The Impact of Financial Sector Reform on Bank Efficiency and Financial Deepening for Savings Mobilization in Ghana

In the 1980s, as part of their structural adjustment programs, many developing countries embarked on financial sector reforms to remove the vestiges of financial market repression in order to promote financial market efficiency and savings mobilization. As part of Ghana’s financial sector reform, supported by the World Bank and the IMF, the government launched the Financial Institutions Sector Adjustment Program (FINSAP) to address the endemic problems of Ghana’s financial sector. This study provides a detailed examination of the problems of Ghana’s banking sector that led to the implementation of the financial sector reform. Based on problem analysis, this study raises various policy research questions as a basis for analytical framework and hypotheses formulation and testing. Author: Sam Q. Ziorklui [sziorklui@aol.com] is an Associate Professor of Finance at Howard University, School of Business, Department of Finance and Insurance. Since joining Howard in 1984, Dr. Ziorklui has taught undergraduate courses in corporate finance, financial institutions, and computer application of financial analysis. He also taught graduate courses in theory of finance and financial markets and institutions. He has conducted research and published articles on corporate finance, financial institutions and markets, financial sector reform and capital market development in Sub-Saharan Africa, including Ghana and Tanzania. He is the principal investigator of the Ghana banking sector study, funded by the U.S. Agency for International Development (USAID). He obtained his Ph.D. from Howard University in 1986. Acknowledgment We would like to express our sincere thanks and gratitude to the US Agency for International Development (USAID) for their financial support for this study. We also acknowledge the tremendous help and assistance we received from Harvard Institute for International Development, (HIID) the prime contractor on the EAGER/PSGE collaborative agreement with Howard University. Our special thanks go to Dr. Clive Gray, the Chief of Party and Dr. McPherson, both at HIID, whose useful suggestions enriched this final report. We also wish to express our sincere thanks to Ms. Meg Nipson and Ms. Sara Piccicuto, former Project Administrators and Ms. Sarah Van Norden, current Project Administrator, whose efficient administrative work on this project has contributed to the success of the project. Special thanks also go to the members of the Research Advisory Committee (RAC), whose experience and advice improved the final report. Among this group, special thanks go to Dr. Joseph Abbey, Executive Director, CEPA, the Chairperson of the RAC in Ghana. Other members who deserve to be recognized are Dr. C.K. Nyomi of FINSAP Secretariat, and Mr. Asiedu Mante, Director, Bank Supervision Department, Bank of Ghana. We would also like to thank those graduate students at Howard University and the University of Ghana who participated in the field survey. Abbreviations and Acronyms ADB Agricultural Development Bank AFRC Armed Forces Revolutionary Council ATM Automatic Teller Machine BBG Barclays Bank of Ghana BHC Bank for Housing Corporation BOG Bank of Ghana BSD Bank Supervision Department EBG Ecobank Ghana Limited FINSAC Financial Sector Credit FINSAP Financial Sector Adjustment Program CAL CAL Merchant Bank CEPA Center for Policy Analysis COT Commission on turnover CUR Currency outside the banking sector DD Demand deposit EBG-IML Ecobank Investment Managers Limited ECO Equal credit opportunity ERP Economic recovery program ESL Ecobank Stockbrokers Ltd. GCB Ghana Commercial Bank GDP Gross Domestic Product GSE Ghana Stock Exchange IA Intermediation approach ICB International Commercial Bank M3 Broad definition of money MERCHANT Merchant Bank (Ghana) Ltd. NBFI Non-Bank Financial Institutions NIB National Investment Bank NPART Non-Performing Asset Recovery Trust PA Production approach QM Quasi money ROA Return on assets ROE Return on equity SSA Sub-Saharan Africa SCB Standard Chartered Bank SSB SSB Bank TTD Total deposit TARCSIMEL An acronym for measuring banking performance TRUST Trust Bank (Ghana) Ltd.