Impact of Deposit Growth Rate on Bank Stability: An Empirical Analysis of Selected State-Owned Commercial Banks in Bangladesh

Abstract

This study examines the impact of deposit growth rate on the stability of state-owned commercial banks in Bangladesh, focusing on Sonali Bank PLC, Janata Bank PLC, and Agrani Bank PLC over the period 2010–2024. Bank stability is measured using the Capital Adequacy Ratio (CAR), while Deposit Growth Rate (DGR) is considered the primary explanatory variable. Additional control variables include Loan-to-Deposit Ratio (LDR), Return on Assets (ROA), Cost of Fund (COF), and Bank Size (BS). The study is motivated by the increasing importance of deposit mobilization in Bangladesh’s banking sector and the mixed findings in existing literature regarding its effect on financial stability. While higher deposit growth generally enhances liquidity and lending capacity, excessive growth may lead to inefficient fund allocation and increased risk-taking behavior. This creates a need to empirically investigate the relationship within the context of state-owned commercial banks, which often face structural challenges such as high non-performing loans and operational inefficiencies. Using secondary data collected from annual reports of the selected banks, the study employs panel data analysis techniques to examine the relationship between the variables. The findings suggest that deposit growth has a significant influence on bank stability, although the direction and magnitude vary depending on other bank-specific factors. Variables such as ROA and bank size positively contribute to stability, while LDR and cost of fund may have mixed or negative effects depending on the context. The study highlights that deposit growth alone cannot ensure financial stability; rather, it must be supported by efficient management, proper risk control, and sound financial practices. The results provide useful insights for policymakers, regulators, and bank management in formulating strategies to strengthen the stability of the banking sector in Bangladesh. However, the study is limited by its focus on a small sample of banks and reliance on secondary data. Future research may incorporate more banks, longer time periods, and additional macroeconomic variables to provide a more comprehensive understanding.