CHAPTER I

INTRODUCTION

1.1 Background of the Study

Basic determinants of the growth of deposits of bank, also focus on the short and long
term saving behavior of individuals and how the characteristics of the banks affect the
growth of deposit (Yakubu & Abokor, 2020). So, deposits are the main source of banks
to provide loan. This deposit is mainly provided by people. However deposit van also be
provide by business, NGO, INGO and government soon on. Therefore, whether deposits
are from individuals, businesses and government they are importance financial resources
(Ayene, 2020).

Rapid growth in income sustains high future spending, so changes in personal income
over time depend on consumption. And on the contrary, an individual's current savings
do not necessarily translate into a lasting change in income, and thus can speak of
increased consumption, both now and in the future. The buffer stock theory argues that
individual ownership of multiple assets can protect consumption from unexpected
changes in income. The theory also shows that individuals are cautious and impatient
about changes in income, because they borrow until future income is commensurate with
their consumption patterns. Individuals always have a preventative motive. They
therefore seek to mitigate potential risks that may arise from future changes. By reducing
current consumption, individuals create preventive reserves that are more prepared for
emergencies during difficult times (Unvan & Yakubu, 2020).

Commercial banks play an important role in economic development by arranging the

intermediation and reuse of surplus funds provided to sectors suffering from liquidity
shortages. Banks aim to facilitate the process of accepting deposits and borrowing from
individuals, helping the economy meet its ever-increasing borrowing needs. Also, the
financial resources available in the bank are largely conserved. Through customer
deposits. Banks are therefore always afraid of recovering personal savings represented by
deposits. Low growth in bank deposits leaves banks unable to provide credit, cover
operating costs, and default (Legass, Shikur & Ahmed, 2021).
So, achieving high and sustainable rates of economic growth has long been the goal of
economic development in all countries. The economic development of any country is
dependent on its financial system which includes its banks, stock markets, insurance
sector, pension funds and government – run central bank with authority. Usually, banks
are the cornerstone of a national financial system through play an intermediary role of
mobilizing funds from savers and subsequently lending them to investors. Mobilizing
deposits is one of the essential issues in developing countries as domestic funds provide
cheap and reliable source of funds for development, which is of great value to those
countries, especially when the economy has difficulty raising capital from international
donors, financiers and markets.

Deposit growth is considered to be an important source of working capital, and its

importance is reflected in the banking sector, for example, the accuracy of deposits,
whether current or temporary or savings. Is reflected in the amount of increase. The
government is also encouraging banks to make every effort to accept additional deposits,
accelerating their ability to shift deposits from profitable to loss-making banks. It is
considered to be a cheaper source of funding compared to working capital. Banks have
the ability to successfully make loans associated with deposit growth (Banke & Yitayaw,
2022).

Mirzaei and Mirzaei (2011) analyze the bank-specific macroeconomic determinants of

profitability in banking in the Middle East, finding that economic activity affects demand
and supply of credit and deposits, and that taxes and other variables affect interest rates.
The amount of deposits can be affected Credit and deposit. Exchange rates affect deposits
when confidence in the local currency is low. Gross Domestic Product (GDP) is one of
the most commonly used macroeconomic indicators to measure overall economic activity
within an economy. GDP is expected to influence many factors related to the demand and
supply of loans and deposits (Sufian, 2010). Kanj and Khoury (2013) investigated the
determinants of commercial bank non-resident deposits. Data from Lebanon show that
non-resident deposits differ between local and foreign currencies. For example, bank
assets, interest rates, and some unfavorable political conditions affect non-resident
deposits in many ways. However, while total deposits held by non-residents and foreign
non-residents are affected by roughly the same factors, deposits held by residents appear
to be affected by different factors. This fact is due to the fact that local currency deposits
account for a small percentage of total deposits by non-residents. .

In Nepalese context, Pradhan and Paneru (2016) concluded that lagged log fixed deposit,
numbers of branches, trend and lagged log saving deposit are considered as important
variables for deposit in Nepalese banking sector. This implies that these explanatory
variables have positive impact on the bank deposit of commercial bank and change in it
will yield the highest change in banks deposit. Dhungana (2011) found that higher the
level of GDP, higher the deposit of the financial institutions, and economic growth of the
nation. Similarly, high level of the deposit of commercial banks contributes for the
enhancement of nominal GDP and economic growth of the nation. Shrestha (2008)
analyzed the private savings behavior in Nepal: long-term determinants and short-run
dynamics and the study found that real interest rate has positive influence on the private
savings in Nepal and also significant.

Therefore, the main purpose of this study is to descriptively investigate and empirically
analyze the factors that affect commercial bank deposit flows in Nepal. Previous studies
found few gaps, inadequacies and unresolved issues in the literature on factors affecting
commercial bank deposits in Nepal. It is hoped that this study will help fill this gap using
a variety of methods and approaches. .

1.2 Statement of Problem

Money related enhancement is essential to monetary improvement and banks are the first
basic components of the money related system. With the obliged overseeing an account
float and moo pay of the society private commercial banks in Ethiopia has been
experiencing competition in overseeing an account industry and one of the foremost
targets of monetary teach is mobilizing resources, Store mobilization is the strategy of
engaging clients to store cash with the bank or drawing in advanced clients to come and
open accounts with the bank. From an organization's perspective, the fundamental basis
for mobilizing save stores lies in lower gotten of capital compared to other sources of
stores Samuel (2015). Deposit mobilization is an integral part of banking operations.
Mobilizing savings through centralized collection of deposits is considered to be a major
task of banking systems worldwide. Deposit mobilization is the collection of cash or
funds from the public by financial institutions through current accounts, savings, fixed
term accounts and other specialized systems, Mahindra (2005). Nkwede (2010) found
that banks could adapt deposit mobilization strategies in response to increased investment
in the country through branch growth, technology use and continued staff training,
thereby strengthening deposits and increasing institutional confidence. pointed out that it
would increase Or, if your current branch expands your bank savings plan offering,
leverages high media coverage, expands branch, learns at home about benefits offered,
and offers door-to-door service. and soon.

The study conducted by the some Nepalese researcher found that deposit and economic
growth has positive relationship, showed interest rate and interest rate structure and its
influence on deposit and lending of several banks and have negative interest relationship
Bhandari (2011). However, Dhungana (2011) talked about that higher the deposit which
increases the level of gross domestic product. Despite a lot of research focused on the
saving deposit, fixed deposit as well as GDP. Most of the studies focused on the
mobilization of deposit on the basis of primary data but this study used both
macroeconomic variables as well as bank specific variables. Previous research used real
interest rate, population growth rate, and GDP growth and inflation rate but in bank
specific used deposit interest rate and bank size (Khaniya, 2014).

Moreover, this research focusing on the new bank specific variables which is not used in
previous study in context of Nepalese bank. Generally, this study used to compare
between the commercial and development bank. Therefore, it tried to investigate the
important of factors which affecting on deposit mobilization of Nepalese banks. The
identification of these factors will help in measuring the weakness and strength of the
changing business environment. So, the study will be investigate on following questions;

 What is relationship between macroeconomic and bank specific factors on deposit

mobilization?
 What are the factors that affect deposit mobilization on Nepalese commercial banks?

1.3 Objectives of the Study

The general objective of the study is to examine the factors that affect the deposit
mobilization of Nepalese commercial bank. So, the study used following listed objective:
  To examine the relationship between macroeconomic factors (GDP, inflation &
Population growth) and bank specific factors (CAR, LTD, and profitability) with
deposit mobilization.
 To analyze the effects of macroeconomic factors (GDP, inflation and Population
growth) and bank specific factors (CAR, LTD, and profitability) with deposit
mobilization.

1.5 Rationale of the Study

The researcher's main focus is on deposit mobilization and its determinants in Nepalese
commercial and development banks, utilizing secondary data for the analysis. The study
encompasses financial statements from the past ten years and aims to provide insights
into deposit mobilization and the key factors influencing it. As a result, the study holds
significant value for bankers, government officials, students, and others involved in the
financial sector. Banks can use the findings to understand their customers' capabilities
and enhance services based on success indicators.

Moreover, as there is limited research on factors influencing bank deposits, this study
serves as a valuable resource in the finance field. By investigating various firm-specific
and macroeconomic factors affecting deposits in commercial banks, the research can aid
in making informed decisions, formulating effective policies, and inspiring further
research in deposit-related matters. This study's importance extends to investors, students,
academics, policymakers, government officials, bankers, and managers who seek a
comprehensive understanding of deposit mobilization and its underlying dynamics.

1.6 Limitation of the Study

There are various limitations that influence the study's effectiveness and final outcomes.
Some of these limitations are included as below.

 The study primarily depends upon the secondary data which are published by the
selected sample commercial banks.
 This study focus on out of 20 only 15 (Mid July) commercial banks of Nepal.
 .Only three macroeconomic factors (GDP, Inflation rate and population growth) and
bank specific factors (profitability, capital adequacy ratio, loan to deposit) has been
taken. The qualitative factors have been ignored.
 Data are insufficient which limits for the broad level of the study.
 The study use only 10 years of data for the study on panel analysis.
 CHAPTER II

LITERATURE REVIEW

Literature review is prepared in two parts, i.e. the theoretical review and the empirical
review part. In the theoretical review, part the theories that states about the commercial
banks 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 that were included, the
methodology that is used to undertake the study and the results of the study under review
are discussed. Finally, we discuss about the research gap.

2.1 Theories Review

A theoretical review of deposit mobilization focuses on understanding the concepts,

strategies, and factors that influence the process of attracting and collecting funds from
individuals, businesses, and institutions to deposit them within financial institutions like
banks. This review deals with four theories, which are Keynesian theory of demand for
money, Milton Friedman’s permanent income hypothesis, life cycle hypothesis and real
bill theory.

2.1.1 Keynesian Theory of Demand for Money

Keynes's theory proposes that consumption and savings are positively linked to absolute
or disposable income. As income increases, both consumption and savings will also
increase. However, Keynes argues that the rate of consumption growth will gradually
slow down as income rises, resulting in a greater proportion of income being saved at an
increasing rate. This implies that individuals tend to allocate a larger portion of their
higher income towards savings rather than spending it all. The non-linear relationship
between income, consumption, and savings outlined by Keynes highlights the importance
of understanding how changes in income can influence spending and saving behaviors in
an economy. (Epaphra, 2014).

So, the Keynesian theory of money demand, people hold money for three main reasons:
transactions, precautionary reasons, and investment motives. In order to meet these
motives, commercial banks offer three categories of deposit facilities: demand deposits,
savings deposits, and time deposits. The demand deposit facility, also known as a current
account, is designed for those who need money for transactions. This can be seen from
the perspective of consumers who need money to meet household expenses and from the
viewpoint of businesses who need money to carry out their operations. The purpose of
this deposit facility is for convenience and daily commitments. The second category of
deposit is the savings account, which caters to the needs of those who want to save
money but also earn an income. Depositors of savings accounts hold money for
precautionary reasons while being motivated by investment motives. A precautionary
reason for holding money is the desire to hold cash for unforeseen contingencies, while
the speculative reason relates to holding resources in a liquid form to take advantage of
changes in interest rates in the future. The final category of deposit facility is time-based
(fixed) deposits, which are offered by banks to cater to the investment motives of
customers who have idle funds and seek better returns on their money (Awole, 2016).

2.2.2 Milton Friedman’s Permanent Income Hypothesis

Friedman's Permanent Income Hypothesis (PIH) posits that individuals are rational and
aim to maximize their lifetime utility, while spending all of their lifetime resources.
According to this hypothesis, income and consumption are divided into two main
components: the transitory and permanent components. Permanent income is defined as
the lifetime income an individual is expected to earn from their physical and human
assets, while transitory income is the difference between actual income and permanent
income over a specified period of time. This is because individuals plan their
expenditures based on both current income and expected lifetime income. Therefore,
consumers plan their expenditure based on a long-term view of the resources that will be
available to them in their lifetime. Friedman argues that permanent income should be
considered when studying the saving and consumption behavior of economic agents, not
just absolute income as proposed by Keynes (Epapher, 2014).

According to Friedman’s PIH, the saving function at time t in its simplest form given the
transitory and permanent income can be expressed as

St=C+ФY (p) +ΦY (T)

Where, Ф is the marginal propensity to save given permanent income Y (p) Φ is the
marginal propensity to save given transitory income Y (t) C= constant with value less
than zero.

2.2.3 Life Cycle Hypothesis

Ando and Modigliani (1963) proposed the life-cycle hypothesis of consumption, which
has become widely used in studying the savings and retirement patterns of older
individuals. According to this hypothesis, consumption needs and income are not always
balanced throughout a person's life stages. In their early years, individuals often have
higher consumption needs, particularly for housing and education, which may exceed
their income, leading to little savings. As they enter middle age, earnings typically
increase, allowing them to repay debts accumulated earlier and build up savings. During
retirement, income declines, and individuals rely on their previously accumulated savings
to support their consumption. The life-cycle model postulates that people go through
different phases in their financial behavior. In their early years, they tend to be net
borrowers, saving little. In the middle years, they focus on saving to repay debts and
prepare for retirement. In the later years, they consume from their accumulated savings.
The model predicts that higher interest rates increase the current cost of consumption
compared to the future cost, incentivizing individuals to save more.

As income fluctuates over an individual’s life span, saving behavior is greatly influenced
by one’s stage in the life cycle. As such it’s anticipated that individuals smoothen
consumption over their lifetimes such that they save during their working years and
consume upon retirement (Mashamba, Magweva & Gumbo, 2014)

2.2.4 Real Bill Theory

The Real Bills Doctrine, also known as the "commercial loan theory," is an ancient
banking concept (Humphrey & Timberlake, 2019). This theory advocates for unrestricted
intermediation by private banks or central banks, as it is believed to have a positive
economic impact. According to the doctrine, banks should issue notes or liabilities that
are more convenient and easily held as assets than discounted bills. Essentially, the Real
Bills Doctrine suggests that banks should primarily focus on providing short-term, self-
liquidating loans and advances. In this approach, commercial banks would hold assets
mainly in the form of short-term loans that can be easily converted into cash during
normal business operations. Advocates of this theory argue that banks should primarily
finance the movement of goods through different production stages until consumption,
essentially offering working capital loans. The idea is that maintaining liquidity requires
a continuous and substantial flow of cash, which can be achieved if banks limit their
lending to short-term facilities. Engaging in longer-term lending would necessitate a
larger amount of deposits to meet short-term cash flow demands.

2.3 Empirical Reviews

Abdelzaher (2023) examined the determining variables that, between 2003 and 2019,
affected the mobilization of deposits in listed banks in Egypt. The dependent variable for
this study is deposit growth, while the independent variables include efficiency ratio,
size, inflation rate, market capitalization, loan losses, and loans and receivables. The
research was conducted on 12 publicly traded banks. Use of statistical techniques such as
descriptive statistics, person correlation matrices, and two-way random effects
demonstrated a significant positive correlation between the rate of efficiency ratio, size,
inflation rate, market capitalization, net operating cash flow, loan losses, and loans.

Offer (2023) aimed to determinant of retained earnings of deposit money banks in

Nigeria. Retained earnings were the dependent variable, while total assets and total
deposits were the independent variables of the study. The study adopted an ex-post-facto
research design, covering the period between 2010 and 2019. Secondary data were
extracted from the annual reports and accounts of sampled deposit money banks in
Nigeria. Spearman Covariance analysis was used for the test of hypotheses. From the
data analysis, total assets and total deposits have a strong and positive relationship with
retained earnings. This implies that total assets and total deposits can be used to predict
the retained earnings of deposit money banks in Nigeria. The study, therefore,
recommends that deposit money banks in Nigeria should strive to increase their asset
base by investing in land and buildings and also ensure that every asset at their disposal is
effectively and efficiently managed to yield more profit and subsequently increase their
retained earnings for further investments and/or recapitalization. They should engage in
promotions and other programmers that will encourage customers to keep their cash with
them. This will provide them with additional funds to provide loans and make other
investments to increase their revenue and retained earnings.

Waleru (2023) investigated about the banking sector reforms (BSR) and financial
performance of quoted deposit money banks (DMBs) in Nigeria. Panel data obtained
from 13 quoted DMBs were sourced from annual reports and statement of account of the
DMBs from 2010 to 2019. Financial performance was modeled as the function of
increased capital base, increase credit allocation, increase in deposit mobilization and
assets quality. Panel data methodology is employed while the fixed effects model was
used as estimation technique at 5% level of significance. Fixed effects, random effects
and pooled estimates were tested while the Hausman test was used to determine the best
fit. After cross examination, the Hausman test validated the fixed effect model. From the
fixed effect model the study found that 52.6% variation in financial performance
(represented as return on equity) of quoted DMBs could be traced to variation in BSR.
The study found that deposit mobilization and capital adequacy ratio have negative
significant relationship with return on equity of DMBs. Credit allocation has positive
significant effect while assets quality has positive insignificant effect on return on equity.
The study concludes that BSR have significant effect on financial performance of DMBs
in Nigeria; and recommend that the Central Bank of Nigeria should increase the
minimum capitalization of banks in line with perceived volatility of the operating
environment; and also increase its oversight function on DMBs in the areas of credit
allocation and deposit mobilization.

Vinh, Quang, Thanh and Phuong (2023) analyzed the factors influencing customer
deposits in Vietnamese commercial banks. The study encompasses a sample of 25 banks
spanning from 2009 to 2021. Secondary data were gathered from audited financial
statements of banks and statistical information from the Hanoi and Ho Chi Minh Stock
Exchanges. The regression results indicate that bank profitability, loan quality, listing
status, and state-controlled ownership positively impact customer deposits, while bank
liquidity, average interest rate, and global financial crises have a negative effect. Based
on these findings, commercial banks should focus on enhancing benefits for depositors
and implementing strategies to build trust and confidence among customers, leading to
increased customer deposits. The results also highlight the positive role of deposit
insurance, the State Bank, and government collaboration in mobilizing deposits from
customers. This study contributes reliable empirical evidence on the influence of state-
controlled ownership, stock listing, and global financial crises on customer deposits. The
findings will assist bank managers and stakeholders in formulating effective strategies to
attract deposits from customers, while also contributing to the development of related
theories in the field.

Asante, Kwaning, Arhenful, Ntiamoah and Tsriku (2023) investigated the

interconnections between macroeconomic variables and their impact on the total deposits
of banks in Ghana. The macroeconomic variables examined were Inflation (I), Monetary
Policy Rate (MPR), Gross International Reserve (GIR), Public Debt (PD), Gross
Domestic Product (GDP), GSE All-share Index (GASI), Rate of change in Total Money
Supply (M2+), and deposits in the banking sector (TD). The research employed monthly
data from the Bank of Ghana's time series database covering the period 2015 to 2020.
The analysis was conducted using the Gretl software, and the counteraction technique
was applied to assess both long-term and short-term relationships. The Augmented
Dickey-Fuller (ADF) test results indicated that the study variables were non-stationary.
The econometric analysis revealed a significant positive long-run cointegration
relationship among inflation (I), Gross Domestic Product (GDP), Public Debt level (PD),
and Total Deposits (TD) in Ghanaian banks. This implies that these variables play a vital
role in explaining fluctuations in total deposit levels within the banking industry of
Ghana. Bank deposits demonstrated strong exogeneity, adjusting through various short-
run partial changes in the short term. Additionally, in the short run, only the GSE All-
share index (GASI) had a significant influence on bank deposits, whereas in the long run,
the relationship was positive but not statistically significant.

Nasrin (2023) found that bank deposits play a crucial role in determining the working
capital of banks as they serve as the primary source of funds for lending activities,
making them vital for a banking institution's operations. Increased savings lead to more
investments, fostering economic growth. This research aims to identify the key factors
that influence the volume of deposit mobilization by commercial banks. The study
gathered opinions from 200 professionals, considering 29 listed private commercial
banks in Bangladesh. The findings highlight that factors such as Government monetary
policy, bank size, diversified services, and the state of the local and national economy
significantly influence the collection of bank deposits by commercial banks. As a result,
the research suggests that an investment-friendly government monetary policy can
positively impact bank-specific factors like enhancing bank size and offering diversified
services, ultimately attracting more deposits to the banks.

Banke and Yitayaw (2022) found an ability to gather deposits is a crucial aspect of
banking operations, particularly in Ethiopia where it is considered a primary task for
banks. However, effectively managing deposits requires understanding and controlling
the factors that affect them. This study examines the specific factors within banks and
macroeconomic factors that influence deposit mobilization in Ethiopia's commercial
banking sector, using data from 14 commercial banks from 2011-2020. The results show
that factors such as the loan-to-deposit ratio, capital adequacy, economic growth,
inflation, population growth, and political stability have a negative impact on deposit
mobilization, while the bank's profitability has a positive and statistically significant
impact. The study suggests that Ethiopian commercial banks should focus on internal
factors that can be managed by management while also taking into account external
economic and political factors. The findings of this study can be useful for bank
managers, owners, analysts, policymakers, depositors, and other stakeholders, as well as
for academic researchers and students studying the banking sector. Additionally, this
study is unique in that it examines the effect of population growth and political stability
on deposit mobilization, and contributes to the limited existing knowledge in this area.

Charles (2022) analyzed the relationship between selected variables and bank deposits
growth in Rwanda. Empirical results imply that both macroeconomic and bank-specific
factors play a role in determining bank deposits growth in Rwanda. The study used
quarterly time series data spanning the period 2005Q1-2019Q4, to estimate the long run
and a short run relationship. Results confirm a long run and a short-run relationship
between bank deposits and its expected determinants. The relationship between selected
variables and bank deposits in Rwanda has been empirically studied, and results of the
model imply that macroeconomic factors and bank-specific factors play a role in
determining the growth of bank deposits in Rwanda. The study used quarterly time series
data spanning from 2005Q1 to 2019Q4, to estimate a long run and a short-run
relationship. Results confirm a long run and a short-run relationship between bank
deposits and its expected determinants. Empirical results show that gross domestic
product, government expenditure, number of bank branches and deposit interest rate have
a long run influence on bank deposit growth in Rwanda. In the short-run, findings also
revealed that government expenditure and gross domestic product prove to be the main
determinants of bank deposit growth.

Worku and Tafa (2022) aimed to determine the factors that affect private commercial
bank deposits in Ethiopia over an 18-year period from 2000 to 2017. To accomplish this,
the study used an explanatory research design and a quantitative approach, and collected
data from 16 private commercial banks currently operating in Ethiopia. The data was
analyzed using descriptive statistics and random effect model analysis. The results of the
study revealed that three internal variables, such as the loan-to-deposit ratio, profitability,
and the number of bank branches, as well as two macroeconomic variables, such as the
unemployment rate and the economic growth rate, have a significant impact on the total
deposits of private commercial banks. Based on these findings, the researchers
recommended that private commercial banks should expand their branches more
aggressively, and that government bodies should focus on promoting sustainable
economic growth and reducing unemployment.

Gurung and Gurung (2022) investigated the various factors that affect commercial bank
profitability in Nepal. Both bank-related and external macroeconomic variables that
influence bank profitability were taken into account. The study used a set of balanced
panel data containing 13 Nepali commercial banks for a 12-year period from 2009 to
2020, with 156 observations, which were analyzed using descriptive statistics and
Pearson's correlation analysis. The study findings were drawn using fixed-effect panel
regressions. The study found that the loan-to-deposit ratio, also known as the credit-
deposit ratio, has a significant positive impact on the return on assets and net interest
margin of commercial banks. Additionally, the growth of economic activities in the
country, as measured by GDP growth, significantly influences profits. This suggests that
an increase in the nation's economic activities leads to an increase in the size of loans and
advances, and ultimately, the earnings of banks. However, non-performing assets had a
weak influence on the return on assets but had a significant negative effect on equity
return. The results of this study suggest that commercial bank profitability can be
increased by increasing the degree of loans and advances relative to deposits, and by
aligning with the economic activities of the nation, and decreasing non-performing assets.

Bista and Basnet (2022) studied measuring determinants of time deposit in the
Commercial Banks in Nepal. Time deposit is one of major source of liquidity of the
commercial bank to maintain money supply to the demand of business and household
sector. In this context, an interesting query is the determinants of time deposit. This paper
measures the determinants of time deposit in the commercial banks of Nepal based on 15
years’ time series data sets from 2000-01 to 2017-18 of the sample commercial banks
published by the central bank of Nepal. Using descriptive statistics and multiple
regression models as the analytical tools, the paper has found fluctuating trend of
liquidity in the commercial banks but inclining trend of external and internal variables
including GDP, Deposit, Capital, Size of Bank, remittance and public debt. In this trend,
the liquidity of the commercial banks depends significantly on time deposit and
remittance inflow. Besides, the positive trend of time deposit from 1994-95 to 2017-18
has caused the positive trend of total deposit from 1994-95 to 2017-18. Additionally, the
paper has found that GDP per capita, US exchange rate, interest rate and the branch of the
bank are positively and significantly determinants to the time deposit of the commercial
bank but inflation rate is negatively and determinant with significance. The internal
variables are more determinants than the external variables to the time deposits. It is clear
that time deposit is a reliable and long-term source to main the bank liquidity of the
commercial bank for their financial stability and performance depends on more the
internal variables than the external variables. Therefore, the commercial bank should
reform as mentioned in the monetary policy and money market dynamics to improve the
competitiveness and smartness of bank policy including interest rate policy and branch of
the commercial banks for effective mobilization of the scattered small resources all over
the country for higher rate of capital formation, investment, and economic growth.

Feto and Jayamohan (2022) investigated the short-run and long run relationships and
causalities among inflation, unemployment and economic growth in Ethiopia. The time
series data from World Bank: World Development Indicator databases, for the period
1991–2016, were employed. Autoregressive Distributed Lag bounds testing for
integration and Error Correction Model were used for the analysis. The results indicated
the existence of a long run relationship among the variables. In the short-run, a single
digit rise in price promotes economic growth in Ethiopia. There is a short run causality
running from inflation to real Gross Domestic Product; and in the long run economic
growth and inflation move together. The short run, long run and ECM estimates all agree
over significance and causation: inflation and unemployment estimates have inverse and
significant relationship while inflation and GDP have positive and significant relationship

Terefe (2021) examined the determinants of commercial banks deposit mobilization in

Ethiopia for the periods 2012/13-2019/20. The study selected seventeen commercial
banks out of a total of 18 for the analysis. The researcher adopted a quantitative research
approach and used a balanced panel fixed effect regression model to analyze bank-
specific and macroeconomic variables. Various diagnostic tests were conducted to check
the appropriateness of the model. The results reveal that bank profitability, deposit
interest rate, and exchange rate have a positive and statistically significant impact on
bank deposit mobilization. On the other hand, inflation rate has a negative and
statistically insignificant impact on bank deposit mobilization. The number of bank
branches had an insignificant positive influence on bank deposit mobilization while GDP
had a negative and insignificant effect on deposit mobilization. The study suggests that as
deposits are a critical resource for investment, economic growth and development, and
also for the banks to be profitable, they should give more emphasis to deposit
mobilization activity. Ethiopian commercial banks should introduce new deposit product
types that are appealing to the public to increase market share. The government should
also create a level playing field for all banks.

Bogale, Sugebo, and Satore (2021) found the potential for deposit mobilization in
Ethiopia by using the Commercial Bank of Ethiopia (CBE) as evidence. The study used
time series secondary data collected from the CBE's database. The study found several
variables that can affect the total deposit of commercial banks. Eight variables were
regressed with the dependent variable, which is the total deposit. These variables include
total loans and advances, total revenue, total expense, liquidity, total asset, consumer
price index, and operating expense. The analysis techniques were chosen to suit the
study's objectives and the nature of the variables. All these variables were tested using
Eviews 20.0 software VAR model. The result of the Johansson co-integration test with
lags in level shows that in the long run, Reserve Requirement and Consumer Price Index
negatively affect the Total Deposit in the Commercial Bank of Ethiopia, whereas Total
Asset, Total Liability and Total Loans and Advance positively affect the Commercial
Bank of Ethiopia's Deposit and are statistically significant. Once the variables were co-
integrated, the study used the vector error correction (VECM) to determine the short-run
coefficient. In the short run, among the given determinants of commercial bank deposit,
only Consumer Price Index and Total Loans and Advance were significant and had a
negative impact on the Deposit in Commercial Bank of Ethiopia. Finally, the study
recommended actions to mobilize more deposits.

Sisay (2021) assessed the deposit mobilization practice of NIB International bank S.C
and to what extent NIB is exercising deposit mobilization strategies and what tools and
techniques are being practiced since there is no research of the same type has been done
in the past at Nib International Bank. Descriptive design was adopted for the study. Those
having two years and above experience on city branch and head office employees and
customers were selected for data collection. Accordingly, 127 branches were selected
from the total number of 186 and 126 customers were selected from unknown population.
The non-probability purposive sampling technique was also employed. The main
instrument collection for primary data was questionnaire and interview, while secondary
data was collected from annual report of the company, published document. Validity of
the questionnaire was established based on external pilot study and reliability of the
questionnaire was established using Cronbach’s Alpha. The data is analyzed using
statistical package for social science (SPSS version 20) and Microsoft Excel. The study
identify that NIB is registering a continuous deposit growth for the last few years, factor
affecting the volume of deposit of the bank such as, customer handling, aggressive
branch expansion, product differentiation, loan and advance. The finding of the study
shows that, NIB is aggressively expand its branch, provided different products, doesn’t
offer gifts to new customers, and does not provide necessary training for staff about
deposit mobilization, marketing strategy of the bank increases the deposit amount, highly
competitor from other banks, poor technology regarding customer satisfaction. Finally,
the gap identified shows that there is faller to train staff about deposit mobilization,
offering gifts to new customer, using poor technology, lack of marketing skill among
employees, high computation from other banks so the researcher were recommended NIB
needs to provide training package consistently for their employees, to improve its
technology for create customer satisfaction by promoting new technology, create
awareness among unbanked society, create techniques for customers to express their
dissatisfactions.

Yakubu and Abokor (2020) examined the key factors that determine bank deposit growth
in Turkey for the period of 2000Q1-2016Q4. The study employs the autoregressive
distributed lag approach to investigate the effect of bank-level and macroeconomic
factors on deposit growth. The results reveal that bank stability, banking sector
efficiency, broad money supply, economic growth, and inflation are significant
determinants of deposit growth in the long run. The study also shows that in the short run,
only branch expansion and broad money supply are relevant for bank deposit
mobilization. This study provides an original perspective as it departs from the existing
studies that focus on the determinants of individual savings behavior in Turkey. By
considering the short- and long-run time dimensions, the study distinctly examines how
bank characteristics influence deposit growth and is a pioneering attempt in this context.

Ayene (2020) investigated about the mobilize financial resource required for investment
and economic growth from households, business, corporate bodies and government. To
be effective, competitive in the market and maintain liquidity identifying factors affecting
deposit mobilization is crucial. With this in mind the objective of this study is to identify
determinants of bank deposit mobilization in the case of Commercial Bank of Ethiopia.
To achieve this objective primary data collected through distributing 238 valid
questionnaires to selected customers of the bank is primarily used. To complement
primary data, secondary data is also used to some extent. Data analysis is handled
quantitatively through the help of SPSS. The study findings shows that branch expansion,
variety of services offered by the bank, confidentiality of customer information, trust on
banking system and saving habits are found to be significant variables affecting deposit
mobilization. More over interest rate and inflation are also among significant
macroeconomic factors affecting deposit mobilization. Based on these findings
recommendations are also forwarded
Kassu and Menen (2020) examined the deposit of primary source funds for a bank, which
facilitates the uses of funds of loans and investments. The higher the deposits amount, the
bigger the lending and investments portfolio can be maintained by the banks to sustain its
expansion and future growth. Mobilizing deposits is one of the essential issues in
developing countries as domestic funds provide cheap and reliable source of funds for
development. The objective of this study is empirically investigating factors affecting
deposit mobilizations of Ethiopian private commercial banks for the periods 2010 to
2019. The researcher adopted explanatory research design and Quantitative research
approach Endogenous and exogenous variables were analyzed by using the balanced
panel data regression model. To check the appropriateness of the model Different
diagnostics test were conducted such as test of heteroscedasticity, autocorrelation and
Normality. The results explained that Banks Liquidity (LTD) has a positive insignificant
effect, credit risk and exchange rate have positive and statistically significant and
inflation has significant negative influences on commercial bank deposit mobilization.
Recommendation given to Commercial banks they should have managed high liquidity
risk that contributed by increased deposit.

Abebe (2020) stated the factors affecting deposit mobilization of private commercial
banks in Ethiopia. The study used balanced panel model in examining the regression
model and collect data from six private commercial banks covering the period of Twenty
(20) consecutive years, 2000-2019 with a total of 120 observations. To this end, the study
employed a quantitative research approach by documentary analysis based on their
audited financial statement. The study used panel data techniques specifically fixed effect
model on the regression analysis and used E-view8 software. The study used one
dependent variable total deposit amount (DEP) and nine independent variables that are
Bank’s size, Number of Bank’s Branch, Bank Reserve, Deposit interest rate, Loan to
Deposit Ratio, Lending Rate, Exchange Rate, Inflation rate and Gross domestic product
(GDP). The regression result of Exchange Rate and Deposit Interest Rate show that
positive and significant effect at 5% significance level on deposit mobilization of private
commercial bank in Ethiopia and Bank Size, Bank Reserve, Loan to Deposit Ratio,
Number of Bank’s Branch and Lending rate show that positive and significant at 1%
significance level on deposit mobilization. Whereas inflation rate has negative and
insignificant impact at 5% significance level on deposit mobilization of private
commercial bank and GDP show that positive and insignificant impact at 5% significance
level on deposit mobilization. The study recommended that Ethiopian private commercial
banks should give attention to Bank Size, Bank Reserve, and Loan to Deposit Ratio,
Lending Rate, Exchange Rate, Deposit Interest Rate and Number of Bank’s branch that
could affect deposit mobilization and significantly enhance their deposit.

Islam, Ali, and Wafik (2019) analyzed the impact of firm-specific variables and
macroeconomic variables on the deposit mobilization of private commercial banks in
Bangladesh using panel data regression methodology. The study analyzed 14
conventional private commercial banks over a ten-year period from 2007 to 2016. The
results indicate that total deposit, measured by company size, has a significant negative
impact on deposit mobilization, measured by banks deposit growth rate. On the other
hand, broad money supply growth rate has a significant positive impact on the banks
deposit growth rate. However, the number of bank branches, deposit interest rate, loan-to-
deposit ratio, GDP growth rate, and inflation rate were found to have no significant
impact on the banks deposit growth rate of private commercial banks in Bangladesh. This
information may be useful to researchers, financial analysts, banking policy makers, and
supervisory authorities.

Azolibe (2019) critically examined the nexus between macroeconomic dynamics, bank-
specific factors and deposit mobilization of the Nigerian banking sector. Macroeconomic
dynamics was proxies by inflation rate, lending rate, exchange rate, government
expenditure, unemployment rate and Gross domestic product (GDP) while bank-specific
factors was proxies by deposit interest rate, branch network expansion and bank’s
liquidity. The study which is ex-post facto, relied mostly on secondary data which were
collected through the Central Bank of Nigeria (CBN) and National Bureau of Statistics
(NBS) statistical bulletin from 1985-2018. Multiple regression Ordinary Least Square
(OLS) statistical tool was applied to establish the like fit to the observed data and the
degree of relationship that exist between variables. The granger causality test was
employed to establish the causal relationship between the variables. Findings revealed
among others that inflation rate measured by the consumer price index and deposit
interest rate have negative and significant relationship with deposit mobilization in
Nigeria. Exchange rate, unemployment rate and loan-to deposit ratio have negative and
insignificant relationship. Lending rate and Government expenditure have insignificant
positive relationship while it was only Gross domestic product and number of bank
branches that have positive and significant relationship with deposit mobilization in
Nigeria.

Tenaye (2019) examined factors of Private commercial bank deposit growth in Ethiopia
for the overall context of private commercial banks in Ethiopia has less contribution for
deposit mobilization regarding with government owned bank and in order to achieve this
objective, in this study quantitative research approach has been used. Target population
was eight Private Banks in commercial activates, out of the sixteen Private commercial
banks selected with 10 years back in the industry and registered by NBE under operation
in Ethiopia, and selected purposive sampling technique for the study. The panel data set
for the study used secondary source consisted of annual data spanning from 2008 to 2017
gathered from the National Bank of Ethiopia. The dependent variable used to this study is
deposit growth; explanatory variables used in this study were number of bank branch,
loan to deposit ratio, economic growth (GDP), deposit interest rate, net interest margin,
and age of company. Different diagnostic tests were conducted to check the
appropriateness of the model. Fixed effects technique has been applied to find out the
results of explanatory variables

Tun (2019) examined the impact of macroeconomic factors, such as real interest rate,
GDP per capita, money supply, and average exchange rate, on deposit mobilization in the
case of private commercial banks in Myanmar. The study targets 24 private commercial
banks, using quarterly data for the period from 2013/14 to 2017/18. The data is obtained
from the Central Bank of Myanmar and the Statistical Year Book published by the CSO
of Myanmar. The analysis is done using inferential statistics such as correlation analysis
and multiple regression analysis, and descriptive analysis using the Statistical Package for
Social Sciences software. The study finds that real interest rate, GDP per capita, and
exchange rate have a positive and significant effect on deposit mobilization, while money
supply has a negative and insignificant impact on deposits of private banks. Therefore,
the study recommends that policy makers ensure adopting appropriate macroeconomic
policies as macroeconomic factors such as real interest rate and real GDP per capita can
affect deposit mobilization.

Ojha (2018) studied that the form and pattern of macroeconomics and bank-specific
factors affecting liquidity in case of Nepal commercial banks and used variables like
NPL, return on assets, CAR, return on equity, GDP, inflation and interbank rate in
Nepalese commercial banks. The key findings stated that there is significant relation
between numbers of variables that impacts on the liquidity performance of Nepalese
commercial banks. The panel data of commercial banks from 2010/11 to 2016/17 has
been taken for the purpose of the research. Mean, standard deviation, correlation and
multiple regression analysis have been used to diagnose date to meet the specific
objectives of research. The results reveal that there is significant influence of ROA, ROE,
NPL, GDP and IBR on LIQ. CAR and GDP has positive impact.

Gunasekara and Kumari (2018) examined the financial institutions gather public cash or
funds through various means, such as savings, current, fixed deposit accounts, and
specialized schemes. The main aim of this study is to investigate the most effective
factors that influence deposit mobilization. The researchers used a random sampling
method, selecting 120 deposit account holders as the sample from three different
convenient sample areas. They collected primary data through questionnaires. The data
collected was analyzed using "descriptive statistics" and "regression analysis." The
results of the study demonstrate a significant and positive correlation between deposit
mobilization and factors like deposit interest rate, security measures, branch expansion,
services, technology, and awareness. Moreover, the study reveals that the living area also
plays a significant role in the amount of deposits. Additionally, demographic variables,
including gender, occupation, education level, and income, have a notable impact on
deposit mobilization.

Pradhan and Paneru (2017) reported macroeconomic determinants of bank deposit of

Nepalese commercial banks. Using the data of 18 commercial banks listed in NEPSE for
the period 2008-2013. This study focuses on quantitative research approach. Statistical
package SPSS has been used to analyzed the data. In this study fixed deposit and saving
deposit are dependent variables where GDP growth rate, inflation, numbers of branches
and ROA are independent variables the major conclusion for the study is that lagged log
fixed deposit, numbers of branches, trend and lagged log saving deposit are considered as
important variable for deposit in Nepalese banking sector. This implies that these
explanatory variables have the heights impact and influence on the bank deposit of
commercial bank and change in it will yield the highest change in banks deposit.

Debasu (2017) aimed to investigate the deposit mobilization potential of the country by
examining seven private commercial banks as case examples. Both primary and
secondary data were utilized for the research. Primary data was collected through surveys
conducted with bank employees to assess their perceptions of the determinants
influencing deposit mobilization in private commercial banks. The results from
regression analysis showed that bank branches, deposit rates, inflation, and liquidity
positively impact bank deposits, while exchange rates and gross domestic products have a
negative effect on deposits in private banks. Various diagnostic tests were conducted to
validate the model. Once the model's validity was established, hypothesis testing was
performed using E-Views and SPSS software. The results indicated that four variables
(exchange rate, gross domestic product, liquidity, and number of branches) significantly
affect total deposits, while the other two variables (deposit rate and inflation) showed no
significant impact.

2.3 Research Gap

Many authors have already examined the idea of deposit mobilization and its
determinants of banks, however from a review of the literature, the majority of the
scholars who discussed the concept of deposit mobilization, their out of Nepalese
Commercial banks. Where, (Bista & Basnet, 2022) they talked about the time deposit
which is the source of liquidity and examine with money supply. Very few research has
been conducted on factors affecting bank deposit mobilization in Nepal besides that there
are various research conducted on factor affecting deposit in different countries such as
Ethiopia, Malaysia, Pakistan, Turkey, Vietnam. Though, a number of studies in various
developing and developed countries have been conducted, findings of these studies may
not be applied in Nepalese context. The study attempts to explore the various the
determining factors of deposit mobilization of commercial banks.
Few studies have been done in the past that are related to deposits; the majority of studies
have been done on saving. Savings can be determined using only macroeconomic
indicators, whereas deposits can be determined using both macroeconomic and bank-
specific variables. The study focuses on the key bank-specific characteristics that affect
deposits, including capital adequacy, profitability, and loan to deposit ratio. Similar to
this, it is crucial to understand how macroeconomic variables such as inflation,
population growth, and gross domestic product affect bank deposits. Following changes
in the nation's economic and political climate, Orok, Okoi, and Essien (2018) assessed
total loans and advances to fixed deposits. However, the macroeconomic component and
bank-specific factors have received special attention in this study. Thao (2019) used a
sample size of 90, including 30 debtors, 30 employees, and 30 depositors. Gurung and
Gurung (2022) used 15 commercial banks over a 12-year period to determine profitability
using bank-specific factors.

However, no particular targeted groups have been categorized in this study. Although
there have been several research on the factors that affect bank deposits, the results have
not been consistently reported in the literature. As a result, it is impossible to generalize
the empirical findings in one country to another. However, very little has been done in
the context of Nepal to explore the concerns linked to the factors affecting bank deposits.
The study's main goal is to close the knowledge gap about comparable studies conducted
in the Nepalese environment.
 CHAPTER III

RESEARCH METHODOLOGY

This chapter focuses on the research methodology employed in this study. It aims to
provide a foundational framework within which the research will be conducted
systematically. A proper methodology is crucial for achieving the set objectives of the
study. Research methodology entails a systematic approach to problem-solving,
involving the collection, recording, analysis, interpretation, and reporting of data and
information. The primary goal of this chapter is to outline the overall research approach.
It covers various aspects, including the research design, sample size, data collection
procedures, data processing tools and techniques, as well as the variables under
consideration. Additionally, a brief introduction to the financial parameters used in the
study and an overview of the research techniques employed are provided in this chapter.

3.1 Research Design

In this study, descriptive research design has adopted to achieve the objectives of this
research. Even though, each approach has its own objective and application time, in the
selection process one should take into account the nature of research problem or issues
being addressed, the researchers‟ personal experience and the audience for whom the
report presented. Therefore, in this study the Causal comparative research approach was
used, since, quantitative nature of the data used. Moreover, the research design is also be
based on applied research as it access and uses some part of the research communities'
such as accumulated theories, knowledge, methods, and techniques; as well as it helps in
dealing with some practical problems Some statistical tools have been applied to examine
the facts.

3.2 Population and Sample Size

The total variables observations are simply called population. For this study 20 commercial
banks (July, 2023) are operating in Nepal is the total population. Due to the limited time
and resources, it is not possible to study all of them, so sampling has been done. To fulfill
objective of the study, among the 20 commercial banks 15 banks are selected as sample
which are listed below. The sampling method used is for selection of the sample is
random sampling using lottery method.

Table 1

Sample of selected banks with their study period and observation.

Commercial and Development Banks Fiscal Year Observation

Nabil Bank limited 2013-2022 10

Nepal SBI Bank 2013-2022 10

Standard Chartered Bank 2013-2022 10

Himalayan Bank 2013-2022 10

NMB Bank 2013-2022 10

Everest Bank 2013-2022 10

Laxmi Sunrise Bank 2013-2022 10

NIMB Bank 2013-2022 10

Global IME Bank 2013-2022 10

Sanima Bank 2013-2022 10

Prime Commercial Bank 2013-2022 10

Prabhu Bank 2013-2022 10

Nepal Bank 2013-2022 10

Rastra Banijya Bank 2013-2022 10

Agriculture Development Bank 2013-2022 10

Source: https://www.nrb.org.np

3.3 Nature and Sources of Data

This research is based on secondary data. Secondary data were collected from the annual
reports of the selected banks for the economic year (2013-2022),annual reports,
prospectus, websites, AGM reports of related banks, financial statistics reports, world
bank website, Nepal rastra bank website would been into consideration. Useful
information was also being collected from internet.

3.4 Data Analysis Tools

Different statistical and financial tools have been used in this research. In this study to
analyze the collected data descriptive, correlation coefficient and multiple regression data
analysis method were employed using the SPSS software. The descriptive statistics was
used to quantitatively describe the important features of the variables using mean,
maximum, minimum and standard deviations. The correlation analysis was used to
identify the relationship between the independent and dependent using Pearson
correlation analysis. The correlation analysis shows only the degree of association
between variables and does not permit the researcher to make causal inferences regarding
the relationship between variables. Therefore, multiple panel linear regression analysis
was also used to explain the relationship between dependent and independent variables.
Various statistical and financial tools have been used to analyze the data in this study; the
different tools used in the study are as follows:

Average/ Mean

Average, in general, is calculated by adding all the numbers of all observations and
dividing by the total number of observations. It is in fact, a value which is represented to
stand for whole group of which it is part, as typical of all the value in the group.

AM ( X )=
∑ of total numbers ( Ʃ x )
Number of samples (n)

Standard Deviation

The standard deviation (σ) is another measure of investment risk. It is absolute measures
of dispersion. The smaller the standard deviation the lower will be the degree of risk of
the stock. In other words, a small standard deviation means a high degree of uniformity
of the observation as well as homogeneity of a series and vice versa. The formula for
calculating the standard deviation is:

SD=
√ Ʃ(x −x)2
n
Correlation Coefficient

Correlation may be defined as the degree of linear relationship existing between two or
more variables. Two variables are said to be correlated is accompanied by the change of
another variable. If the increase (decrease) in the value of one variable on an average is
associated with the increase (decrease) in the value of another variable, positive
relationship is said to be existed. The relationship will be negative if increased
(decreased) in the variable of one variable is associated with the decreased (increased) in
the value of another variable. But the correlation coefficient always remains within the
limit of +1 to 1. By Karl Pearson, the simple correlation coefficient (between two
variables say X and Y) is given by:

Ʃ ( X−x ) (Y −Y )
r=
√ Ʃ ( X−x ) √(Y −Y )
2 2

Coefficient of Determination

The coefficient of determination gives the percentage variation in the dependent variable
that is accounted for by the dependent variable/s. In other words, the coefficient of
determination gives the ratio of expected variance to the total variance. The coefficient of
determination is given by the square of the correlation coefficient, i.e. r 2so the coefficient
of determination = Square of correlation = (r2) Where, r = Correlation coefficient

3.5 Regression Analysis

Regression is the estimation of unknown values or prediction of one variable from known
values of other variables. Where the 15 commercial banks with macro-economic factors
and bank specific factors taken as of GDP, Inflation rate, Population growth, profitability
(ROA), CAR, loan to deposit ratio to achieve. So, It is a mathematical measure of the
average relationship between two or more variables in term of the original units of the
data. The known value which is used for prediction (or estimation) is called independent
(or regression or predictor or explanatory) variables and the unknown value that we are
going to predict is called dependent (or regressed, predicted or explained) variable.

Therefore, the model is taken from Banke and Yitawyaw (2022) and Abdelzaher (2023).
For the fulfillment of objectives a multiple regression model is specified as:
Deposit mobilization = f (independent variables)

Estimated relationship between deposit mobilization and its dependent variables of

commercial banks are as follows:

TD= β0 + β1GDPit+ β2INF + β3PG+ β4ROA +β5CAR+β5LTD+ ε

Where,

TD= Total deposit held by commercial bank

GDP = Gross domestic product of Nepal

INF= Inflation rate of Nepal

PG= Population growth of Nepal

ROA=Return on Assets

CAR=Capital Adequacy ratio

LTD = Loan to total deposit ratio

β0 = the intercept of the regression line (constant)

β1, β2, β3, β4, β5 = The slope which represents the degree with which lending interest
rates changes as the independent variable changes by one unit variable. The prior
expectation is that the coefficients.

ε = error component
Table 2

Summary of variables and Expected Formula

Variables Expected/ Formula

Dependent Deposit Natural log of total deposit

Variable Mobilization
(DM)

Independent Banks Specific Return on Earning after interest and tax

variables variables assets (ROA) divided by total assets

Loan to total The ratio of a bank's total

deposit (LTD) loan and advance to its total
deposit

Capital Paid up capital divided by

Adequacy total assets
(CAR)

Macroeconomi Inflation (INF) Annual percentage changes in

c Variables the consumer price index
(CPI) i.e ( CPt-CPIt-1) / CPIt-1

Gross Natural log of gross domestic

Domestic product
Product (GDP)

Population Population growth rate

Growth (PG)

3.6 Theoretical Framework

A diagrammatic representation which shows the relationship between the independent

and dependent variables is known as conceptual framework.
Independent Variables Dependent Variable

Bank Specific Variables

 Profitability(ROA)
Deposit Mobilization
 Capital Adequacy Ratio
(Total deposit)
 Loan to Total deposit
Macroeconomic Variables

 Gross Domestic Product

 Inflation Rate
 Population growth

Figure 1 Theoretical framework of the study, Banke and Yitawyaw (2022) & Abdelzaher
(2023)

3.6.1 Explanation of Variables

Logarithm of Deposit Mobilization

In the study deposit mobilization is taken as the dependent variables. So, the data is
represented as natural logarithm of the total deposit amount of the sample commercial
banks. Where the total deposit is consider as total fun borrowing from the customers. So,
there is significance of deposit mobilization lies in its pivotal role in the banking
business. Maintaining a steady and sufficient level of deposits allows banks to continue
their lending and investment activities, leading to profit and growth (Alemayehu, 2019).
Since a major portion of a commercial bank's assets is financed through customer
deposits, deposit mobilization becomes a crucial aspect of bank funding. As the increase
deposit mobilization, banks employ various strategies, including marketing efforts to
attract funds from the public (Andinet, 2016). Whereas, the bank's performance is linked
to the deposits as deposits are typically considered as a cost-effective source of working
funds. If finance is not provided to an economic sector, it will struggle and ultimately fail
(Bargicho, 2015). However, the ability to provide relevant financing is dependent on the
bank's ability to mobilize an adequate amount of deposits in the economy and other
foreign sources of funding.
Independent Variables

The independent variables used in identifying the factors affecting of deposit

mobilization are the following:

Bank Specific Factors

Profitability (ROA)

Profitability is an important factors determining deposit mobilization of rular's bank Osei

(2016). Where, Herald and Heiko (2009) founds that although insignificant once
controlled by other variables profitability have an effect on deposits. Erna and Ekki
(2004) found that a bank's profitability has a positive effect on the growth of banks
deposit. Since the depositor confidence will increase if the commercial banks are
profitable and have adequate asset returns, banks should sustain their profitability to
increase their deposit amount. Smaller banks have to generate fewer deposits in absolute
terms to achieve the same deposit growth than large banks, thus possibly favoring smaller
banks in achieving higher deposit growth. However a larger bank with economies of
scale as well as larger branch network might be able to better attract deposits.

H1 Profitability has a significant positive effect on deposit mobilization.

Capital adequacy ratio

Capital adequacy ratio is computed by total capital fund divided by risk weighted assets.
Capital is one of the bank specific factors that influence the level of bank liquidity.
Capital is the amount of own fund available to support the bank’s business and act as a
buffer in case of adverse situation Tarekegn (2018). Banks capital creates liquidity for the
bank due to the fact that deposits are most fragile and prone to the bank runs. Moreover,
greater bank capital reduces the chance of distress. However, banks having a higher
capital ratio may not necessarily need to mobilize more deposits, “the crowding out of
deposits” (Gorton & Winton, 2017). So, Capital adequacy is the level of capital required
by the banks to enable them withstand the risks such as credit, market and operational
risks they are exposed to in order to absorb the potential loses and protect the bank’s
debtors. Capital adequacy ratio shows the internal strength of the bank to withstand losses
during crisis. Capital adequacy ratio is directly proportional to the resilience of the bank
to crisis situations. It has also a direct effect on the profitability of banks (Isanzu, 2017).

H2 Capital adequacy has a significant positive effect on deposit mobilization.

Loan to deposit ratio

Loan to deposit ratio (LTD) can be defined as a measure of bank liquidity, which reflects
the proportion of customers’ deposits that have been given out in the form of loans (71).
Loans are the largest segment of interest bearing assets. The high liquidity position of the
private commercial bank shows that the banks have higher secured money in their
account, which also creates a low level of deposit mobilization specifically for the
coming life of the bank (Worku & Tafa, 2022). Other things being constant, the more the
deposits that are transformed in to loans, the higher the level of profit will be, therefore, it
is expected to have a positive relationship with bank resource mobilization performance.
The quality of loan portfolio determines the resource mobilization of the bank Mamo
(2017).

H3 loan to deposit ratio has a significant positive effect on deposit mobilization.

Macroeconomic Factors

Gross domestic Product

Gross domestic product is the market value of all goods and services produced in a
country over one year and are one of the primary indicators used to measure economic
performance (Bernard, 2019). Evidently, there is a positive relationship between the GDP
and deposit mobilization. Stanford [56], changes in real GDP per capita over time are
often understood as a measure of changes in the average standard of living. Logically, if
households and firms desire to hold more money, deposits will increase. Thus, the
relationship between income and deposits is positive, that is, as the income of the society
increases, the commercial bank's deposits increase. During period of high economic
growth, there is increase in the demand for goods and services and as such there is
potential for higher profits and producers will deposit more of their surplus earnings in
the bank and deposits are bound to increase while period of depression is associated with
lower earning on investments which will invariably reduce bank deposits Azolibe (2019).
H4 Gross domestic product has a significant positive effect on deposit mobilization.

Inflation rate

Inflation as measured by the consumer price index reflects the annual percentage change
in the cost to the average consumer of acquiring a basket of goods and services that may
be fixed or changed at specified intervals (57). Inflation affects bank deposits in two
ways. First, it reduces the purchasing power of money and thus leads to high living costs.
This means that households can hardly buy with disposable income and therefore may
have little or no deposit in a bank. Second, in situations where hyperinflation occurs, i.e.,
Cash or bank savings are worthless (Bernard, 2019) because the purchasing power of
money is so much less than the sudden and excessive runaway price increases in the
economy. Inflation is broad increase in general prices and a decrease in the purchasing
power of money. The increase in the rate of inflation could have negative impact on the
deposit mobilization efforts of the banking industry as it reduces the real income of
individuals Abebe (2020).

H5 Inflation rate has a significant positive effect on deposit mobilization.

Population Growth

The attainment of deposit acquisition and credit objectives by banks relies on the good
banking habits of the people Varman (2005). Therefore, the total deposit amount is
influenced by the number of deposit account holders. Hibret (2015) argued that
population growth contributes to an increase in the functional labor force, attracting
investment, creating wealth, and positively impacting overall economic growth.
Consequently, the deposit amount tends to grow as a larger population implies more
income generators and savers. Where, further revealed that population growth has a
positive and significant impact on deposits. Teshome (2017) also supported this notion by
finding a positive relationship between population growth and bank deposits. On the
other hand, Legass, Shikur and Ahmed (2021) explained that rapid population growth
leads to a higher proportion of children relative to the labor force, resulting in increased
costs and reduced household savings.

H6 Population growth has a significant positive effect on deposit mobilization.