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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.


Title Page i
Approval ii
Dedication iii
Acknowledgement iv
Abstract v
Table of contents vii
1.0 Introduction 1
1.1 Background to the Study 1
1.2 Statement of the Problem 5
1.3 Objective of the Study 7
1.4 Research Questions 8
1.5 Research Hypothesis 9
1.6 Significance of the Study 9
1.7 Scope of the Study 11
1.8 Limitation of the Study 11


2.0 Literature Review 12
2.1 The Determinants of Bank Deposit 12
2.2 Theoretical Framework for the Analysis of Bank Deposits 18
2.3 Credit Creating Function of Commercial Bank 25
2.4 Empirical Studies 37
2.5 Evolution of Money 44
2.6 The Historical Development of Commercial Banks in Nigeria 46
2.6.1 Banks as Catalyst for Economic Growth 52
2.6.2 Financial Intermediation 59
2.6.3 Deposit Mobilization 61
2.6.4 Advancing of Credit to Borrowers 62
2.7 Brief History of Union Bank of Nigeria PLC 65
2.7.1 Various Strategies Employed for Deposit Mobilization 69
3.0 Introduction 73
3.1 Research Design 73

3.2 Source of Data 74
3.3 Scope of the Study 74
3.4 Data Analysis Techniques 75

4.1 Data Presentation 81
4.2 Regression Result 84
4.3 Interpretation of Regression Results 87
4.4 Summary of Evidence and Policy Implication of the Study 89

5.1 Summary 96
5.2 Recommendation 98
5.3 Conclusion 100
References 101


In a developing country like Nigeria, the role of banks and
other financial institutions cannot be over emphasized. Banks
play the middle-man role of channeling funds from the fund
surplus sectors to deficit sector of the economy which is of
immense benefit to the even growth of the economy. To achieve
its objectives, the banking industry has to develop well
articulated guidelines and policies geared towards effective
utilization of scarce funds.
This research work setout to evaluate the determinants of
banks deposits in Nigeria. Bank deposits are accounting entries
showing the credit balance in favour of a customer. In other
words, banks deposits are funds (money) deposited with
commercial banks with a view to earning some interest and also
for safe keep over a period of time.

The origin of bank deposits can be traced to the Bank of
England (London) and the goldsmith who because of the nature
of their business, had facilities to store valuables. The
goldsmiths accepted deposits (gold) from merchants who had no
safe place for the safe keep of their valuables or money. Later,
the receipts issued by goldsmiths for deposit were used by the
merchants as means of payments by transferring the claim on
the goldsmith to the holder of the receipt.
In 1844, the bank of England assumed the monopoly of
note issue. With this development, early bankers issued bank
notes of fixed denomination which were more widely acceptable.
There came a point in time when bankers began to lend money
to their customers.
This was made possible by the fact that since cash or piece
of gold held by Mr. A was quite the same as the piece of gold held
by Mr. B, the deposits could be lent to other people before
maturity when the depositor could be repaid with new deposits
from other customers. This anonymity really helped in the

development of the banking system. Consequently, the
increasing use of bank notes meant that fewer people would
withdraw their deposit in cash from the banks. Banks therefore
found it safe to lend out, at interest, some of the money
deposited with them.
When bankers found out that lending out money proved to
be a profitable business, they began to offer inducement in form
of interest to depositors in order to encourage people to increase
their deposits. Following this outcome, bankers began to lend
out their own notes and with experience, they were able to know
how much cash they ought to keep in their vault to meet
customer’s withdrawal demands. They later realized that not all
customers would come to withdraw their deposits, and so they
can predict the margin of safety (percentage of cash to deposit) in
order to avoid any friction in the process.
The Nigerian Enterprises Act of 1972 otherwise known as
the Indigenization Act was promulgated with the sole aim of
encouraging indigenous business ownership and control. One of

the problems envisaged in the course of implementing the Act
was inadequate finance with which to fund the businesses to be
taken over from foreigners by indigenous business men. The
inability of individual business men to single-handedly finance
their business activities gave rise to the need for extension of
credit facilities through customers’ deposits by commercial
Commercials banks as it were, perform two basic functions
namely; acceptance of deposit from the public and lending out
money deposited to the public.
The deposit function according to Aladeje Ojo (1982) includes
savings deposits, current deposits and time deposits.
Savings deposit are deposits of individual institutions, cooperate
bodies and government who want to save on regular basis
operated through the use of passbooks, withdrawal slips, and
identity cards.
Banks currently pay interest of between 2% – 5% annually on
this account in Nigeria.

Current or demand deposits are operated with the use of
cheques. The deposits are payable on demand or to the order of
the customer without giving any notice of withdrawal. Customers
that operate this account have access to credit facilities like
loans and overdrafts. However the customer is made to pay for
the services rendered by the banks to them in the form of
commission on turn over (COT).
Time deposits are equally operated by individuals,
institutions, firms and government. Time deposits attract fixed
interest for customers because the money is deposited for a fixed
time period.

The study of bank deposits has been of interest to many
scholars, investors and government in particular. That is why
this work was conceived to take a critical look at the
determinants of commercial bank deposits in Nigeria with
particular reference to Union Bank of Nigeria Plc.

It is an established fact that the major objectives of
monetary and banking policies sector in any economy is to
mobilize domestic financial resources by financial intermediaries
which specialize in bridging the financial gap between savings
surplus and savings deficit sectors. In that process, banks
facilitate the optimal allocation of surplus funds.
But despite this intermediary function, studies and facts
over the years have revealed that a large quantum of money is
still trapped outside the banking sector. That is, a large number
of people still prefer to live the crude way of keeping money under
the carpet and with a number of non-formal financial institutions
(such as thrift collectors, local cooperatives and likes).
Against this background, this study seeks to find out how
banks mobilize deposits by extending loans and advances to
prospective investors as well as identifying the factors that
influence bank deposits.

Also, it is the interest of this research to examine how the interest
rate influences bank deposits in advanced countries relative to
the impact in developing countries.
Studies like the determinants of structural shift in
commercial bank deposits in Nigeria by A. Oyejide and A. Soyode
(1998) has formed part of the major reference materials for this
study. The study shall indicate how the flow of savings, and
efficient credit mechanism coupled with a balanced range of
viable investment options depend on the ability of commercial
bank to mobilize deposits and to manage such deposits

The objectives of this research work are as follows:-
 To provide a working definition of the concept of bank
 To update the information content of existing studies on the
determinants of bank deposits

 To identify the factors which determines bank deposit in the
Nigerian economy and quantify the relationship established
 To determine the effect of bank deposit on credit creation in
the Nigerian economy
 Finally, to offer suggestions based on the findings of this
study on the formulation of appropriate monetary policy
relating to bank deposit mobilization and management.

Bank deposits or money in its modern form is neither edible nor
material for clothing. In fact, it is neither a structure for shelter
nor an instrument for entertainment. Given this explanation, the
questions that come to minds include the following;
 How can bank deposits enhance economic growth and
 Are banks and other financial institutions parasites on society
as they are sometimes said by mobilizing and controlling
deposits of customers?

 Do bank deposits contribute, in any way, to individual well
being and economic development?

This study seeks to test the following hypothesis in the null
Ho: The level of interest rate is not positively related to the
volume of bank deposits.
Ho: The rate of inflation is not positively related to the volume of
bank deposits for the period
Ho: The volume of loans and advances is not positively related to
the level of deposits of banks
Ho: The number of bank branches is not positively related to the
volume of bank deposits.

According to Teriba (1980), the need for business in West Africa
and Nigeria in particular is to keep part of their surplus funds as

deposits in banks had not been duly appreciated in the past.
This has been attributed to a number of reasons, namely people
cannot read or write cheques, many of the citizenry belong to the
low income group, the public needs small amount of money for
purchasing goods and services and finally, absence of banks in
rural areas.
In the light of the above, therefore, this study seeks to
educate business in Nigeria and elsewhere on the determinants
of bank deposits; the benefits to both individuals and
commercials banks and finally how the public can be
encouraged to save part of their money with the commercial
banks to enable them create credits.
In addition, this study will contribute to the pool of existing
knowledge regarding bank deposit in Nigeria. It is hoped that
knowledge derivable from this study will help to sharpen the
financial role of corporate managers and investment analysis in
banks and other financial institutions.


The study covers the deposit operations of commercial banks in
Nigeria with particular reference to Union Bank of Nigeria Plc.
It deals more specifically with the factors which determine bank
deposit level as well as the credit creation ability of commercial
banks in Nigeria.
Equally, suggestions will be made to financial and monetary
policies that would enhance commercial banks activities in the
Union Bank of Nigeria Plc was chosen for this study because of
it’s standing as one of the oldest bank in Nigeria which has had
a fair share of the nation’s varied regulatory policies.

The limitations of this study arise from difficulties involved
in collecting data from various sources. This is why a cross
sectional study of individual commercial banks was not possible.
Cost and willingness of workers to give adequate information

were other limitations. However, the above limitations of the
research work did not affect the conclusion to be drawn from the


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