Determinants of deposits in an emerging banking system: evidence from Mongolia

This study investigates the determinants of deposit accumulation in a highly concentrated and commodity-dependent emerging banking system, using Mongolian 10 commercial banks over the period 2014–2024. While the existing literature largely emphasizes deposit rate pass-through and pricing incentives, primarily in advanced economies, limited evidence examines deposit volume determination within a dynamic liability-side framework in emerging markets undergoing financial diversification. This study addresses this gap by employing panel estimation techniques that emphasize both fixed-effects and system generalized method of moments (GMM) approaches to identify the drivers of deposit behavior. The fixed-effects model demonstrates strong within-bank explanatory power and highlights the prominent role of funding cost intensity, bank stability, income growth, and exchange-rate dynamics. To account for persistence and potential endogeneity, the analysis further applies system GMM, which confirms substantial deposit inertia and reinforces the robustness of the core relationships. Across specifications, deposit rates exert a statistically significant negative effect, supporting a funding-cost channel interpretation rather than a deposit-rate elasticity mechanism. Bank stability is also negatively associated with deposit size, reflecting capital restructuring and intensified competition from expanding non-bank financial institutions. In contrast, household monetary income growth and real effective exchange rate appreciation positively influence deposit accumulation. Overall, the findings suggest that deposit accumulation in concentrated emerging banking systems is primarily driven by funding discipline and income-based liquidity demand rather than by short-run macroeconomic fluctuations. These results refine intermediation and monetary transmission frameworks by highlighting the importance of liability-side constraints in shaping deposit dynamics.