The effect of Contractual Rewards on Non-Maturing Deposits and Bank Funding Stability (Case Study: Bank Mellat)

There are four main sources for bank funding in Iran, including deposits, capital, borrowing from the Central Bank, and borrowing from other banks. Of all these sources, deposits are the main source of bank funding. During recent years, customers’ orientation to non-maturing deposits, possible to be withdrawn at any time by customers, has triggered a lot of problems for banks and financial institutions. This study examines the effect of contractual rewards on the behavior of 24107 depositors of the Mellat Bank, consisting of two groups of depositors as a sample, 10924 premier customers who received contractual rewards and 13183 normal customers who didn’t receive contractual rewards from 2010 to 2015. Most studies in this area have been encompassed on the interest rate and its effect on depositors. In this research, however, the effect of Contractual rewards on saving duration and cash inflow volatility, as two factors of bank funding stability, is considered. By definition, Contractual rewards involve special card and insurance, without interest of deposits. In conclusion, the results reveal that contractual rewards increase financial stability.