Banks are one of the profitable financial institutions that offer banking and other financial services to their customers by accepting deposits from the depositors and providing loans to the borrowers [3851]. Thus, deposits become the most important financial resource for commercial banks to meet the financial needs of their customers, and it requires them to mobilize and accumulate enough deposit amounts [46]. As a result, the financial resources of banking systems are primarily provided by customer deposits. The going concern of every commercial bank is highly dependent on deposits collected from customers [46]. Deposit mobilization is the process of mobilizing funds by financial institutions from the surplus units to the deficit units to create better opportunities for productive investment [12, 39]. A bank’s lending capacity is highly dependent on its ability to attract deposits, making it the ultimate source of bank profit and growth [9, 20]. However, deposit mobilization should encourage customers to deposit cash in the bank or have new customers come and open an account in the bank [61]. To be competitive in the banking sector, banks need to have a sufficient share of the deposit market. Deposit mobilization is ineffective unless you know and control the factors that influence it. Thus, it is worthwhile to study determinant factors of deposit mobilization. Empirical evidence documented that the influence factors may be categorized as bank-specific and macroeconomic factors, [11, 38, 70]. Thus, we discussed further the variables considered in the study and how they influence bank deposit mobilization in Ethiopia.

Factors Affecting Deposits mobilization of Commercial Banks

In general, the determinants of bank deposits are divided into micro and macroeconomic aspects. Microeconomic factors are bank-specific variables, but Macroeconomic variables are those, when manipulated, are capable of achieving the nation’s macroeconomic objectives [1, 4, 10, 69, 70].

Firm-specific factors

Profitability (ROA)

Osei [49] documented that profitability is an important factor determining rural banks’ deposit mobilization. Bhalla [15] explained Return on Asset (ROA) as a ratio used to measure the company’s efficiency in using its assets to generate profit. It reflects the management’s ability to utilize the banks financial and real investment resources to generate profits [35]. Consequently, the more efficient company will generate a higher profit level from a given level of total assets than its less efficient competitor [15]. Thus, higher profit is considered a positive signal or soundness of the bank, making it easier for such banks to attract other deposits [25]. Alemu [3], Tarekegn [57], Getachew [31], and Erna and Ekki [24] 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.


Profitability has a significant positive effect on deposit mobilization.

Loan to deposit ratio (Bank’s liquidity)

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 [29, 71]. It refers to a bank’s ability to execute its commitments at any time, including repaying customer deposits or making a payment on the client’s order [67] The greater this ratio is, the less liquid the bank is, resulting in a decline in client deposits due to the bank’s limited capacity to reimburse depositors. When a bank fails to pay its depositors, it faces liquidity risk, which causes other depositors not to deposit in that particular bank [45]. Amene [4] and Awole [8] found a negative impact of bank liquidity on commercial bank deposits growth. However, Finger & Hesse [25] stated that the bank’s liquidity situation plays a significant role in determining banks deposit growth and higher liquidity buffers tend to signal greater bank soundness, which could be a factor favoring deposit demand. Studies by Ünvan and Yakubu [63], and Turhani and Hoda [60] also documented that there is a positive relationship between bank liquidity and deposit.


LTD ratio has a significant negative effect on deposit mobilization

Capital adequacy

Capital adequacy is the level of capital that banks must hold to enable them to withstand credit, market, and operational risks they are exposed to Tarekegn [57]. Bank capital plays an important role in maintaining the security of banks and the security of the banking system in general [44] to prevent unexpected losses that banks may face. It turns out that the availability of large amounts of capital increases the risk absorption capacity of banks (Berger and Bouwman [14] and liquidity creation capability [22]. Thus, banks having a higher capital ratio may not necessarily need to mobilize more deposits, “the crowding out of deposits” [33]. Ünvan and Yakubu [63], Amene [4] and Turhani and Hoda [60] also revealed that capital adequacy affects bank deposits negatively. However, the study conducted by Tarekegn [57] established a positive relationship between capital adequacy and band deposit.


Capital adequacy has a significant negative effect on deposit mobilization.

Macroeconomic factors


Inflation is described as a general and sustained rise in prices of goods and services in the economy [57], and Usman and Adejare [64]. 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 (Azolibe [11] because the purchasing power of money is so much less than the sudden and excessive runaway price increases in the economy. Therefore, people may choose to convert deposits and cash into storage commodities in anticipation of future price increases and the possibility that they will not be able to deposit money in banks. Namazi and Salehi [46] also argued that when the inflation rate increases, the actual yield rate of money and assets decreases,therefore, deposits are no longer attractive. The effect of inflation on deposits is significantly negative. Maturu [43], Abiodun, et al. [1], Orok et al. [48], Muluken [45], Larbi-Siaw and Lawer [40], and Ostadi and Sarlak [50] have also documented the negative effect of inflation on the commercial bank deposits. However, Thisaranga and Ariyasena [59], Ukinamemen [62] and Athukorala & Sen [6] revealed that the rate of inflation has a positive impact on saving.


Inflation has a significant negative effect on deposit mobilization.

GDP Growth

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 (Azolibe [11]. According to 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. Empirical studies conducted by Hassan [36], Adem [2], Mashamba et al. [42], and Stanford [56] also revealed that GDP has a positive influence on the volume of commercial bank deposit. Whereas Yakubu, and Abokor [70] and Bikker and Gerritsen [16] found a significant negative effect of GDP on bank deposits. Islam et al. [38] also documented that the GDP growth rate has a negative but insignificant effect on the bank’s deposit growth rate.


GDP growth has a significant positive effect on deposit mobilization

Population growth

Acquiring deposits and advancing the credit objectives of banks cannot be attained without the good banking habits of the people (Varman [65]. Thus, the deposit amount depends on the number of deposit account holders. Hibret [37] also argued that population growth would mean an increase in the functional labor force that would attract investment, create wealth and positively affect overall economic growth, as a result, the deposit will grow because the more number populations tend to have more number of income generator and saver. Thus, Hibret [37] revealed that population growth had a positive and significant impact on deposits. Teshome [58] also found a positive relationship between population growth and bank deposit. However, Legass et al. [41] and Cincotta and Engelman [19] documented the negative effect of population growth on deposit growth as rapid population growth produces large proportions of children relative to the labor force, resulting in high costs and retard household savings.


Population growth has a significant positive effect on deposit mobilization.

Political stability

The country’s economic, social and political factors may affect the propensity for depositors to place funds in the banking system, and banks’ success in their operation mainly depends on the environment where the business is undertaken (Finger and Hesse [25]. Political stability encourages investment and promotes economic growth, thereby increasing the profitability of a business [55]. Political stability in democratic regimes is positively related to economic freedom indicators because greater economic freedom positively influences investment and economic growth [30]. However, conflicts and political instability can lead to a greater risk of systemic banking crisis and low bank deposits. [52] emphasized that conflicts weaken the performance of the financial sector and deteriorate banks’ ability to sustain financial intermediation role. Political instability could increase the volatility of bank deposits [7]. [32] found that the Syrian conflict deeply affected the banking sector by causing deposit and assets runs, and raising non-performing loan.


Political stability has a significant positive effect on deposit mobilization.

Conceptual framework

Conceptual framework helps to clearly identify the variables used in the study and shows how particular variables are connected with each other in the study. The conceptual framework presented both internal and external variables used in this study and the independent variable in Fig. 1 below.

Fig. 1
figure 1

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