The structure and behaviour of small African banks: market power and bank diversification strategy in Ghana

Abstract

This paper analyses the effect of market structure on diversification strategies of the banking industry of Ghana - a growing medium-sized Sub Saharan African country. We draw on a comprehensive panel dataset of 21 Ghanaian banks over a ten-year period. Based on HHI measures of diversification, there is evidence of a gradual shift away from concentration in interest income streams to non-interest income generating activities. The trend in the Lerner index of market power shows that there is very little competition amongst Ghanaian banks. We employ standard panel data econometrics to test if market power influences bank diversification and find that diversification within non-interest income activities increase as banks gain market power.