage sports that might in any other case require
saving.

2.1.6 DETERMINANTS DEPOSIT GROWTH OF COMMERCIAL BANKS

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

2.1.6.2 SAVING HABIT

The role of savings and investment in achieving and maintaining high economic growth is
extensively laid out in the theories of economic growth. Harrod-Domar's growth idea highlighted
how economic growth relies upon the rate of saving or investment and the incremental capital-
output ratio in the economy. The neoclassical growth theory because of Solow assigned an
important role to saving rate for facilitating a higher growth in per capita capital and in line with
capita income in the transition to the steady-country and additionally implied that an excessive
saving rate allows achieving a higher degree of steady-country per capita capital and income.
Subsequently, fully endogenous growth models recommend that will increase in saving rate and
in the size of population growth the long-time period growth rate. Consistent with theoretical
predictions, empirical evidence additionally strongly support close interlinkages between savings
and financial growth in a cross-USA perspective. It is discovered that economies witnessing
rapid economic growth including China, India, Indonesia, Malaysia, Singapore, South Korea,
and Thailand also are characterized by high saving rates. Similarly, many countries in sub-
Saharan Africa and Latin America typically save at a low rate and experience slow economic
growth. Against this backdrop, analysis of determinants of savings in an economy is very
relevant to formulate appropriate policy initiatives fostering higher savings and thus higher
economic growth (Patra, 2014).

2.1.6.3 SAVINGS DEPOSIT HABIT

Giao, H, Dat, &Quan (2020) studied that Deposits are defined as funds placed in a financial
institution by economic surplus units such as householders, corporations, investors, and
Determinants of deposit growth of private commercial banks in Ethiopia Page 14
government. These funds can both be from cash, claims to money, like assessments located in
depositor’s accounts, bank loans, or money from investments. A financial savings deposit is part
of the income of the current year, and it isn't always used for consumption purposes. This is the
deposit of a third party that can withdraw at any time and may most effectively accomplish that
beneath neath certain conditions, inclusive of varieties of coins financial savings, savings books,
and identity cards. Deposits as the price range that customers place with a bank and that the bank
is obligated to repay on demand, after a specific period of time, or after the expiration of some
required notice period. Deposit is the primary investment source for most banks and, as a result,
has a considerable effect on a bank’s liquidity. Thus, mobilization of deposits for a bank is as
critical as oxygen for human beings. Bank owners are more interested in sourcing deposits
through any means possible. They also observed that banks often set a not possible goal for the
staff in the marketing department, thus marketing becoming the most important function in the
banks ((Vuong& Tran, 2020).
The saving habits Household composition, individual characteristics, demographic, economic,
and social features of households affect saving pattern and behavior of households in a given
society in using private commercial banks. The variations in such factors lead to variations in
national saving rate over time and their finding indicated that education of household head,
landholding size, and annual income of the household affected household saving
positively(Bedemo & Belina, 2017). Bedemo & Belina( 2017) find out the main predictors of the
probability of an individual to have a savings account were income, locality, national health
insurance registration, place of accommodation, sex, age, and education. On the other hand, the
main determinants of the level of savings were namely income, locality, sector of employment,
national health insurance registration, age, education, household size, and marital status. the
saving habit of the Households involved in non-farm activities was found to save more as
compared to those not involved.

2.1.6.4 INFLATION
Inflation is defined as an increase in prices accompanied by a decrease in the value of money.
Inflation can have an effect on saving for a variety of reasons. It could be the result of an
excessive amount of money being injected into the market, whether through the authority's
issuance of bonds or through commercial banks’ lending. Another reason may be the significant
growth in the market's combination demand cash; however, the market's aggregate delivery is

Determinants of deposit growth of private commercial banks in Ethiopia Page 15

underperforming. Greater uncertainty theory postulates the risk of saving growth since customers
deposit their money to hedge against in all likelihood adverse changes in income and other
circumstances. As an end result, change-averse people can also additionally raise their
precautionary financial savings while inflation increases uncertainty approximately destiny
earnings boom. Second, in an inflationary situation, financial savings can also additionally grow
if clients misread a growth withinside the common fee stage for growth in particular relative
prices and chorus from purchasing. Inflation's effect on real wealth can also have an impact on
saving. If consumers try to keep their wealth or liquid assets at a certain level, they will fail. In
order to spice up deposits and boost self-sufficiency, banks must examine depositor behavior
during periods of inflation. Inflation refers to a persistent surge in the general price level over a
defined period of time. As a result of a prolonged rise in prices, the market value of money
(purchasing power) falls. The real value of money decreases, benefiting debtors while harming
creditors (Legesse, 2021). According to yitayew (2021) and Ayen(2020) found that inflation has
a negative significant effect on deposit growth. Whereas, (simegnew, 2020) revealed that
inflation had a positive and statistically significant effect on deposit growth of private
commercial banks. Additionally, teshome(2017) found that the Inflation Rate had a positive and
significant effect on the deposit growth of private commercial banks in Ethiopia.

2.1.6.5 EXCHANGE RATE

Exchange rates are quoted as foreign currency per unit of domestic currency or domestic
currency per unit of foreign currency (Bishop, 2006). The exchange rate allows denominating the
cost or price of goods or services in a common currency. For the main net importing country like
Ethiopia, the variability of the exchange rate of the local Ethiopia money (Birr) to overseas
currency values is enormous. As the exchange rate of Birr to USD ratio grows, local deposits
will expend in the technique of importing items and services. This way because the country does
through away greater imports than exports and the exchange rate of Birr to USD grows, then
local deposits in banks will reduce showing that there's an inverse relationship. There also are
cases in which it shows the alternative trend through growing the overseas direct inflows.
However, the study through Ngula (2012), on the ‘Determinants of deposit mobilization and its
role in economic growth in Ghana has established that a deterioration in the Ghanaian forex with
appreciate to the United States currency resulting in better deposit mobilization. According to
Ngula (2012) as currencies depreciated in one country, the deposit will be reduced since buyers

Determinants of deposit growth of private commercial banks in Ethiopia Page 16

tend to withdraw the deposit to keep it by appreciating currency (Hard currency) or investing in
another form of investment rather than a bank deposit. Geda (2015) also confirms that for a
developing country in general saving is negatively correlated with the unstable exchange rate.

2.1.6.6 ADVERTISING AND PUBLICITY

According to Etzel, Walker, and Stanton (2007), advertising is a non-private communication
paid for through an actually recognized sponsor promoting ideas, organizations, or products. The
maximum familiar outlets for advertising are the broadcast (TV and radio) and print (newspapers
and magazines) media. However, there are numerous other advertising vehicles, from billboards
to t-shirts and, extra recently, the Internet. Jaber and Manasrah (2017) accomplished studies with
the purpose of figuring out the factors that Affect deposits attraction in Palestinian Islamic
Banks. The study finding revealed that there may be a relationship between marketing and
marketing campaigns, advertising, and attracting deposits in Islamic banks in Palestine. The
improved awareness of the general public is one of the prospects for bank deposits (Ephrem,
2016). According to Teshome (2017), Ethiopian commercial banks ought to work on a growing
focus on banking services through recruiting salespersons, which have experience in marketing,
so as to advertise goods and services of the commercial banks through a door to door activity.
Sisay (2013) stated that advertising and publicity service deliverance can improve the deposit
stability of a bank positively.

2.1.6.7 ELECTRONIC BANKING

Electronic banking is a financial institution device that gives banking clients an edge to carry out
banking transactions, either through financial or non-financial banks websites. The innovations
in the technology revolution give birth to more sophisticated instruments which help and assist
the easier way in operating with financial institutions in modern days without going to the
banking premises. E-banking services should be structured on the basis of the needs,
expectations, wants and experience of the clients according to the following standards; firstly,
electronic banking services should be user friendly to the banking customers, secondly,
electronic banking services should be highly speedy in processing customer’s command and
finally, there should be a high level of credibility, compatibility between electronic banking
services and another technical service. Electronic banking is defined as a form of the financial
banking system that operates fund transfer through electronic means rather than physical transfer

Determinants of deposit growth of private commercial banks in Ethiopia Page 17

of cash (hand-to-hand), cheque, and other financial relevant documents. Transferring of funds
occurs between financial institutions such as bank to bank, banks to credit unions, and other
institutions that perform financial transactions through electronic media. However, cash
withdrawal occurs through Automated Teller System (ATM) or paying a credit card through
designated personnel or a bank with the help of an electronic device which facilitates the
movement of cash without the presence of both parties in the exchange (Akujor & Mbah, 2020).

Agburuga& Chibunna (2021) Electronic banking may be described as a means by which banking
products and services are provided through electronic devices such as phones, iPods, etc. The
nascent advances in technology seen around the world has eliminated the traditional manual
banking system and brought about a paradigm shift in banking to the extent that banks are using
internet technologies to improve efficiency and scale up the provision of a wide range of value-
added products and services.
Today, the banking sector has moved into an era of technology that is driven by sophisticated
innovations in ICT. The banking sector shares the common attributes of the high-technology
industry, most notably: market uncertainty, technology uncertainty, and competitive volatility. E-
banking in the 21st century has become widespread and its effect is inevitable. Outstanding
development in the industry is the adaption of information and communication technologies
(ICT) in providing banking goods and services. Examples of ICT-based products of electronic
banking include automated teller machine (ATMs) transactions, point of sale (POS) systems,
mobile banking systems,s and internet banking systems. Before the existence of E-banking, the
transaction of businesses in the financial and productive sectors had been a difficult and stressful
one. Mostly, banks make use of transactions, folio numbers, and postcards like datasheets where
customers' names, specimen signatures, photos were kept in record. The manual operations
caused the very slow and inefficient performance of the banks in Nigeria. This century has been
associated with the availability of dynamic customers whose interest is targeted at banking
services, improved regulation, and high profitability (Akujor & Mbah, 2020).

2.2 EMPIRICAL REVIEW

This section explains the relevant empirical review of related to deposit growth and the
determinants of deposit growth in public and private commercial banks. A bank deposit is

Determinants of deposit growth of private commercial banks in Ethiopia Page 18

money placed into a banking institution for safekeeping, to earn risk-free income in the form of
interest, or to keep for future use.

2.2.1 EMPIRICAL STUDIES OUTSIDE ETHIOPIA

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 19

of money supply have significant negative short term impact on the bank deposits in Ghana. the
study reveal that an increase in banks’ capital adequacy level does not essentially translate into
deposit.

Electronic banking system as the technological innovative service delivery system that offers
varieties of financial services like cash deposit payment of utility, cash transfer, cash withdrawal,
cash borrowing, cheque and pass book request, account statement request and other necessary
financial enquiries (Akujor & Mbah,2020).

2.2.2 EMPIRICAL REVIEWS IN ETHIOPIA

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 20

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

2.4 CONCEPTUAL FRAMEWORK

According to Mugenda (2005), a conceptual framework helps the reader to quickly understand
the proposed relationships between variables in the study. Below conceptual framework on
factors affecting deposit growth of private commercial banks in Ethiopian has been discussed.
The variables are referred to as the building blocks of theory. The conceptual framework

Determinants of deposit growth of private commercial banks in Ethiopia Page 21

comprises of five independent variables which the researcher thinks had an effect on deposit
growth.
Fig.2.1 conceptual framework

Inflation

Advertizing Exchange
And
Publicity Rate
Deposit
Growth

E- Saving
banking Habit

Source: Developed By the Researcher

Determinants of deposit growth of private commercial banks in Ethiopia Page 22

 CHAPTER THREE RESEARCH

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

3.1 DESCRIPTION OF THE STUDY AREA

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

3.2 RESEARCH DESIGN

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

3.3 RESEARCH APPROACH

This study will use Quantitative research approach. The choice of research approach depends on
objectives of the study that the researcher wants to achieve. In quantitative research, the
researcher identifies a research problem based on trends in the field or on the need to explain
why something occurs. In the Quantitative research approach the problems requires that you
explain how one Variable affects another. Variables are characteristic of individuals that the

Determinants of deposit growth of private commercial banks in Ethiopia Page 23

researcher study by explaining a relation among variables, you are interested in determining
whether one or more variables might influence another variable (Creswell, 2013).

3.4 DATA TYPE AND DATA SOURCE

The researcher will collect quantitative types of data as secondary data from annual audited
financial statements of selected private commercial banks in Ethiopia and NBE through
document analysis. Secondary data were used to determine the factors affecting deposit growth
of commercial banks in Ethiopia. The secondary data for this study will extracts from the
purposively selected private commercial banks in Ethiopia and NBE annual reports. The annual
reports will be collect from the purposively selected private commercial banks and NBE‘s public
websites and their research and development offices.

3.5 POPULATION AND SAMPLE SIZE

3.5.1 SAMPLE SIZE

The target population of this study will be on private commercial banks in Ethiopia. The
researcher will be use a more feasible approach by selecting a small group from the population as
a sample size; because 16 private commercial banks are private owned bank. in this study focus
on only private commercial Bank since established ten years ago from 2010/11 to 2020/21.
According to the reports of NBE (2020) currently sixteen private banks and two government
banks are working in Ethiopia. From these the researcher conducts only 12 banks that are private
owned commercial banks.

3.5.2 SAMPLING TECHNIQUE

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

Determinants of deposit growth of private commercial banks in Ethiopia Page 24

Wegagen bank (WB), United bank (UB), Lion international bank (LIB), Nib international bank
(NIB), abay bank (AB) and Oromia international bank (OIB) for the period of 2015to 2020.

3.6 VARIABLE MEASUREMENT AND INSTRUMENT

3.6.1 DEPENDENT VARIABLES

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

3.6.2 INDEPENDENT VARIABLES

Table 3.1 Variable Measurement and Instrument

Variables Measurements
Dependent Variable
Deposit Growth Sum of demand, saving and deposits.
Independent Variables
Saving Habits Level of deposits
Exchange Rate Annual exchange rate
Inflation Rate Annual percentage changes in the CPI.
E-Banking Levels of digitalize the bank
Advertising And Publicity The yearly total advertising expenses

Advertising and publicity

The awareness of the public is one of the prospects for banks deposit. According to Teshome
(2017) Ethiopian commercial banks have to work on creating of awareness about banking
services by recruit sales persons, who have an experience in marketing to advertise the products
and services of the banks through door to door activities. Aggressive promotion and upgrading
service deliverance can increase the deposit growth of a bank positively (Sisay, 2013).
Inflation
Inflation refers to define that in the general price level over a defined period of time. As a result
of a rise in prices, the market value of money (purchasing power) falls. The real value of money
decreases, benefiting debtors while harming creditors (Legesse, 2021).

Determinants of deposit growth of private commercial banks in Ethiopia Page 25

According to Gebre(2019) Inflation is a sustained rise in the general level of prices in the price
level. Inflation is measured alternatively by Consumer price index. As inflation increase, the
deposits become less attractive, depending on the interest rate. The decreasing spread between
deposit rates and inflation; the less attractive it should be to hold deposits above the required
level. Different studies show varying results regarding the directional relationship between
inflation and deposit volumes.
Saving
Saving is a deposit account held at bank or other financial institutions that provides principal
security and a modest interest rate. Based on the type of savings account, the account holder may
not be able to write checks from the account or he/she/it access the account without incurring
extra fees or expenses like cost of checks and the account is likely to have no limited number of
transfers/transactions (yoseph, 2019).
E-banking
E-banking provides to consumers in terms of cost of transactions, either through Internet,
telephone or other electronic delivery. E-finance as the provision of financial services and
markets using electronic communications and computation in practice, e-finance includes e-
payment, e-trading, and e-banking (Vyas and Shilpan, 2012). E-banking is just banking offered
through a new delivery channel of the banks.

3.7 METHOD OF DATA ANALYSIS

To achieve the objective of this study the researcher will be use both descriptive and inferential
statistics. The regression technique will be used to determine the relationship between the
multiple independent and the dependent variable. Upon collection of all data, the data are
processed, edited, classified and organized in order to In descriptive statistic the researcher use
percentages, correlation and frequencies as well as mean and standard deviation that help to
analyze the data where as in the inferential techniques which is known as regressions particularly
ordinary least square (OLS) was employed which shows not only the relationships or
associations existing between variables it helps to analyze the extent to which one (independent)
variable predicts the other (dependent) variable. Further, the collected raw data were classified
and compiled to make assessment manageable and understandable using STATA as well as

Determinants of deposit growth of private commercial banks in Ethiopia Page 26

Excel. The dependent variables were the yearly bank deposit, and the independent variables were
yearly advertising expense, saving, e-banking, inflation and exchange rate.

3.8 ETHICAL CONSIDERATIONS

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

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