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We would like thank Bank of Ghana staff, Hugh Bredenkamp, Jack Glen, participants at the Ghana at the Half Century conference in July 2004, Luca Ricci and Tom Walter for helpful comments and suggestions. At the time this paper was prepared, Johan Mathisen was an economist in the IMF’s African Department and Thierry Buchs was a Senior Economist at the International Finance Corporation (IFC). Any remaining errors and omissions are our own.
For a full description of the Ghanaian financial system, see “Ghana: Selected Issues,” Section II in Bredenkamp and others (2003).
“Ghana: Financial Sector Stability Assessment Update,” IMF Staff Country Report (396/03).
The rural banks account for only about 5 percent of banking system assets.
Commercial banks engage in traditional banking business, with a focus on universal retail services. Merchant banks are fee-based banking institutions and mostly engage in corporate banking services. Development banks specialize in the provision of medium- and long-term finance.
Apart from the financing constraints imposed by Ghana’s large fiscal deficits, the banks’ holdings of government securities is also sustained by high secondary reserve requirements that require banks to hold 35 percent of their deposit liabilities in such securities.
Even though a large portion of TOR’s short-term debt was restructured into medium-term government bonds in 2001 and 2002, TOR exposure still exceeded 75 percent of GCB’s equity capital as of June 2003.
IMF Staff Country Report no. 396/03.
For example, one of the larger, foreign owned banks has set up a direct satellite network to bypass the national telecommunications network altogether.
IMF Staff Country Report No. 396/03.
In Ghana, the savings-to-GDP ratio was 15.9 percent on average between 1996 and 2002, while the (private) investment ratio was 10.6 percent between 1996 and 2001.
However, three-year inflation-indexed bonds were introduced in late 2001 along with secondary reserve requirements that require banks to hold 20 percent of their deposits base in such bonds.
In Ghana, nonperforming loans are defined based on a minimum of 180 days in arrears; loans are classified as “substandard” when they are in arrears for 90 to 180 days, as “doubtful” when they are in arrears for 180 to 540 days, and as “loss-making” when arrears exceed 540 days. Full provisioning is required for loss making, whereas substandard loans required a 50 percent provisioning.
On European countries, see Molyneux et.al. (1994) (France, Germany, Italy, Spain, United Kingdom), Vesala (1995) (Finland), Coccorese (2002) (Italy), De Brandt and Davis (2000) (France, Germany, Italy), Rime (1999) (Switzerland), Hondroyiannis et al. (1999) (Greece), Bikker and Groeneveld (1998) (15 EU countries), Hempell (2002) (Germany), and Maudos and Perez (2002) (Spain). On Japan, see Molyneux et al. (1996).
See Gelos and Roldos (2002) (Central Europe and Latin America), Belaisch (2003) (Brazil), Yildirim and Philippatos (2002) (Central and Eastern Europe), Levi Yeyati and Micco (2003) (Latin America), and Zambrano Sequin (2003) (Venezuela).
In fixed effect models, differences between the various members of the pooled dataset are captured by a constant intercept specific to each member. In random effect models, these differences are assumed to be random and estimated with the error term in the regression.
However, the time series is insufficient to test for stationarity in the summed residuals.
Assuming no access to foreign capital markets and limited recourse to inflation financing.
Note that this approximation does slightly change the mathematical properties of the regression by reducing the size of the elasticities of the right-hand side coefficients. Empirically however, results did not seem to be affected by this approximation.
Note that the left-side variable is gross returns, and thus not affected by the 2000/01 shock to the banking system as the losses associated with the shock has yet to work its way through the provisioning system.