Skip to main content
SpringerLink
Log in

Competition in the banking industry: Empirical evidence from Ghana

  • Original Article
  • Published:
Journal of Banking Regulation Aims and scope Submit manuscript

Abstract

Ghana’s banking industry has undergone considerable transformation since 1988 as a result of the gradual but steady implementation of financial service reforms. The main purpose of implementing the financial reforms is to build a competitive and stable banking industry to enhance banks’ efficiency and ultimately economic growth and development. Using annual (panel) data spanning from 2001 to 2010, this study investigates the degree of bank competition and their determinants in Ghana’s banking indusrty using the fixed-effect model and two-step system GMM estimations. The results suggest that Ghana’s banking industry is competitively weak. The findings also indicate that market power persistently exists in Ghana’s banking industry. Furthermore, bank capitalization reduces bank market power and therefore increases bank competition in Ghana. However, there is no indication that bank size, fee income, loan loss provision ratio and rate of inflation have influence on bank competition in Ghana.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1

Similar content being viewed by others

References

  • Denizer, C.A., Dinc, M. and Tarimcilar, M. (2000) Measuring Banking Efficiency in the Pre- and Post-Liberalization Environment: Evidence from the Turkish Banking System. Washington, D.C. World Bank Policy Research Working Paper No. 2476.

  • Claessens, S. (2009) Competition in the Financial Sector: Overview of Competition Policies. Washington, D.C. IMF Working Paper No.09/45. Also in: The World Bank Research Observer 24 (1): 83–118.

  • Wilson, J.O.S., Casu, B., Girardone, C. and Molyneux, P. (2010) Emerging themes in banking: Recent literature and directions for future research. The British Accounting Review 42 (3): 153–169.

    Article  Google Scholar 

  • Keeley, M.C. (1990) Deposit insurance, risk, and market power in banking. American Economic Review 80 (5): 1183–1200.

    Google Scholar 

  • Boyd, J.H. and Nicoló, G.D. (2005) The theory of bank risk taking and competition revisited. The Journal of Finance 60 (3): 1329–1343.

    Article  Google Scholar 

  • Casu, B. and Girardone, C. (2006) Bank competition, concentration and efficiency in the single European market. The Manchester School 74 (4): 441–468.

    Article  Google Scholar 

  • Claessens, S. and Laeven, L. (2004) What drives bank competition? Some international evidence. Journal of Money, Credit and Banking 36 (3): 563–583.

    Article  Google Scholar 

  • Casu, B. and Girardone, C. (2009) Testing the relationship between competition and efficiency in banking: A panel data analysis. Economics Letters 105 (1): 134–137.

    Article  Google Scholar 

  • Fecher, F. and Pestieau, P. (1993) Efficiency and competition in O.E.C.D. financial services. In: H.O. Fried, C.A.K. Lovell and S.S. Schmidt (eds.) The Measurement of Productive Efficiency: Techniques and Applications. UK: Oxford University Press, pp. 373–385.

    Google Scholar 

  • Berger, A.N. and Humphrey, D.B. (1997) Efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research 98 (2): 175–212.

    Article  Google Scholar 

  • Acquah, P.A. (2006) Evaluating the banking system in Ghana. BIS Review 75: 1–3.

    Google Scholar 

  • De Jonghe, O. and Vennet, R.V. (2008) Competition versus efficiency: What drives franchise values in European banking? Journal of Banking and Finance 32 (9): 1820–1835.

    Article  Google Scholar 

  • Günalp, B. and Çelik, T. (2006) Competition in the Turkish banking industry. Applied Economics 38 (11): 1335–1342.

    Article  Google Scholar 

  • Simpasa, A. (2010) Characterising Market Power and its Determinants in the Zambian Banking Indudstry. Munich. MPRA Paper No. 27232.

  • Aboagye, A.Q., Akoena, S., Antwi-Asare, T. and Gockel, A. (2008) Explaining the market power of Ghanaian banks. South African Journal of Economics 76 (4): 569–585.

    Article  Google Scholar 

  • Fernández de Guevara, J. and Maudos, J. (2011) Banking competition and economic growth: Cross-country evidence. The European Journal of Finance 17 (8): 739–764.

    Article  Google Scholar 

  • Matthews, K., Murinde, V. and Zhao, T. (2007) Competitive conditions among the major British banks. Journal of Banking and Finance 31 (7): 2025–2042.

    Article  Google Scholar 

  • Rezitis, A.N. (2010) Evaluating the state of competition of the Greek banking industry. Journal of International Financial Markets, Institutions and Money 20 (1): 68–90.

    Article  Google Scholar 

  • Soedarmono, W., Machrouh, F. and Tarazi, A. (2011) Bank market power, economic growth and financial stability: Evidence from Asian banks. Journal of Asian Economics 22 (6): 460–470.

    Article  Google Scholar 

  • Anzoategui, D., Peria, M.S.M. and Rocha, R. (2010) Bank Competition in the Middle East and Northern Africa Region. Washington, D.C. World Bank Policy Research Working Paper No. 5363.

  • Weill, L. (2004) On the relationship between competition and efficiency in the EU banking sectors. Kredit und Kapital 37 (3): 329–352.

    Google Scholar 

  • Burdisso, T., Catena, M. and D’Amato, L. (2001) Bank competition in Argentina: 1997–1999. Buenos Aires:Central Bank of Argentina. Working Paper 20.

  • Yuan, Y. (2006) The state of competition of the Chinese banking industry. Journal of Asian Economics 17 (3): 519–534.

    Article  Google Scholar 

  • Maudos, J. and Solís, L. (2011) Deregulation, liberalization and consolidation of the Mexican banking system: Effects on competition. Journal of International Money and Finance 30 (2): 337–353.

    Article  Google Scholar 

  • Buchs, T.D. and Mathisen, J. (2005) Competition and Efficiency in Banking: Behavioral Evidence from Ghana. Washington, D.C. IMF Working Paper No.05/17.

  • Panzar, J.C. and Rosse, J.N. (1987) Testing for monopoly equilibrium. The Journal of Industrial Economics 35 (4): 443–456.

    Article  Google Scholar 

  • Maudos, J. and Nagore, A. (2005) Explaining Market Power Differencess in Banking: A Cross-Country Study. Instituto Valenciano de Investigaciones Económicas, SA (Ivie). WP No. 2005-10.

  • Fernández de Guevara, J., Maudos, J. and Pérez, F. (2005) Market power in European banking sectors. Journal of Financial Services Research 27 (2): 109–137.

    Article  Google Scholar 

  • Delis, M.D. and Pagoulatos, G. (2009) Bank competition, institutional strength and financial reforms in Central and Eastern Europe and EU. Munich. MPRA Paper No. 16494.

  • Delis, M.D. (2012) Bank competition, financial reform, and institutions: The importance of being developed. Journal of Development Economics 97 (2): 450–465.

    Article  Google Scholar 

  • Boone, J. (2008) A new way to measure competition. The Economic Journal 188 (531): 1245–1261.

    Article  Google Scholar 

  • Bikker, J.A. and Haaf, K. (2002) Competition, concentration and their relationship: An empirical analysis of the banking industry. Journal of Banking and Finance 26 (11): 2191–2214.

    Article  Google Scholar 

  • Turk-Ariss, R. (2009) Competitive behavior in Middle East and North Africa banking systems. Quarterly Review of Economics and Finance 49 (2): 693–710.

    Article  Google Scholar 

  • Berger, A.N. (1995) The profit-structure relationship in banking--tests of market-power and efficient-structure hypotheses. Journal of Money, Credit and Banking 27 (2): 404–431.

    Article  Google Scholar 

  • Goldberg, L.G. and Rai, A. (1996) The structure-performance relationship for European banking. Journal of Banking and Finance 20 (4): 745–771.

    Article  Google Scholar 

  • Delis, M.D. and Tsionas, E.G. (2009) The joint estimation of bank-level market power and efficiency. Journal of Banking and Finance 33 (10): 1842–1850.

    Article  Google Scholar 

  • Cetorelli, N. (1999) Competitive analysis in banking: Appraisal of the methodologies. Economic Perspectives 23 (1): 2–15.

    Google Scholar 

  • Berger, A.N., Demirgüç-Kunt, A., Levine, R. and Haubrich, J.G. (2004) Bank concentration and competition: An evolution in the making. Journal of Money, Credit and Banking 35 (3): 433–451.

    Article  Google Scholar 

  • Maudos, J. and Fernández de Guevara, J. (2004) Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking and Finance 28 (9): 2259–2281.

    Article  Google Scholar 

  • Claessens, S. and Laeven, L. (2005) Financial dependence, banking sector competition, and economic growth. Journal of the European Economic Association 3 (1): 179–207.

    Article  Google Scholar 

  • Degryse, H., Kim, M. and Ongena, S. (2009) Microeconometrics of Banking Methods, Applications and Results. New York: Oxford University Press.

    Book  Google Scholar 

  • Lerner, A.P. (1934) The concept of monopoly and the measurement of monopoly power. The Review of Economic Studies 1 (3): 157–175.

    Article  Google Scholar 

  • Angelini, P. and Cetorelli, N. (2003) The effects of regulatory reform on competition in the banking industry. Journal of Money, Credit and Banking 35 (5): 663–672.

    Article  Google Scholar 

  • Carbó, S., Humphrey, D. and Rodriguez, F. (2003) Deregulation, bank competition and regional growth. Regional Studies 37 (3): 227–237.

    Article  Google Scholar 

  • Fernández de Guevara, J. and Maudos, J. (2007) Explanatory factors of market power in banking: An application to the Spanish case. The Manchester School 75 (3): 275–296.

    Article  Google Scholar 

  • Maudos, J. and Fernández de Guevara, J. (2007) The cost of market power in banking: Social welfare loss vs. cost inefficiency. Journal of Banking and Finance 31 (7): 2103–2125.

    Article  Google Scholar 

  • Carbó, S., Humphrey, D., Maudos, J. and Molyneux, P. (2009) Cross-country comparisons of competition and pricing power in European banking. Journal of International Money and Finance 28 (1): 115–134.

    Article  Google Scholar 

  • Solis, L. and Maudos, J. (2008) The social costs of bank marker power: Evidence from Mexico. Journal of Comparative Economics 36 (3): 467–488.

    Article  Google Scholar 

  • Turk-Ariss, R. (2010) On the implications of market power in banking: Evidence from developing countries. Journal of Banking and Finance 34 (4): 765–775.

    Article  Google Scholar 

  • Schaeck, K. and Cihák, M. (2008) How Does Competition Affect Efficiency and Soundness in Banking? New Empirical Evidence. Frankfurt am Main. ECB Working Papers Series, No. 932.

  • Christensen, L.R., Jorgenson, D.W. and Lau, L.J. (1973) Transcendental logarithmic production frontiers. The Review of Economics and Statistics 55 (1): 28–45.

    Article  Google Scholar 

  • Shaffer, S. (1993) A test of competition in Canadian banking. Journal of Money, Credit and Banking 25 (1): 49–61.

    Article  Google Scholar 

  • Berg, S.A. and Kim, M. (1994) Oligopolistic interdependence and the structure of production in banking: An empirical evaluation. Journal of Money Credit and Banking 26 (2): 309–322.

    Article  Google Scholar 

  • Fungáčová, Z. and Weill, L. (2009) How Market Power Influences Bank Failures: Evidence from Russia. Helsinki. BOFIT Discussion Paper No.12/09.

  • Pruteanu-Podpiera, A., Weill, L. and Schobert, F. (2008) Banking competition and efficiency: A micro-data analysis on the Czech banking industry. Comparative Economic Studies 50 (2): 253–273.

    Article  Google Scholar 

  • Berger, A.N., Bonime, S.D., Covitz, D.M. and Hancock, D. (2000) Why are bank profits so persistent? The roles of product market competition, informational opacity, and regional/macroeconomic shocks. Journal of Banking and Finance 24 (7): 1203–1235.

    Article  Google Scholar 

  • Agoraki, M.-E. K., Delis, M.D. and Pasiouras, F. (2011) Regulations, competition and bank risk-taking in transition countries. Journal of Financial Stability 7 (1): 38–48.

    Article  Google Scholar 

  • De Bandt, O. and Davis, E.P. (2000) Competition, contestability and market structure in European banking sectors on the eve of EMU. Journal of Banking and Finance 24 (6): 1045–1066.

    Article  Google Scholar 

  • Windmeijer, F. (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics 126 (1): 25–51.

    Article  Google Scholar 

  • Goderis, B., Marsh, I.W., Castelo, J.V. and Wagner, W. (2007) Bank Behaviour with Access to Credit Risk Transfer Markets. Helsinki. Bank of Finland Research Discussion Paper 4/2007.

  • Berger, A.N., Klapper, L.F. and Turk-Ariss, R. (2009) Bank competition and financial stability. Journal of Financial Services Research 35 (2): 99–118.

    Article  Google Scholar 

  • Uhde, A. and Heimeshoff, U. (2009) Consolidation in banking and financial stability in Europe: Empirical evidence. Journal of Banking and Finance 33 (7): 1299–1311.

    Article  Google Scholar 

  • Gonzales, F. (2005) Bank regulation and risk-taking incentives: An international comparison of bank risk. Journal of Banking and Finance 29 (5): 1153–1184.

    Article  Google Scholar 

  • Arellano, M. and Bover, O. (1995) Another look at the instrumental variable estimation of error-components models. Journal of Econometrics 68 (1): 29–51.

    Article  Google Scholar 

  • Blundell, R. and Bond, S. (1998) Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87 (1): 115–143.

    Article  Google Scholar 

  • Berger, A.N. and Mester, L.J. (1997) Inside the black box: What explains differences in the efficiencies of financial institutions? Journal of Banking and Finance 21 (7): 895–947.

    Article  Google Scholar 

  • Fungáčová, Z., Solanko, L. and Weill, L. (2010) Market Power in the Russian Banking Industry. Helsinki. BOFIT Discussion Papers 3.

  • Bank of Ghana (2011) Financial Stability Report. Volume 5, No. 1/2011, Accra, Ghana.

  • PricewaterhouseCoopers (2010) Ghana Banking Survey. Accra, Ghana: PricewaterhouseCoopers.

  • PricewaterhouseCoopers (2011) Ghana Banking Survey. Accra, Ghana: PricewaterhouseCoopers.

  • Barajas, A., Steiner, R. and Salazar, N. (1998) Interest Spreads in Banking: Costs, Financial Taxation, Market Power, and Loan Quality in the Colombian Case 1974–96. Washington, D.C.: International Monetary Fund. IMF Working Paper 98/110, August.

  • Schaeck, K. and Cihak, M. (2007) Banking Competition and Capital Ratios. Washington, D.C. IMF Working Paper 07/216.

  • Delis, M.D. (2009) Competitive conditions in the Central and Eastern European banking systems. Munich. MPRA Paper No. 13890.

  • Roodman, D. (2006) How to do Xtabond2: An Introduction to Difference and System GMM in Stata. Washington, D.C.: Center for Global Development. Working Paper No. 103.

  • Roodman, D. (2009) A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics 71 (1): 135–158.

    Article  Google Scholar 

  • PricewaterhouseCoopers (2009) Ghana Banking Survey. Accra, Ghana: PricewaterhouseCoopers.

  • Bank of Ghana (February 2009) Financial Stability Report. Volume 5, No. 1/2009, Accra, Ghana.

Download references

Author information

Authors and Affiliations

  1. Department of Accounting, Economics and Finance, Lincoln University, PO Box 84, Canterbury, 7647, New Zealand

    Christopher Gan

Authors
  1. Kofi Adjei-Frimpong
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Christopher Gan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Baiding Hu
    View author publications

    You can also search for this author in PubMed Google Scholar

Appendix

Appendix

Table A1

Table A1 Summary statistic of bank-specific factors: 2001–2010
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Adjei-Frimpong, K., Gan, C. & Hu, B. Competition in the banking industry: Empirical evidence from Ghana. J Bank Regul 17, 159–175 (2016). https://doi.org/10.1057/jbr.2014.24

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jbr.2014.24

Keywords

Search

Navigation