We analyze factors driving persistently higher financial intermediation costs in low-income countries (LICs) relative to emerging market (EMs) country comparators. Using the net interest margin as a proxy for financial intermediation costs at the bank level, we find that within LICs a substantial part of the variation in interest margins can be explained by bank-specific factors: margins tend to increase with higher riskiness of credit portfolio, lower bank capitalization, and smaller bank size. Overall, we find that concentrated market structures and lack of competition in LICs banking systems and institutional weaknesses constitute the key impediments preventing financial intermediation costs from declining. Our results provide strong evidence that policies aimed at fostering banking competition and strengthening institutional frameworks can reduce intermediation costs in LICs.
Since the 2003 Financial Stability Assessment Program (FSAP) update, Ghana’s financial system has undergone rapid growth and structural transformation. The authorities have been implementing reforms to enhance the financial system’s resilience to shocks and its contribution to growth. The vulnerabilities reflect the interplay of several factors, but state involvement is an important element. The other contributory factors include deficiencies in commercial banks’ risk management, supervision, and the insolvency regime. Additional recommendations are detailed in the Report on the Standards and Codes on Compliance (ROSC) with the Basel Core Principles (BCP).
International Monetary Fund. External Relations Dept.
Le FMI prévoit un ralentissement de la croissance mondiale; Le FMI intensifie ses travaux sur les retombées des «subprimes» L’Afrique subsaharienne attire les investisseurs; Nouvelles mesures des risques; Banques centrales et liquidités; Évaluation des titres subprime; Finance : déceler les points faibles; L’Afrique attire les investisseurs; Allégement : bons résultats au Niger; Transparence en Amérique latine; L’actualité en bref.
International Monetary Fund. External Relations Dept.
El FMI prevé un lento crecimiento mundial y una caída en EE.UU.; El FMI frente a la crisis hipotecaria; África subsahariana en la mira de los inversionistas; Nuevas técnicas de medición del riesgo; Liquidez del Banco Central; Valuación de pagarés de alto riesgo; Identificación de problemas financieros; Níger: Beneficios del alivio de la deuda; Transparencia fiscal en Latinoamérica; Notas breves
This paper examines the corporate financing pattern in Ghana. In particular, it investigates whether Singh's theoretically anomalous findings that developing country firms make considerably more use of external finance and new equity issues than developed country firms to finance asset growth hold in the case of Ghana. Replicating Singh's methodology, our results show that compared with corporations in advanced countries, the average listed Ghanaian firm finances its growth of total assets mainly from short-term debt. The stock market, however, is the most important source of long-term finance for listed Ghanaian firms. Overall, the evidence in this paper suggests that the stock market is a surprisingly important source of finance for funding corporate growth and that stock market development in Ghana has been important.
Mr. Aditya Narain, Mr. Pau Rabanal, and Steen Byskov
This paper examines the prudential issues associated with credit concentration in less diversified economies (LDEs), which are identified as countries where one or two sectors represent a large share of exports. In preparing this analysis, the characteristics of their financial and banking systems and their interactions with the real sector are studied. The paper also examines the limitations on portfolio diversification confronting banks in these countries, both from the viewpoint of the real sector and of the financial system. The paper finds that banks in LDEs, particularly in low-income countries, appear to face higher risk than their peers in more diversified economies and makes suggestions for policy options and regulatory practices which could be encouraged in such systems.
Mr. Sanjeev Gupta, Mr. Henry Ma, and Mr. Christian Schiller
Privatization promotes economic efficiency and growth, thereby reinforcing macroeconomic adjustment. In the short run, however, it can lead to job losses and wage cuts for workers and higher prices for consumers. This paper discusses these impacts and the fiscal implications of privatization. It then reviews various methods of privatization and finds that public sales and auctions can have more negative effects on workers but maximize the government’s revenue gains. Policymakers’ options for mitigating the social impact of privatization are surveyed, and experiences under adjustment programs reviewed.
Capital adequacy regulations or quantity restrictions on bank portfolios put forward by the Basle Committee on Banking Supervision have virtually become an international standard of prudential regulation. Recent proposals aim at extending this approach to market risks, in particular to foreign exchange risk. The present paper provides a critical analysis of proposals to introduce foreign exchange position limits on a uniform cross-country basis, focusing on their effectiveness and their possible impact on the functioning of both mature and developing foreign exchange markets. Theoretical considerations are underpinned in the paper with descriptions of existing or proposed regulations, in a broad range of both industrial and developing countries. Experiences with the use of foreign exchange position limits in developing countries provide insight into their widespread use for other than prudential purposes, in particular to support exchange rate and exchange control policies.