Factors influencing bank deposits : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy (PhD) in Banking at Massey University, Palmerston North, New Zealand
This thesis comprises three essays that investigate the effects of human capital, financial markets, and the banking system development on bank deposits, deposit funding, retail, and time deposits proportions. The first two essays are country level studies, whereas the third is at bank level. The data related to first essay has been obtained from the World Bank and the World Health Organisation (WHO). For the second and third essays, bank level data is from Bankscope and macroeconomic variables data are from the World Bank.
The first essay investigates the effects of human capital development on bank deposits, employing 2SLS method in a cross-country setup. Human capital development includes the development of the healthcare system and education level. I use two dependent variables: deposits to GDP ratio and value of total deposits. Results show a positive relationship between human capital development and bank deposits. However, the impact of healthcare system on total deposits is higher than the bank deposits to GDP ratio, suggesting that an improvement in the healthcare system increases households’ income and a proportion of that increased income goes into the banking system. The impact of education is higher in high financially included countries than in less financially included countries.
The second essay examines the effects of financial markets development on bank deposits, using instrumental variables methods. Empirical results suggest that investors in developed and developing economies use financial markets differently. In highly financially integrated economies, the financial markets and banking system complement each other, whereas in fragmented markets they compete.
The third essay explores the effects of competition on bank deposit funding and composition. Interest cost has been used to measure deposit competition and the Herfindahl- Hirschman Index (HHI3) at deposits and loans levels to measure market structure. The results show that increased deposit competition encourages banks to increase the proportion of less costly funds, causing a reduction in deposit funding. In contrast, high interest rates attract retail depositors, especially for time deposits, thereby increasing the proportion of retail deposits. However, this finding varies according to the financial development level of the countries. Market concentration shows negative effects on bank deposit funding and composition.