Banking Reforms, Efficiency and Competition in Ghana from 2008-2019

Published: 09-11-2020| Version 1 | DOI: 10.17632/fv8bvksrhb.1
Nathaniel Blankson


This paper examines the effect of the ongoing banking reforms on bank efficiency and bank competition within the efficient structure (ES) and the structure-conduct-performance (SCP) framework for the Ghanaian banking industry. Using an annual panel data of 21 Ghanaian banks from 2008-2019, we employed the nonparametric data envelope analysis (DEA) technique to estimate the level of bank pure-technical (PTE) and cost-efficiency (CE) while the Herfindahl-Hirschman Index (HHI) and the market share of lending (MSL) concentration ratios are employed as our proxies for the market power hypotheses. Further, the two-step system generalized method of moments is employed to estimate a panel model where the PTE, CE, HHI and MSL are regressed on bank-level factors while controlling for macroeconomic variables. Despite the remarkable improvements in bank efficiency in Ghana, the findings depict a worrying trend in bank competition resulting from the ongoing reforms. While increasing bank size and bank capital are found to have a positive relationship with bank efficiency and market power, a negative relationship between liquidity and bank efficiency and competition is reflected by the banks' inability to optimally utilize the excess liquidity flowing in from the other vulnerable financial sectors due to the ongoing banking crisis. We also document evidence on the high persistence of market power which suggest a declining bank competition in Ghana. Policy implications for the Ghanaian banking industry regulation are discussed.