Determinants of depositors’ behaviour: Heterogeneous panel estimates

This paper empirically evaluates determinants of depositors’ behaviour in Azerbaijan. The response of depositors to macroeconomic, alternative investment and bank specific shocks is analysed by implementing recently developed panel time series methods that are robust to regional heterogeneity and inter-dependencies. We consider that macroeconomic and alternative investment factors are initially exogenous to the banking system and hit all banks simultaneously. Using a monthly panel dataset of Azerbaijan from January 2009 to June 2015, the paper provides new evidence regarding the importance of relationship between deposits and macroeconomic factors, specifically currency risk. The paper highlights the role of currency risk, as a determinant of depositors’ behaviour and conclude that its role overshadow the importance of alternative investment and bank specific factors in Azerbaijan. Despite of wide variation in response of depositors to macroeconomic, alternative investment and bank specific shocks, overall, depositors seem more responsive to risks than previous literature have recognized.