Abstract
The study investigated the market structure of Ghana’s banking industry and determined whether the market structure has been changed after the financial restructuring. This study specifically measures the degree of competition of the banking system in Ghana by using the H-statistics. Various studies on the degree of competition were reviewed. This study employs a widely used nonstructural methodology put forward by Panzar and Ross (1987) —the H-statistic—and drawn upon a comprehensive average annual data from the various issues of the Bank of Ghana annual reports from 1988 to 2011. Based on the reported H-statistic, it can be concluded that Ghana’s banks are operating under perfect condition. However, the test for a change in competition status at the time of liberalization was not significant, indicating no evidence of a change in competition as a result of liberalization. This study has extended and strengthened some earlier results on bank competition in Ghana. However, the results of this study are different from the study undertaken by Buchs and Mathisen (2005), who found Ghanaian banking markets to operate under monopolistic conditions.
Highlights
Since the early 1980s, there has been a major financial liberalization and institutional reforms program, a severe and a protracted economic crisis, and the pre-reform policies of the government of Ghana over financial markets had damaged the financial system, resulting to financial volatility and bank distress (Aryeetey&Kanbur, 2005).As a result, the last decade provides important lessons with regard to factors influencing the relationship between competition and concentration that have hitherto not been explored
The Panzar and Rosse model is regarded as a valuable tool for assessing the banking market conditions in Ghana since a bank’s revenue is more likely to be observable than output prices and quantities or actual costs, data availability becomes less of a constraint and helps to explain why this model has been most successfully applied than the Iwata or the Bresnahan-Lau models
This study examines the competitive conditions in the Ghana banking industry, while explicitly controlling for the bank specific factors such as risk, total assets, inflation, and per capita GDP for the period 1985–2011
Summary
Since the early 1980s, there has been a major financial liberalization and institutional reforms program, a severe and a protracted economic crisis, and the pre-reform policies of the government of Ghana over financial markets had damaged the financial system, resulting to financial volatility and bank distress (Aryeetey&Kanbur, 2005). In Ghana, the Bank of Ghana (BOG, The Central Bank) rationalized the minimum reserve requirements for banks, introduced new financial instruments, and opened markets operations for liquidity management These policies were complemented by improving the soundness of the banking system, regulatory framework, bank supervision, as well as improving the efficiency and profitability of banks, including the replacement of their nonperforming assets (Aryeetey&Senbet, 2004; Buchs&Mathisen, 2005). Despite a growing body of literature on banking competition, a few studies have investigated the explanatory factors behind the competitiveness indicator This is the first paper to use the Panzar and Rosse (PR) model to measure the impact of financial restructuring on the degree of competition in Ghana’s banking system.
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