An empirical examination of bank deposit rate: the case of western balkans

Abstract

The banking system is one of the most important parts of the economy of a nation. It must be a well-developed and based in lawful rules in order to generate trust to the citizens. Based on the trust it raises, households interact in different ways; including having loans, depositing their savings, making transfers etc. The main purpose of this paper is to study the impact of various factors on the average rate of the savings that citizens deposit on the commercial banks, known as deposit rate for Western Balkan countries involving Albania, Kosovo, Bosnia and Herzegovina, Serbia, North Macedonia and Montenegro, which have almost similar historical developments and economic trends during the decades. Here we will carefully study the impact of three different aspects including macroeconomic, bank specific and demographic factors. To achieve this objective, an empirical study is done where the data set is defined as panel data. The model includes five independent variables; population growth, inflation rate, non-performing loans, liquidity ratio and GDP per capita. The data is taken for the 6 countries mentioned for the years starting from 2010 to 2017. The results of this paper conclude that population growth, GDP per capita and liquidity rate are the main determinants of the dependent variable, which is deposit rate. In addition, the analysis points out that the variable with the highest impact on the dependent variable is population growth. In addition, all of the variables have a direct relationship with deposit rate, except liquidity rate which has a negative impact. Moreover, non-performing loans and inflation rate have no effect on deposit rate.