THE DETERMINANTS OF COMMERCIAL BANK DEPOSITS IN NIGERIA 1989 – 2007: A STUDY OF UNION BANK OF NIGERIA PLC

THE DETERMINANTS OF COMMERCIAL BANK DEPOSITS IN NIGERIA 1989 – 2007: A STUDY OF UNION BANK OF NIGERIA PLC

ABSTRACT

The study focused on factors which affect the deposit mobilization operations of commercial banks in Nigeria, particularly the Union Bank of Nigeria Plc. The study tried to find out the relationship between total volume of commercial bank deposits and interest rate, inflation rate, loans and advances and the number of bank branches.

The study relied primarily on secondary data published by official sources. The diagnostic statistic used in the study was the ordinary least square (OLS). From the study, it was found out that all the independent variables were positively related to bank deposit (dependent variable).

The result also shows that there is a positive and moderately significant relationship between bank deposit and loans and advances with a coefficient of 0.53. Hence, loans and advances is inelastic to bank deposit. Number of bank branches has a positive but weak relationship with bank deposit and is also inelastic in nature. Inflation rate has a positive – weak relationship with bank deposit, while real interest rate has a negative – weak relationship with bank deposit with the value of -0.05.

From the value of the t-statistic, the coefficients of the four explanatory variables were all significant and the probability of rejecting any of them was less than 1%. The standard errors for the four explanatory variables were all very low. Hence, all the variable coefficients were all significant and accepted. Based on the findings, my recommendation therefore, is that inflation rate which is currently standing on 1 digit contrary to what it was from 1991 – 2005 has reduced its severe constraint on agricultural and industrial sector, thus, advantage should be taken on this by banks to direct loans towards these sectors of the economy.

Also, interest rate which when increased encourages savings that would eventually lead to improved bank deposit, should be given priority.

It is clear from the study that the more the branch network, the higher the deposit mobilized which implies that the number of bank branches affects the bank deposit and positively too. Therefore, there should be a proliferation of bank branches both in the rural and in the urban areas.