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【Abstract】Deposit mobilization is an integral part of banking activity. Mobilization of savings through intensive deposit collection has been regarded as the major task of banking in Ethiopia today. Acceptance of deposits is the primary function of commercial banks. As such, deposit mobilization is one of the basic innovations in current Ethiopian banking activity.
【Key words】Deposit mobilization;Commercial banks;Ethiopian banks
１．Introduction
Nations strive for the development of their economy and poverty reduction. Investment is the driving force to bring about fast and sustained economic growth. Resources to be employed in the facilitation of investment activities are acquired via the accumulation of wealth over a certain period of time in the form of savings. In this regard, banks play crucial intermediary roles in mobilizing financial resources from those who wish to save and provide loan to those who wish to invest. Having a well developed banking system with diversified products and services accessible to the public is believed to boost economic growth and reduce poverty. Of course, the relationship is reciprocal indicating high economic growth is necessary for a sustained development of the banking system itself.
1.1 Objective of the research
This study provides assessment of the potential for deposit mobilization in light of the enhanced roles of the Ethiopian banking industry in the Ethiopian economy.
1.2 Methodology
The methodology employed is both primary and secondary data available internally and externally.
2.Literature review
Savings is a foregone current consumption for future consumption that accounts for the residual between income and consumption. Beyond postponing consumption, holding resources under control and sustaining them for certain duration reflects the time aspect of saving (Schreiner, 2005). Savings is therefore, the movement of resources either as stocks or flows from current to the future.It is induced by motives of multi-nature be it short or long time durations.The process of savings is voluntary, involuntary and forced types (Thirlwall,2000).
The major type of mode of saving are saving compared with income level and growth the effect on the level of saving and rate of saving are assumed to be positive and significant.A high real interest rate is generally considered to motivate people to save more or substitute current consumption for future consumption. Inflation is assumed to affect private or personal saving either positively or adversely that stems from its direct or indirect impact. Demographic factors,mainly age reflects earning cycle and dependency ratio that swells the consumption share and affects the saving capability of a household.The depth and breadth of financial development have a tremendous impact on saving by affecting agents’ willingness and the opportunities to save in financial assets. New technologies or financial innovations are believed to contribute a lot to the growth of saving habit,saving opportunities and increase in the volume of transactions both at household and national level. 3.Trends and Structure of Deposit Mobilization of the Banking Industry
In Ethiopia, all commercial banks and other specialized banks mobilize three types of deposits - demand,savings and time deposits, from all economic agents including individuals, private and public enterprises, financial institutions and the government. And, the size of deposits has been continuously increasing through time although the rate varies from year to year.
Mobilization of deposits has received strong momentum during the post-reform years, owing mainly to the recovery of the economy and a range of policy revision taken by the government. In accordance with the reform, domestic commercial private banks have joined the banking sector and made remarkable expansions.To this effect, the total deposit mobilized at the industry level has increased to Birr 140.5 billion as of June 2011 from a balance of Birr 5.1 billion in 1991.CBE is the first and leading bank in Ethiopia.In this regard,the share of the CBE that was nearly 100% in 1991 has dropped to 62% in 2011.This is attributed to the new entrants of private banks coupled with CBE’s slow down in its deposit mobilization schemes during the years prior to PASDEP.The amount of CBE’s deposit balance, however,has been rising in absolute terms. The market share of the bank in 2011 has shown improvements both in total deposit and in its components when compared to the previous year (2010) which was 57% for total deposits,72% for demand deposit,and 45% and 22% for saving and fixed time deposits, respectively.
Considering the last five years trend, still non-interest bearing demand deposit dominated the deposits structure of the CBE. Total deposit in general has been growing by about 25.5% on average in the past five years, despite the stiff competition within the banking industry. In this regard, the role of time deposit for domestic resource mobilization was about 2%, which is very low.
Compared with the industry trend,CBE’s total deposit has been growing with an average growth of 23% during the period(2006-2011). Correspondingly, the banking industry as a whole grew by an average growth rate of 26% during the same period,indicating that CBE’s performance in deposit mobilization has large contributions to the industry level growth rate.
4.Finding
The analysis from the micro level survey conducted in the different districts gives some clues on the nature of the saving cultures of the areas, the level of awareness of the public towards banking services, the perception they have of banks in general and the strategies that need to be adopted in order to address their needs. The main finding of the survey is:
Majority of the Society have saving habits in one form or another that is dominated by the informal saving methods constituting Equb, home saving and saving in kind (cattle, cereals, etc).
People save for various objectives-to meet unforeseen contingencies, such as medical expense for illness,burial ceremony in case of death,to expand trade,for seed money to start new business and for children’s education.
The lower the income range,the higher the tendency to use informal mode of savings.
Accessibility was found to be an important determinant of the mode of savings. As bank branches or other financial institutions get closer to potential savers, the more they tend to place their money in a bank or microfinance institution.
Irrespective of educational background (educated or not), the number of individuals using the informal method surpasses those using banks or MFI.
The rural people have so far heard about bank and its services in one way or the other but only briefly that do not have the power to break the deeply entrenched tradition of attitudes towards bank service usage. Both urban and rural residents perceive that bank service is for those who have much money, who are literate and who live in the urban areas indicating the importance of aggressive public education in both areas.
5.Conclusion
Based on the insights from the literature review, the macroeconomic assessment, the district survey analysis and the fact that all rounded strategies are needed to mobilize deposit to meet the financing needs of the economy. Review of the evidence does not generally provide with conclusive approaches and strategies with regard to savings and savings mobilizations. This could mainly be due to the fact that savings and savings mobilizations depends on specific country context and culture. In light of these situations, one tends to underline that given Ethiopia is under-banked with large adult population outside of the formal banking system and the fact that the economy is doing well with rapid GDP growth, large public investment and employment creations and growing private businesses and investments, there is a strong need to aggressively move and scale up the efforts to mobilize deposits. It is thus possible to mobilize deposits, including during inflationary periods, as the experience of certain countries suggest and the fact that the bank’s deposit volume has been practically increasing from time to time regardless of the fall and rise in real interest rates. [科]
【References】
［１］G.Nana (2008), Policy Initiatives for Improved Financial Service Provision: the Case of Ethiopia
［２］Adam A J and Agba A V,(2006), Conceptual Issues on Savings in Nigeria. Vol. 30,no.1, Jan/Mar.2006.
［３］Befekadu.M, 2011.“Savings and Economic Growth in Ethiopia: An Issue of Bi-Directional Causality”, the 9th conference on the Ethiopian Economy.
［４］Browning, and Lusardi A. (1995), Household Saving: Micro Theories and Micro Facts. Journal of Economic Literature.
［５］Charles, Y.H and Akiko, T. 2010. “The Determinants and Long-term Projections of Saving Rates in Developing Asia”, Institute of Social and Economic Research, Osaka University, and National Bureau of Economic Research, Inc.
［６］Schultz T. P. (2005),’Demographic Determinants of Savings: Estimating and Interpreting the Aggregate Association in Asia’, Institute for the Study of Labor IZA discussion paper no. 1479.
【Key words】Deposit mobilization;Commercial banks;Ethiopian banks
１．Introduction
Nations strive for the development of their economy and poverty reduction. Investment is the driving force to bring about fast and sustained economic growth. Resources to be employed in the facilitation of investment activities are acquired via the accumulation of wealth over a certain period of time in the form of savings. In this regard, banks play crucial intermediary roles in mobilizing financial resources from those who wish to save and provide loan to those who wish to invest. Having a well developed banking system with diversified products and services accessible to the public is believed to boost economic growth and reduce poverty. Of course, the relationship is reciprocal indicating high economic growth is necessary for a sustained development of the banking system itself.
1.1 Objective of the research
This study provides assessment of the potential for deposit mobilization in light of the enhanced roles of the Ethiopian banking industry in the Ethiopian economy.
1.2 Methodology
The methodology employed is both primary and secondary data available internally and externally.
2.Literature review
Savings is a foregone current consumption for future consumption that accounts for the residual between income and consumption. Beyond postponing consumption, holding resources under control and sustaining them for certain duration reflects the time aspect of saving (Schreiner, 2005). Savings is therefore, the movement of resources either as stocks or flows from current to the future.It is induced by motives of multi-nature be it short or long time durations.The process of savings is voluntary, involuntary and forced types (Thirlwall,2000).
The major type of mode of saving are saving compared with income level and growth the effect on the level of saving and rate of saving are assumed to be positive and significant.A high real interest rate is generally considered to motivate people to save more or substitute current consumption for future consumption. Inflation is assumed to affect private or personal saving either positively or adversely that stems from its direct or indirect impact. Demographic factors,mainly age reflects earning cycle and dependency ratio that swells the consumption share and affects the saving capability of a household.The depth and breadth of financial development have a tremendous impact on saving by affecting agents’ willingness and the opportunities to save in financial assets. New technologies or financial innovations are believed to contribute a lot to the growth of saving habit,saving opportunities and increase in the volume of transactions both at household and national level. 3.Trends and Structure of Deposit Mobilization of the Banking Industry
In Ethiopia, all commercial banks and other specialized banks mobilize three types of deposits - demand,savings and time deposits, from all economic agents including individuals, private and public enterprises, financial institutions and the government. And, the size of deposits has been continuously increasing through time although the rate varies from year to year.
Mobilization of deposits has received strong momentum during the post-reform years, owing mainly to the recovery of the economy and a range of policy revision taken by the government. In accordance with the reform, domestic commercial private banks have joined the banking sector and made remarkable expansions.To this effect, the total deposit mobilized at the industry level has increased to Birr 140.5 billion as of June 2011 from a balance of Birr 5.1 billion in 1991.CBE is the first and leading bank in Ethiopia.In this regard,the share of the CBE that was nearly 100% in 1991 has dropped to 62% in 2011.This is attributed to the new entrants of private banks coupled with CBE’s slow down in its deposit mobilization schemes during the years prior to PASDEP.The amount of CBE’s deposit balance, however,has been rising in absolute terms. The market share of the bank in 2011 has shown improvements both in total deposit and in its components when compared to the previous year (2010) which was 57% for total deposits,72% for demand deposit,and 45% and 22% for saving and fixed time deposits, respectively.
Considering the last five years trend, still non-interest bearing demand deposit dominated the deposits structure of the CBE. Total deposit in general has been growing by about 25.5% on average in the past five years, despite the stiff competition within the banking industry. In this regard, the role of time deposit for domestic resource mobilization was about 2%, which is very low.
Compared with the industry trend,CBE’s total deposit has been growing with an average growth of 23% during the period(2006-2011). Correspondingly, the banking industry as a whole grew by an average growth rate of 26% during the same period,indicating that CBE’s performance in deposit mobilization has large contributions to the industry level growth rate.
4.Finding
The analysis from the micro level survey conducted in the different districts gives some clues on the nature of the saving cultures of the areas, the level of awareness of the public towards banking services, the perception they have of banks in general and the strategies that need to be adopted in order to address their needs. The main finding of the survey is:
Majority of the Society have saving habits in one form or another that is dominated by the informal saving methods constituting Equb, home saving and saving in kind (cattle, cereals, etc).
People save for various objectives-to meet unforeseen contingencies, such as medical expense for illness,burial ceremony in case of death,to expand trade,for seed money to start new business and for children’s education.
The lower the income range,the higher the tendency to use informal mode of savings.
Accessibility was found to be an important determinant of the mode of savings. As bank branches or other financial institutions get closer to potential savers, the more they tend to place their money in a bank or microfinance institution.
Irrespective of educational background (educated or not), the number of individuals using the informal method surpasses those using banks or MFI.
The rural people have so far heard about bank and its services in one way or the other but only briefly that do not have the power to break the deeply entrenched tradition of attitudes towards bank service usage. Both urban and rural residents perceive that bank service is for those who have much money, who are literate and who live in the urban areas indicating the importance of aggressive public education in both areas.
5.Conclusion
Based on the insights from the literature review, the macroeconomic assessment, the district survey analysis and the fact that all rounded strategies are needed to mobilize deposit to meet the financing needs of the economy. Review of the evidence does not generally provide with conclusive approaches and strategies with regard to savings and savings mobilizations. This could mainly be due to the fact that savings and savings mobilizations depends on specific country context and culture. In light of these situations, one tends to underline that given Ethiopia is under-banked with large adult population outside of the formal banking system and the fact that the economy is doing well with rapid GDP growth, large public investment and employment creations and growing private businesses and investments, there is a strong need to aggressively move and scale up the efforts to mobilize deposits. It is thus possible to mobilize deposits, including during inflationary periods, as the experience of certain countries suggest and the fact that the bank’s deposit volume has been practically increasing from time to time regardless of the fall and rise in real interest rates. [科]
【References】
［１］G.Nana (2008), Policy Initiatives for Improved Financial Service Provision: the Case of Ethiopia
［２］Adam A J and Agba A V,(2006), Conceptual Issues on Savings in Nigeria. Vol. 30,no.1, Jan/Mar.2006.
［３］Befekadu.M, 2011.“Savings and Economic Growth in Ethiopia: An Issue of Bi-Directional Causality”, the 9th conference on the Ethiopian Economy.
［４］Browning, and Lusardi A. (1995), Household Saving: Micro Theories and Micro Facts. Journal of Economic Literature.
［５］Charles, Y.H and Akiko, T. 2010. “The Determinants and Long-term Projections of Saving Rates in Developing Asia”, Institute of Social and Economic Research, Osaka University, and National Bureau of Economic Research, Inc.
［６］Schultz T. P. (2005),’Demographic Determinants of Savings: Estimating and Interpreting the Aggregate Association in Asia’, Institute for the Study of Labor IZA discussion paper no. 1479.