Effect of New Products Development on Deposit Mobilization: A Case in Commercial Bank of Ethiopia, Dire Dawa District

Deposit mobilization plays a paramount role in mobilizing resources for productive activities. The success of the banking system also greatly lies on the deposit mobilization, as the deposits are normally considered as a cost-effective source of working fund. This paper assessed the effect of new product development on deposit mobilization: a case in commercial bank of Ethiopia, Dire Dawa district using a panel data with a sample of 20 branches for six years i.e. 2014-2019. A Fixed Effect Model (FEM) was employed to show the relationship between deposit mobilization and new product developments. The study found that with the introduction of new products, the amount of total deposit and the amount of deposit mobilized by the newly introduced products showed un upward trend over the study period. The regression result obtained from the Fixed Effect Model also revealed that among the new product developments i.e. muday service account, teen account and women accounts have positive and statistically significant effect on deposit mobilization. Among the control variables deposit interest rate and inflation rate have a negative and statistically significant effect on deposit mobilization. However, from the new product developments youth and education accounts and among the control variables per capital income were not statistically significant in affecting deposit mobilization. The study recommend that new product developments has to be examined carefully before they are put in effect. Awareness creation should be made on the features of the new product developments to raise the amount of deposit to be mobilized through them. Designing attractive deposit interest rate scheme and introducing a deposit mobilization scheme that is intended to retain deposit mobilized within the bank and attract new savers in time of acute inflationary pressure.