American Journal of Business Management, Economics and Banking ISSN (E): 2832-8078 Volume 12, | May, 2023 P a g e | 34 www.americanjournal.org THE IMPACT OF BANKING ACTIVITY INDICATORS ON THE RETURN ON DEPOSITS, APPLIED RESEARCH A SAMPLE OF IRAQI COMMERCIAL BANKS Dr . Lecturer Rebin Tayeb Rashid(1) Raid Hassan Ali(2) Assistant Lecturer. Lecturer Rebin.tayeb@gmail.com raidhassan2007@yahoo.com Assist. Prof .Dr. Waad Hadi Abd (3) Waad1985@mu.edu.iq Noble Institute 2014, Iraq(1)- Accounting Department College of Administration & Economics, Al-Muthanna University, Iraq(2,3) A B S T R A C T K E Y W O R D S The study aims to demonstrate the effect of theoretical relationships between the variables of banking activity indicators, the investment indicator on deposits and the resource employment indicator, as independent variables with the return on deposits indicator as a dependent variable. Financial analysis on the study sample (the National Bank of Iraq, the Iraqi Middle East Investment Bank, and the Gulf Commercial Bank). And then find the statistical correlation and effect of the high rates of bank deposits and bank loans on bank liquidity by using the statistical analysis program (SPSS.26) to reach the most important results that proved the existence of a relationship of effects that occur in the dependent variable the rate of return on deposits as a result of the influence of the independent sub-variables , as there is a positive relationship between the deposit investment index and the return on deposits for the correlation value (0.906**) at a significant level (0.01), while there is an inverse relationship between the resource employment index and the return on deposits for a correlation value (-0.033) at a significant level (0.01), In addition to the presence of a significant direct effect on the return on deposits of commercial banks, the study sample, as a result of increasing the percentage of deposit investment index by one unit, which is a significant effect of (0.000) at a significant level of less than (5%) While there is an insignificant direct effect on the return on deposit investment index, resource employment index, rate of return on deposits. American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 35 www.americanjournal.org deposits as a result of increasing the resource employment index by one unit and by (12%), which is more than (5%). Introduction Commercial banks are characterized by great importance in attracting funds from various funding sources and working to find investment fields. Investment deposits are the main source on which commercial banks rely. Several types of investment deposits fall under them, including savings deposits: which represent investment accounts with small amounts that contribute to the annual profits of the bank. Commercial, the aim of which is to encourage small depositors to obtain a small percentage of the profits. (Abbas, Abd, & Kareem, 2020). Term deposits: They are monthly, quarterly, semi-annual or annual deposits that the bank presents to its customers who wish to participate in investing in commercial banks. It is not permissible to withdraw from these deposits during the deposit period agreed upon between the bank and the depositor. Term deposits with notification: They are the same as the aforementioned term deposits, except that they differ from them in the mechanism of withdrawal from them, (Burkhanov , 2020) as the owner of the deposit must notify the Commercial Bank in writing of his desire to withdraw from this deposit, Commercial banks also play a major role in providing loans to customers and other financial institutions, and the inability of customers to repay loans exposes the bank to the risks of lack of liquidity at the bank, , (Chowdhury & Zaman, 2018) .which leads these banks to bankruptcy after withdrawing deposits from depositors. The purpose of maintaining this budget is to measure performance in banking activity and identify weaknesses and strengths in the performance of the bank's activities, and then provide the necessary information in order to take corrective measures that ensure the survival of the bank in the competitive market and then achieve revenues and profits, and this is done by calculating activity indicators. Banking and finding the effect relationship between it and the returns, and this is what will be dealt with in the theoretical and practical side of the study, (Sahyoun, & Magnan , 2020). LITERATURE REVIEW First: Indicators of banking activity: Commercial banks grant loans and invest surplus deposits until they are required for repayment, as commercial banks seek to find feasible investment opportunities to employ their resources in return for obtaining benefits that cover their expenses, and what is more than that is considered a profit for the bank, (Abd & Kazem, 2022). taken by those banks in their perspective of the degree of risk associated For these banking financial investments, deposits constitute the largest percentage of the financing sources for the commercial bank, (Arif & Nauman , 2012). and achieving profits from the available resources (deposits) indicates the ability of the bank to employ the surplus or accumulated money with the customer to obtain returns. The financial return that results from it, as commercial banks employ a large part of their resources in this investment, (Chowdhury & Zaman, 2018). and it is one of the basic functions of any commercial bank, and it includes the process of granting loans for various long, short and medium terms, and these investments are in the form of advances, loans, discounted commercial papers, or through American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 36 www.americanjournal.org withdrawals Overdraft, and in order to create a balance between the process of granting loans and investing in the size of bank financial deposits to avoid liquidity risks that could expose banks to financial failure or bankruptcy , (Chioma, Okoye, & Chidume, 2021) a set of banking activity indicators are used, including: (Galili, Zviely, Ronen, & Mienis, 2007), (Schieber,, 1998) *Deposit investment index: The banking department is interested in this indicator, because it measures the extent of the department's ability to employ one of the important sources of financing for the bank, which are deposits of various types in order to exploit and invest them in achieving profits. The deposit investment index is calculated according to the following equation: (Investments / Deposits) * 100. (Van & J, 2016) *Resource Employment Index: This indicator focuses on the extent of the bank's ability to employ its resources. Profits are a measure of the efficiency of management of all investments, whether they are long-term or short-term investments. The resource employment index is calculated according to the following equation (Investments / (Deposits + Equity) * 100. (Hasan, Atshan, & Abd, 2023). Second: Return on Deposits: Second: Return on Deposits: (ROD): Commercial banks are always looking for an increase in profitability from short investments and long-term investments, and the rise of this indicator indicates the efficiency of the investment and operational management policies or investment in ordinary stocks during a certain period, (Burkhanov , 2020). as it shows the rate of return on Deposits The extent to which bank deposits generate profits to enhance the bank's competitiveness. This rate also measures the share of each unit of deposits in the net profit due to the bank after paying taxes. Therefore, banks seek to achieve a balance between risk and return from banking operations, in a way that ensures maximization of return and minimization of risk. Return on Deposits Index: (ROD) according to the following formula: net profit after tax/ rate of return on deposits * 100. (Abd & Kazem, 2022) The practical side of the study The practical side deals with a brief summary of the study sample (the National Bank of Iraq, the Iraqi Middle East Investment Bank, and the Golf Commercial Bank) as well as analyzing the financial statements for the period from (2006-2020) (net profit after tax / deposits) * 100 and calculate the deposit investment index (investments/deposits) *100 resource employment index (investments / (deposits + equity) * 100 , and after completing the financial analysis, test the hypotheses of the study based on the following: * The first main hypothesis: There is a significant correlation between indicators of banking activity as an independent variable with the dependent variable return on deposits at a significant level (0.01) Two sub-hypotheses are derived from it: 1- There is a significant correlation between the investment index on deposits as an independent variable with the dependent variable return on deposits at a significant level (0.01). American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 37 www.americanjournal.org 2-There is a significant correlation between the resource employment index as an independent variable with the dependent variable return on deposits at a significant level (0.01). * The second main hypothesis (there is a significant impact relationship between indicators of banking activity as an independent variable with the dependent variable return on deposits at a lower significant level (0.05). 1- There is a significant impact relationship between the investment index on deposits as an independent variable with the dependent variable return on deposits at a lower significant level (0.05). 2- There is a significant impact relationship between the resource employment index as an independent variable with the dependent variable return on deposits at a lower significant level (0.05). Second: Measuring the rate of return on deposits with banking activity indicators (deposit investment index, resource employment index) for the National Bank of Iraq: Table (1) National Bank of Iraq, amounts in millions ( Iraqi dinars) Resources Employment Index (Investments / (Deposits + Equity) * 100 Deposit investment index (investments / deposits) * 100 Return on deposits (net profit after tax/deposits Net profit after tax total deposit Total investments Total equity the years 52.5 52.5 -5.47 -742 13562 7122 26361 2006 20 20 7.26 1584 21816 4395 27945 2007 49 49 8.36 3135 37519 15319 31080 2008 48.9 48.9 1.45 586 40308 19732 51771 2009 22.3 22.3 2.21 1141 51706 11546 52913 2010 21.5 21.5 3.30 2495 75720 16335 105416 2011 1.25 1.25 9.96 15415 154837 1943 154660 2012 9.09 9.09 3.85 13874 360328 32785 168541 2013 4.09 4.09 2.06 6947 337379 13805 263429 2014 0.95 0.95 0.86 2295 267565 2542 260396 2015 0.99 0.99 14.51 23501 162071 1615 287838 2016 1.37 1.37 1.61 2965 184729 2548 285719 2017 14 14 -4.15 -7912 190731 27013 257849 2018 23.5 23.5 3.66 9164 250556 59092 256641 2019 17 17 4.75 19907 419234 72224 307483 2020 19 19 3.6 6290333 171200.5 19201.07 169202.8 average Source: prepared by the researcher based on the reports of the Iraq Stock Exchange The above table shows the rate of return on deposits by dividing (net profit after tax / total deposits) for the National Bank of Iraq, as the average rate of return on deposits for the National Bank of Iraq was (3.6), as well as the average deposit investment index and the resource employment index reached (19, 8.5). respectively. Third: Measuring the rate of return on deposits with banking activity indicators (deposit investment index, resource employment index) for the Iraqi Middle East Investment Bank. American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 38 www.americanjournal.org Table (2) Measurement of the Iraqi Middle East Investment Bank amounts in millions ( Iraqi dinars) Resources Employment Index (Investments / (Deposits + Equity) * 100 Deposit investment index (investments / deposits) * 100 Return on deposits (net profit after tax/deposits Net profit after tax total deposit Total investments Total equity the years 35.8 41 2.15 5 ،154 239 ،348 98 ،557 35 ،782 2006 40.4 46.7 4.47 14 ،451 323 ،057 151 ،046 50 ،449 2007 37.9 43.5 3.24 13 ،952 431 ،100 187 ،597 63 ،840 2008 14.6 17 2.59 11 ،707 452 ،515 77 ،067 75 ،547 2009 1.6 1.8 1.86 8 ،627 463 ،327 8 ،702 84 ،098 2010 0.8 1 3.65 18 ،453 505 ،117 5 ،257 137 ،899 2011 5.4 7. 3.94 24 ،282 615 ،784 43 ،487 187 ،746 2012 2.5 3.4 3.78 20 ،875 551 ،856 19 ،065 ، 202 ،779 2013 4 7.5 1.01 3 ،605 358 ،117 26 ،858 307 ،074 2014 70 128 1.63 5 ،420 331 ،665 42 ،5739 276 ،967 2015 8 16.7 4.67 11 ،750 251 ،839 42 ،149 272 ،093 2016 1.7 3 -.18 -581 324 ،584 10 ،233 261 ،150 2017 5 8.5 -.53 -2 ،295 429 ،602 36 ،404 267 ،467 2018 6.7 13 .03 78 271 ،418 36 ،404 267 ،290 2019 7.2 14 -.79 -2 ،095 266 ،696 38 ،068 264 ،800 2020 16 23 2 8892 387735 79171.2 183665.4 average Source: prepared by the researcher based on the reports of the Iraq Stock Exchange . The above table shows the rate of return on deposits by dividing (net profit after tax / total deposits) for the Iraqi Middle East Investment Bank, as the average rate of return on deposits for the Iraqi Middle East Investment Bank was (2), as well as the average deposit investment index and the resource employment index reached two (23, 16) respectively. Fourthly: Measuring the rate of return on deposits with banking activity indicators (deposit investment index, resource employment index) for Golf Commercial Bank. Table (3) Golf Commercial Bank amounts in millions ( Iraqi dinars) Resources Employment Index (Investments / (Deposits + Equity) * 100 Deposit investment index (investments / deposits) * 100 Return on deposits (net profit after tax/deposits Net profit after tax total deposit Total investments Total equity the years 22.9 33.2 4.52 2 ،441 54,007 17 ،965 24 ،157 2006 43.95 55.7 4.50 4 ،770 106,116 59 ،136 28 ،431 2007 62.8 78.3 9.12 15 ،111 165,752 129 ،904 41 ،050 2008 54.9 72.29 4.26 7 ،977 187,469 135 ،527 59 ،200 2009 43.4 57.9 3.24 6 ،161 190,009 110 ،162 63 ،548 2010 38.6 59.74 5.36 11 ،632 216,937 129 ،604 118 ،183 2011 4.37 6.8 11.83 30 ،856 260,779 17 ،944 149 ،087 2012 8.98 15.5 11.38 47 ،451 417,143 64 ،783 303 ،984 2013 9.72 17.11 7.94 36 ،140 455,212 77 ،925 345 ،974 2014 22.8 40.8 2.41 9 ،859 409,220 167 ،113 321 ،625 2015 18.8 32.8 1.37 5 ،870 427,200 140 ،195 317 ،733 2016 14.1 31.1 1.59 4 ،230 265,803 82 ،724 320 ،887 2017 12.17 28.6 254.06 591 ،789 232,934 66 ،626 314 ،472 2018 11.8 29.9 -1.95 -3 ،931 201,579 60 ،428 306 ،709 2019 12.4 33.68 .00 -1 180,767 60 ،893 307 ،172 2020 American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 39 www.americanjournal.org 25 39.5 21 51357 251395.1 88061.93 201480.8 average Source: prepared by the researcher based on the reports of the Iraq Stock Exchange. The above table shows the rate of return on deposits by dividing (net profit after tax / total deposits) for Golf Commercial Bank, as the average rate of return on deposits for Golf Commercial Bank was (21), as well as the average deposit investment index and resource employment index, which reached (39.5, 25) respectively. Fifth: Testing the relationship between the independent study variables (deposit investment index, resource employment index) with the dependent variable return on deposits. Table (4) Matrix of correlation coefficients between the independent study variables (deposit investment index, resource employment index with the dependent variable return on deposits. Index Return on Deposits Deposit Investment Index Resource Employment Index test effect coefficient β -.033 -.209 1 Pearson Correlation Resource Employment Index .828 .169 Sig. (2-tailed) 45 45 45 N .906** 1 -.209 Pearson Correlation Deposit investment index .000 .169 Sig. (2-tailed) 45 45 45 N 1 .906** -.033 Pearson Correlation return on deposits .000 .828 Sig. (2-tailed) 45 45 45 N It is clear from the above table that: *The existence of a positive relationship with significant significance between the deposit investment index and the return on deposits, and this provides operational support for testing the impact hypotheses, as the value of the correlation reached the deposit investment index as an independent variable in the variable return on deposits as a dependent variable in commercial banks, the study sample (0.906**) at a significant level (0.01). * The existence of an inverse relationship between the resource employment index and the return on deposits, and this provides operational support for testing the impact hypotheses, as the value of the correlation was the deposit investment index as an independent variable in the return on deposits variable as a dependent variable in commercial banks, the study sample (-0.33) at a significant level (0.01). Sixthly: Testing the effect relationship between the independent study variables (deposit investment index, resource employment index) with the dependent variable return on deposits. Table (6) Effect relationship between the independent study variables (deposit investment index, resource employment index) with the dependent variable return on deposits. Morale level Sig. T T test test effect coefficient β independent variables 0.03 -3.153 -10.753 fixed limit 0.000 2.633 0.248 Deposit investment index 0.12 15.197 0.349 Resource Employment Index American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 40 www.americanjournal.org -3.153 0.000 Morale level Sig. F 0.846 R Square is the coefficient of determination 115.625 Test F It is clear to us through the above table: that the coefficient of the fixed limit amounted to (-10.753), so if the independent variable is equal to zero, i. The calculated T is (-3.153), and when compared to its tabular counterpart of (1.699), we find that it is greater than the tabular (T), with a degree of freedom of (29), and this was confirmed by the (Sig) test assumed by the researcher with a percentage of (5%) and a confidence level of (95 %), as we notice the probability rate is less than (5%). In order to detail this, the researchers analyzed the impact of each dimension of the independent variable on the return on deposits. As for the independent variables, the results of the analysis of the deposit investment index had a direct effect on the return on deposits of the commercial banks, the study sample. When the ratio of the deposit investment index increases by one unit, it is accompanied by a change in the return on deposits by (0.248), which is a significant effect of (0.000) at a significant level of less than (5% ), and this was confirmed by the (Sig) test, the probability ratio is less than (5%), and thus we accept the hypothesis that there is a significant effect relationship between the investment index on deposits as an independent variable with the dependent variable return on deposits at a lower significant level (0.05). While the results of the analysis of the resource employment index had a direct effect on the return on deposits, when the resource employment index increases by one unit, it leads to an increase in the return on deposits by (0.349), but this effect is not significant when compared to the level of significance (5%) that the researchers assumed, so its value was (0.12), which is more than (5%) Thus, we reject the hypothesis that there is a significant effect relationship between the resource employment index as an independent variable with the dependent variable return on deposits at a lower significant level (0.05), and we accept the null hypothesis (null hypothesis). The coefficient of determination (R ^ 2) explained the value of (0.846) of the effects that occur in (return on deposits), and these effects are due to the effect of the independent variable (indicators of banking activity of banks in the study sample, while the other effects amounting to (0.154) are due to other variables Not included in this form. The F test and the sig level of significance measure the significance of the model as a whole, as it is noted that the estimated model is significant at the level of significance of 5%. When comparing the calculated F with its tabular counterpart, we find it larger as its value reached (115.625), while the tabular F reached (2.55), while (the level of significance Sig.F) for the model As a whole, it represents (0.00), which is less than (5%) assumed by the researcher. Therefore, the hypothesis accepts the second main hypothesis that there is a significant effect relationship between indicators of banking activity as an independent variable with the dependent variable return on deposits at a lower significant level (0.05). Conclusions: There is a positive relationship between the deposit investment index and the return on deposits for the correlation value (0.906**) at a significant level (0.01), while there is an inverse relationship between the resource employment index and the return on deposits for a correlation value (-0.033) at a significant level (0.01). In addition to the presence of a significant direct effect on the return on deposits American Journal of Business Management, Economics and Banking Volume 12 May, 2023 P a g e | 41 www.americanjournal.org of commercial banks, the study sample, as a result of increasing the percentage of deposit investment index by one unit, which is a significant effect of (0.000) at a significant level of less than (5%). While there is an insignificant direct effect on the return on deposits as a result of increasing the percentage of resource employment index by one unit and by (0.349), but this effect is not significant as its value was (0.12), which is more than (5%). Recommendations: The need for commercial banks to pay attention to the strong relationship between banking activity indicators represented by the deposit investment index and the resource employment index, and their impact on the rate of return on deposits, as the banking investment indicators reflect the good condition of the bank, which indicates that this bank follows sound and appropriate policies and procedures compared to other banks. commercial competition. Emphasis on banks to study the reasons for the decrease in the values of the indicators of the rate of return on deposits in the sample of the study in order to be able to know and treat the deviations that occurred and work to achieve the best returns. REFERENCES: 1. Abd, W. H., & Kazem, D. A. (2022). THE RELATIONSHIP BETWEEN THE BALANCED SCORECARD AND THE COBIT-5 CRITERION IN IMPROVING BANKING PERFORMANCE, AN APPLIED RESEARCH IN A SAMPLE OF COMMERCIAL BANKS LISTED IN THE IRAQI STOCK EXCHANGE. 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