CHAPTER ONE

1. Introduction

1.1. Background of the Study

According to international monitory fund (IMF. 2009). Deposit is an act of giving

money or securing in to banks and others who promise to preserve or to use it and
return it in kind, especially in the act of placing money in to bank for safety and
convenience and saving deposits an excellent place to build up an emergency cash
funds. According to Bergerand De young (1997) the emergency fund can be your life
line when you are facing with unemployment or unforeseen expanses.
Saving Deposit mobilization is an integral part of banking activity. Mobilization of
savings through intensive deposit collection has been regarded as the major tasks of
many commercial banks worldwide recently. Acceptance of deposits is the primary
function of commercial banks. As such deposit mobilization is one of the basic current
Ethiopian banking activities (Muday, 2011).
Saving deposits are accounts maintained by retail financial institutions that pay
interest but cannot be used as money in the narrow sense of a medium of exchange.
These accounts let customers set used as money in the narrow sense of a medium of
exchange.These account let customers set aside portion of their liquid assist while
earning a monetary return.
Saving deposit provides the economic security of safety not by transferring resource
from the present to the future via saving; individuals are prepared to face un expected
irregular financial circumstances. Besides, it leads accumulating of wealth that enables
individuals to improve their living standards and to respond to new opportunities.
Most people as form of saving maintain these deposits so as to earn interest from the
bank. The saving deposits are not only held to meet the needs of present or the near
further but are also kept by individuals as part of their total stock of wealth. Heraled
Fingran heikoress (2009).
One of the problems in mobilization of saving deposit is that, banking activities in
developing countries are limited to the officially existing marketing activity and the
people in general found well familiar with all banking activities plus, when it comes to
saving people in general and the poor in particular might not be completely rational
and completely knowledgeable. Their financial knowledge of saving now from their
daily income for further consumptions.
Mobilizing saving deposit is crucial in many developing countries. Domestic funds
provide a cheap and reliable source of funds for development, which of great value
developing countries, especially when the economy has difficulty raising capital in
international markets. Yet, in many developing countries, there is a considerable
amount of savings that are not intermediated 2 through the formal sector particular,
there exists a significant savings potential in the rural (and/or semi-urban) sector in
many developing countries (Vogel, 1984).
Mobilization of saving deposit of customers through intensive deposit collection has
been regard as a major task of banking Kelin A.seargent( 2001) state that acceptance
of deposit is the primary function of commercial banks. Maximization of saving of
customers can be meet by using high technologies, training to saving deposit
promoting staff, developing high organizational trust, using high media coverage
branch expansion, educating households about the benefit of savings.
Therefore commercial bank of Ethiopia is tried to mobilize saving deposit from the
public by formulating relevant strategy using the trust financial capability. The study
focuses on saving deposit mobilization in commercial bank of Ethiopia in Endibir
branch to identify main factor affecting branch in its endeavor to achieve the goal of
planned saving deposit mobilization.

1.2. Statement of the Problem

Saving deposits are designed to attract funds from customers who wish to aside their
money in anticipation of future or financial emergencies. These deposits generally pay
higher saving deposits are generally less costly for a bank to process and manage
(Peters, rose 1994 4th ed) even if saving deposit are less costly to process and manage
the principal liabilities of its deposits, representing the financial claims held by
business, households and government can manage by the bank.
Mobilizing saving depoit 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 these countries, especially when the economy has difficulty raising
capital from international donors, financiers and markets. A deposit taking institution
asks saver to place their fund within care 6 taking. This relationship reverse the
traditional power relationship between clients and financial intermediary’s in which
borrowers approach banks, credit union or micro financial institution to ask for
deposit or for loan. The saving institution must market and sell itself to clients; it must
convince saver that saving will be safe and well managed. Any deposit taking
institution whether bank or other financial intermediaries, should offer saving product
that meet the demand of both prospective and existing clients (Ferguson,2010).
Recently due to competition and different environmental circumstances deposits
mobilization activities are one of most confronting job in banks however to make it
success story there should be different activities that should be done to compete from
the crowed and be the best performer from the rest . Still it is known fact that from the
whole saving deposit that should be collected by the government institution of
Ethiopia, only less that 30% of the resource is collected from the public at large
(muday, 2011).
Determinant variables commonly explained as a factor affecting saving deposit are,
inflation rate, interest rate, exchange rate, demographic change (population growth)
and branch expansion. Wubetu (2012) found that Branch expansion had positive and
significant effect on total deposit whereas deposit interest rate and inflation rate were
insignificant. As opposed to this finding, Tizita (2014) reported that branch expansion
has negative effect on private saving in the short term. She also concluded that
inflation rate influenced private saving negatively and significantly. As per the finding
of Tizita, level of real per capital income and urbanization ratio has significant positive
effect on private savings. Moreover, Aberham‟s finding showed that the banks total
saving deposit is positively related to income, its Asset and loans, liability, and advance
granted and consumer price index (Abreham, 2014). However, this relationship is
expected, since deposit is a liability to the Bank, deposit and liability are positively
related to each other.
Different private and commercial banks provide the saving deposit schemes.
Commercial bank of Ethiopia as the public bank plays an important role for the
overall development of the country such as increase in saving by promoting investment
and capital formation. However, the actual saving deposit customers are less than the
estimated saving deposit customers in commercial bank wants to have each year,
besides the trend in saving deposits in commercial bank of Ethiopia shows an increase
in decreasing rate when compare to previous in years. E.A.show(1995). A number of
inter relate problems are believeed to have effects on the declining pattern of
Commercial bank of Ethiopia saving deposits. Some of the problems (factors) are
researchers intended to study the factors that affect mobilization of saving deposit of
commercial bank of Ethiopia Endibir branch.
1.3 Research Questions
The study finally answers the following questions,
1. what is the factors affecting saving deposit mobilization of commercial bank of
ethiopia Endibir branch?
2. What factors affect the degree of saving in commefcial bank of ethiopia Endibir
branch?
3. What is deposit scheme available in bank and providing more mobilization?
4. what is degree of Interest paid?
5. How saving deposit mobilization will be achieved?

1.4 Objectives of the Study

1.4.1 General Objectives

The general objectives of this study is to find out the factors affecting saving deposit
mobilization of commercial bank of Ethiopia Endibir branch.

1.4.2 Specific Objective

The specific objective of this study are
 To show the factors affecting saving deposit mobilization of commercial bank of
ethiopia endibir branch.
 To assesses the most influence on mobilization of saving
 To identify major classification of loan period in the bank
 To find out activities that bank will following order to save more and attract
customer.
1.5 Significance of the Study
The study will be making several contiributions to both knowledge building and
practice improvement in saving deposit mobilization.Understanding factors that affect
commercial bank deposit play a crucial role for adequate bank saving deposit
management tools. The study has great contribution to the existing knowledge in the
area of the internal and external factors affecting saving deposit mobilization of
Commercial Bank of Ethiopia Endibir branch. This in turn contributes to the well-
being of the financial sector of the economy and the society as a whole. Therefore, the
major beneficiaries from this study are: Commercial Bank of Ethiopia, regulatory
bodies and the academic staff of the country. Furthermore, it can serve as stepping
stone for further research in similar area.

1.6 Scope of the study

In Ethiopia there are more than one thousand branches of commercial bank
of Ethiopia under operation. From the number of the branches under
operation the study uses Commercial Bank of Ethiopia Endibir brach as a case
area. The research specifically concerned on saving deposit activities
conducted in Endibir branch. When discussing factors affecting saving deposit
mobilization, both internal and external factors are considered.

1.7 Limitation of the Study

Limitation of the study lies on:
o The employees of the bank were not volunteers to fill the questionnaires.
o The manager of the bank was not available at any time.
o High limitation on transportation facilities.

1.8 Organization of the paper

The study will be organized in to five chapters. Chapter one deals with introduction of
the study including; back ground of the, statement of the problem, objective of the
study, limitation of the study and organization of the study. Chapter two deals with
related literature review chapter three deals with research methodology, chapter four
is about data presentation analysis and interpretation and final chapter deals with
conclusion and recommendation.