This section provides the relevant empirical review related to the study of deposit mobilization and financial performance in banks. According to Gockel and Brow (2007), Bank Deposit is money placed into a banking institution for safe keeping.
Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts and money market accounts. The account holder has the right to withdraw any deposited funds, as set forth in the terms and conditions of the account. The deposit itself is a liability owed by the bank to the depositor (the person or entity that made the deposit), and refers to this liability rather than to the actual funds that are deposited. A Bank Deposit is generally made when opening an account or in the course of routine business or personal transactions that involve placing funds with the bank for future use. Bank deposits can be made in a number of different ways. The most direct way is to walk into a
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bank or a bank branch in which you hold an account. Bank deposit is done by filling in a Bank Deposit slip with the particulars of your account and the amount of money you wish to deposit. Bank Deposits can be made via wire transfer, as well as through a direct deposit plan from employers in many cases. According to Kazi (2012), in banking sector, deposit mobilization is a scheme intended to encourage customers to deposit more cash with the bank and this money in turn will be used by the bank to disburse more loans and generate additional revenue for them. The main business for banks is accepting deposits and granting loans.
The more the loans the banks disburse the more profit they make. Also, banks do not have a lot of their own money to give as loans. They depend on customer deposits to generate funds for granting loans to other customers. Traditionally, customers of banks walk to the banking premises to deposit money. This method of savings mobilization is not able to mop up enough savings. The World Development Report (2008), in response to the problem of inability to mobilize enough savings, many banks have devised mechanisms of generating savings.
Among the mechanisms for savings mobilization identified by bank’s include moving from shop to shop to collect daily deposits, sending agents to economic zones to mobilize savings, among others. It is evident that the bank uses a number of mechanisms to mobilize savings. Apart from the traditional of mobilizing savings where customers walk to the bank to save, there are other ways through
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which the bank mobilizes savings. In addition, the bank moves from shop to shop to collect deposits. This mode of mobilizing savings is done through special arrangement with the customer. Customers who qualify must have a high sales turnover. Laura, Alfred, Sylvia(2009), carried out a study on how to mobilize more deposits, financial institutions offer a range of savings products that are tailored to their particular clientele. They offer the widest variety of specialized savings products, so that their customers have a choice between immediately accessible, liquid products, or semi-liquid accounts or time deposits with accordingly higher interest rates. Simple and clear design of basic savings products enables depositors to easily select the product that best suits their needs. The simple and transparent design of the savings products also enables staff to administer them with ease, reducing administrative costs. According to Tanzi (2013), fiscal policy relates government revenue to its expenditure. In most developing countries, taxation is the main source of government revenue and the effectiveness of which rests on its ability to generate required revenue and support investment. Taxation is often defined as the levying of compulsory contributions by public authorities having tax jurisdiction, to defray the cost of their activities. Ali-Nakyea (2008) said that, no specific reward is gained by the tax payer. The money collected is used for the common good of the citizenry -for the production of certain services, as aforesaid, which are considered to be more efficiently provided by the State rather than by
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individuals e.g. maintenance of law and order at home, and defense against external enemies, etc.. According to Katang and Ntui (2008), in the most basic terms, commercial banks take deposits from individual and institutional customers, which they then use to extend credit to other customers. They make money by earning more in interest from borrowers than they pay in interest to those whose deposits they accept. They are different from investment banks and brokerages in that those kinds of institutions focus on underwriting, selling, and trading corporate and municipal. Therefore one of the most important ways leading to financial performance is the effective use of deposit mobilized extended to customers as generation of interest.
Venkateshan (2012) carried out a study on “An Empirical Approach to Deposit Mobilization of Commercial Banks in Tamil Nadu”. The researcher made an attempt to study the trend and growth in deposit mobilization of Scheduled Commercial Banks in Tamil Nadu during the period from 1999-2000 to 2008-2009. The Compound Growth Rate (CGR) and Linear Growth Rate (LGR) were calculated from using simple regression analysis. The study found that, there has been a remarkable growth in mobilization of all kinds of deposits in Scheduled Commercial Banks in Tamil Nadu on the whole. Pai (2006) carried out a study on Trends in the Indian Banking Industry: Analyses of Inter- regional Trends in Deposits and Credits”. The researcher makes an attempt to study the banking
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industry focuses on broad trends across banks and different regions in India. The study focuses on five groups of banks both private and public sector. Deposit and credit are the two performance criteria. The study revealed that, the performance of banks regarding deposits and credits at the two points of time has been largely similar. The study observed that, private scheduled commercial banks have shown superior performance. The study also reveals that, their growth on these two parameters, at the two points in time, have been comparable between them.
Gagan and Rajasekhar (2005) carried out a study on Urban Bias in the Flow of Funds and Deposit Mobilization: Evidence from Karnataka, India. The researcher examines the impact of contrasting policies on the flow of credit and deposit mobilization in rural and urban areas in Karnataka State. The study found that the formal financialinstitutions tended to gravitate towards urban areas in the credit provision after the reforms were introduced. During the reform period, rural areas witnessed negative net flow of funds through banking channels. The study also found that, one unit increase in deposits leads to less credit flow in rural areas as compared to urban areas.
(Lomuto, 2008), carried out a study on commercial banks in Kenya with the aim of identifying and examining the key determinants of Kenyan Commercial Banks Deposit growth.
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Its main objective was to analyze the factors that influence Commercial banks deposit growth in Kenya. Time series data covering 1968 - 2006 was analyzed.
First, the time series characteristics of the data were assessed using unit root tests to examine the stationarity of each variable. Secondly, the test for co integration was performed to determine the long run relationship of the non-stationary variables. Lastly, estimated model was a single regression equation with deposit as the dependent variable and explanatory variables as deposit rate, nominal exchange rate, investment income ratio, number of cheques cleared (used as proxy for innovations in the financial sector), real GDP, ratio of monetary GDP to total GDP and Structural Adjustment Programs (SAPs). Estimation was done using Ordinary Least Squares (OLS) technique and Econometric Views (E-views) statistical package.
Analyzed results showed that lagged Commercial bank deposits and all the other variables including Structural Adjustment Programs (SAPs) significantly affect Commercial bank deposit growth in Kenya. Based on these results, several policy implications were drawn that aim at encouraging deposits growth by Commercial banks for the benefit of the domestic deposit mobilization.