Factors Affecting Deposit Mobilization Practices Of Commercial Banks: The Case Of Commercial Bank Of Ethiopia

Abstract

The primary objective of this study is to examine the internal and external factors affecting deposit mobilization at the Commercial Bank of Ethiopia (CBE). The research focuses on key macroeconomic variables, such as GDP, inflation, exchange rates, foreign remittances, and deposit interest rates, alongside institutional factors like skills and knowledge, adequacy of training given, cooperation, government role and regulation, awareness of customers, customers satisfaction and employee capacity. The study adopts a mixed-method approach, integrating both primary and secondary data. The primary data was collected from employees of CBE’s bole district using structured questionnaires. The study population consisted of employees directly involved in deposit mobilization, with a sample size of 151 determined using Taro Yamane's formula. A simple random sampling technique was employed to ensure representativeness. Secondary data spanning 2002/03 to 2022/23 was sourced from CBE annual reports and the National Bank of Ethiopia. Analytical methods included descriptive statistics, correlation analysis, and regression analysis. OLS regression techniques were utilized to explore the relationships between deposits and the macroeconomic variables. The study reveals that GDP and foreign remittances significantly and positively affect deposit mobilization. Inflation and exchange rate depreciation negatively influence deposit growth, with exchange rate impacts being statistically significant. Deposit interest rates, while showing a positive relationship, were found to be statistically insignificant. Institutional factors such as employee capacity also play a critical role in deposit mobilization, highlighting the importance of organizational strategies. To enhance deposit mobilization, the study recommends stabilizing inflation and exchange rates, promoting formal remittance channels, and implementing competitive deposit interest rates. Additionally, CBE should focus on enhancing employee training programs, and launching public awareness campaigns to improve financial literacy and attract more deposits.