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ANALYSIS OF CASH DEPOSIT PATTERNS IN COMMERCIAL BANKS
1.1Back ground of the study
The financial system in all economy is composed of the Bank-based system where provision and monitoring of investments funds are made through the banks on one hand and the stock market where investors (surplus units) enter directly through ownership of securities. Banks play an intermediary role of mobilizing funds from savers and subsequently lend them to investors- individual/corporations.
Banks play a key role in improving economic efficiency by channelling funds from resource surplus unit to those with better productive investment opportunities. Banks also play key role in trade and payment system by significantly reducing transaction costs and increasing convenience (NCA, 2006). In less monetized countries, like Nigeria, whereas financial sector is dominated by banking industry, effective and efficient functioning of the latter has significant role in accelerating economic growth.
In Nigeria commercial banks are the main controller of the financial system performing financial intermediation. They control greater portion of the investment funds from domestic deposits and are the main creditors of the corporate bodies, SMEs and individual investors. That is why the traditional banking business of supplying funds to the economy is still of importance. For example, most business organizations especially in Nigeria are highly dependent on bank loans as a source of capital and the ability of banks in giving loan depend much on their ability to attract deposits.Even though, mobilizing deposit is the major activity of all commercial banks, managing and identifying the determining factors of deposit is a mandatory task for banks. Mobilizing deposits is not possible without knowing and controlling the factors affecting it.
Bank deposits represent the most significant components of the money supply used by the public, and changes in money growth are highly correlated with changes in the prices of goods and services in the economy (Sergeant, 2001). Bank deposits are made to deposit accounts at a banking institution, such as savings accounts, checking accounts, time deposit 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.
In literature there are several factors that are claimed to be determinants of deposits. Accordingly the Scholars had divide factors affecting commercial banks deposit into two, namely exogenous and endogenous factors. Exogenous factors further sub divided into two, i.e. country specific factors and bank specific factors. Country specific factors includes saving interest rate, inflation, real interest rate, population growth of the country, per capita income of the society, economic growth(as measured by real GDP), consumer price index and shocks. Bank specific factors include liquidity of the bank, profitability of the bank, security of the bank; number of commercial bank’s branches, bank size, reserves and transaction cost. The endogenous factors include awareness of the society, convenience of bank’s office and services in the bank (N. Desinga, 1975).
In this study these variables are studied theoretically and empirically and the relationship between these variables and total deposit of commercial banks is identified. To the knowledge of the researcher in Nigeria specifically in Commercial Bank of Nigeria ,there is little empirical study on how might the size of bank deposit buffer be influenced by bank specific factors and by macro-economic factors
Thus, the issue of banks deposits and its determinants is crucial to the financial sector of developing country like Nigeria. This study enables banks and regulators to keep control to the issue of deposit which is very important to the security of their operation as well as the economy as a whole in the country.
1.3 Statement of the problem
Deposit mobilization is the major services of commercial banks. Deposits are of course mobilized to meet the required liquidity for credit customers of banks. But this too depends on the availability of credit facilities which in turn depends on the level of funds loaned.
In this regard currently in Nigeria, the pace of the banking system to mobilize adequate resources would not be sufficient, given the large fund requirement of the economy that would certainly result in liquidity gap. The major reasons for liquidity gap are money may be kept in traditional way and majority of population is unbanked. This shows that the deposit mobilization practice among commercial banks in Nigeria is not developed. So this type of traditional banking practices should be stopped and replaced by the new and relevant deposit mobilization strategy.