Determinants of Private Savings in the Commercial Banking Sector of Liberia

Abstract

Liberia is a developing nations with a challenging savings rates that have persisted for decades. Gross savings as a percent of GDP was -39.11% as of 2019 (The World Development Indicator, 2021). The rate of saving in Liberia for 2016 was 2.027% per annum (pa) from a 2.002% pa in 2015 (CEIC, 2021). The commercial banking sector in Liberia has been confronted for years endeavouring to mobilize savings deposits. The major objective of the study was to investigate factors that determine private savings in the commercial banking sector of Liberia spanning from 2010- 2020. Private saving is money set aside by businesses (non-financial and financial institutions) and households in the private sector. It is a total household plus business savings. Private savings determinants considered in the study include Deposit Interest Rate, Age Dependency Ratio, Gross Domestic Product, Inflation Rate, Population Density, and Private Sector Credit. The study employed both correlation and regression analysis to analyze an Ordinary Least Squares model. Secondary quarterly time-series data spanning 41 quarters obtained from the Central Bank of Liberia and the World Development Indicators were used for the study. Several related diagnostic tests including normality, autocorrelation, and heteroscedasticity tests were done to ascertain robust estimates. Findings indicate that Private Savings over the period remained positive but at a low growth pace. The Deposit Rate, Inflation, GDP, and Private Sector Credit are four variables that negatively affect private savings in Liberia. It was established that high rates of these variables would decrease the rate of private savings. The Age Dependency Ratio and the Population Density both were positively associated with private savings. The results are essential for policies and strategies formulation that are targeted towards increasing private savings in the commercial banking sector of Liberia.