This Selected Issues paper reviews public service reform in Ghana. The paper highlights that a range of public service reform initiatives have been undertaken in Ghana since the early 1980s. The public service in Ghana is composed of centrally managed agencies, ministries, subvented agencies, district assemblies, and state enterprises. The civil service, which covers the centrally managed agencies, ministries, and local government, accounts for only about 20 percent of total public sector employment as a result of the spin-off in the 1980s of the internal revenue, customs, education, and health services as subvented agencies.


This Selected Issues paper reviews public service reform in Ghana. The paper highlights that a range of public service reform initiatives have been undertaken in Ghana since the early 1980s. The public service in Ghana is composed of centrally managed agencies, ministries, subvented agencies, district assemblies, and state enterprises. The civil service, which covers the centrally managed agencies, ministries, and local government, accounts for only about 20 percent of total public sector employment as a result of the spin-off in the 1980s of the internal revenue, customs, education, and health services as subvented agencies.

II. Ghana: Banking Sector Issues4

A. Introduction

22. From 1989 to 1991, Ghana implemented a financial sector reform program aimed at rehabilitating its financial system, which suffered from inefficiency, lack of competition, and a large portfolio of nonperforming loans. Measures were taken to liberalize interest rates, revamp financial sector legislation, and strengthen bank supervision. These banking sector reforms were costly. Nonperforming loans were swapped for interest-bearing bonds and banks were recapitalized, at a cost estimated at about 6 percent of GDP.5 This chapter analyzes the strategy used to restructure the Ghanaian banking system and draws some lessons. The chapter is organized as follows. Section B reviews the development of the financial system in Ghana; the early reforms of 1989-91; and the second wave of reforms, characterized by the divestiture process that began in 1992 and is still ongoing. Section C describes the status of the banking sector at present, and compares it with the situation in other countries. Sections D and E summarize the main findings and point out issues that remain to be addressed.

B. The Banking System and Its Evolution

Historical Background

23. The first commercial banks set up in Ghana at the beginning of the twentieth century still operate today as Standard Chartered Ghana (SCB) and Barclays Bank Ghana (BBG) (see Table 3). Under colonial rule, their main business was trade finance, and they mainly served the expatriate community. In 1953, the first indigenous commercial bank, now Ghana Commercial Bank (GCB), opened to provide credit services to the local population. Following independence in 1957, the Bank of Ghana (BoG) was established, to serve as a central bank for the economy and to take over some of the functions that had been previously undertaken by the West African Currency Board. Throughout the period 1957 to 1983, the government followed a policy of intervention in economic activity and held a controlling interest in all commercial banks. Three state-owned development banks were established during this period: the National Investment Bank (NIB), the Agricultural Development Bank (ADB) and the Bank for Housing and Construction (BHC). In 1983, after the launching of the Economic Recovery Program, financial sector reforms were initiated, and private commercial banks were allowed to operate.

Table 3.

Ghana: Chronology of the Evolution of the Banking System

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Sources: Kapur, I, and al., 1997; and information provided by the Ghanaian authorities.

The First Wave of Banking Reforms: 1989–91

24. In the early eighties, after decades of state management, Ghana’s banking system was in distress. Banks suffered from undue political influence, weak management, inadequate capital, outdated information and accounting systems, and poor internal controls. Moreover, they had large portfolios of nonperforming loans, insufficient provisions, and were often overexposed to a few clients, particularly state-owned enterprises. At the end of 1989, the banking system was close to a crisis, as nonperforming loans reached 41 percent of total credit. Faced with this situation, the government adopted a reform program with the objective of restructuring the banking system, while enhancing its competitiveness and efficiency. A new banking law was enacted in 1989, which laid out the basic regulatory framework for the banking system: minimum capital requirements, capital adequacy ratios, prudential lending ratios, exposure limits, accounting and auditing regulations. Supervisory activities of the BoG were also strengthened and the banks were required to submit accounts for off-site monitoring. Annual on-site inspections, as well as off-site surveillance, were to be conducted to verify banks’ compliance with regulations.

25. During 1990 and 1991, most nonperforming loans in the balance sheets of banks were swapped with government-guaranteed interest-bearing bonds issued by the BoG, or were offset against liabilities to the government or the BoG.6 A total of C62 billion nonperforming loans were removed from banks’ portfolios, of which ₡47 billion were replaced with bonds with 7, 9, and 15 percent interest with a 2 to 5 year maturity, which have been since rolled over. A recovery trust for nonperforming assets was formed in 1990 (NPART). The performance of the NPART as evaluated in 1995 seemed impressive: ₡13 billion were recovered out of a total ₡18 billion outstanding in non-performing loans. However, following years of high inflation, the amounts eventually paid represented much smaller values in real terms.

Divestiture and the Second Wave of Reforms: 1992–Present

26. In February 1992, the government announced a strategy to divest its shares of commercial banks. The divestiture was intended to increase competition and efficiency in the system. The program made early progress, but quickly stalled. The Social Security Bank (SSB) and the National Savings and Credit Bank, were restructured and merged: 21 percent of shares were divested through a public offer in March 1995, while 40 percent were sold to a strategic investor. In October 1995, 60 percent of its shares were listed on the Ghana Stock Exchange. In February 1996, 30 percent of the shares of GCB, the largest bank targeted for divestiture, were floated. After the initial offer was oversubscribed, the government decided to increase the public offer to 42 percent of shares while looking for a strategic investor for the remaining 40 percent. Substantial delays were experienced in the negotiations with the strategic investor, partly because in 1997 the U.K. supervisory authorities objected to the proposed ownership transfer of the London Branch of GCB. Instead, the London branch was converted into an independent bank, Ghana International Bank.7 The discussions with a strategic partner GCB were still ongoing in the last quarter of 1998.

27. Four other banks had been set for divestiture: NIB, ADB, BHC and COOP. Discussions had began in 1995 with a strategic investor for NIB but failed to come to a conclusion. After two further calls for bids, the latest of which took place in August 1998, discussions are still ongoing. The program also envisaged the merger, prior to divestiture, of ADB, the largest development bank, with COOP. This process stalled in early 1997 after the A-Life check fraud caused significant losses to COOP. The authorities are now discussing whether a merger would still be appropriate in terms of the market value of both banks and their financial position. No progress was made with the plans to divest BHC, as its financial situation was also severely affected by the A-Life check fraud to the extent that some restructuring appears to be necessary before the government could proceed with the divestiture. In June 1998, the government divested ¾ of the remaining 40 percent of its shares in Barclays Bank.

C. Structure of the Banking System

28. The banking system in Ghana comprises 17 banks: 9 commercial banks, 4 development banks, and 4 merchant banks (Table 4). All together these banks account for about 90 percent of total deposits in the system. The financial sector also includes 130 rural banks, and several non-bank institutions, among which 4 brokerage companies, 2 discount houses, 7 savings and loans companies, the social security national insurance trust (SSNIT)8 and other minor financial institutions.

Table 4.

Ghana: Banking System Indicators

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Source: Ghanaian authorities, World Bank and IMF staff estimates.

With more than 60 percent private capital (Barclays Bank, Local Branch of BCCI and Continental Acceptance Ltd. are here considered mixed ownership).

June 1998 estimate.

Total credit to the private sector.

29. The banking penetration ratio for Ghana is relatively high. On average, Ghana has a bank branch every 54 thousand inhabitants, with the lowest branch per capita ratio in the Greater Accra region (one branch per 15 thousand) and the highest in the Northern parts of the country (one branch every 85 thousand inhabitants). About half of the banks have branches in the interior of the country, but GCB alone owns about 50 percent of all local branches, in each region of the country.

30. Although the number of financial sector institutions is high and diverse, and has grown considerably since the early nineties, financial intermediation in the economy remains relatively modest. In 1997, the M2/GDP was 19 percent9, not too different from other countries in sub-Saharan Africa but roughly ⅓ of industrialized countries levels. This ratio has increased by just one percentage point between 1980 and 1997 showing little progress towards financial deepening. Holdings of currency are high, about 7 percent of GDP, only slightly above the average for the 1980-86 period. Credit to the private sector as a share of GDP has showed sluggish growth, increasing by only 3 percentage points since the beginning of the financial sector reform program in 1989; it reached 8 percent of GDP in end-1997, well below the average for sub-Sàharan African countries (Figure 1). The M1/M2 ratio has shown a moderate decline in the last decade, which is noteworthy in the presence of persistent high inflation. In summary, Ghana seems to be moving toward increasing the depth of its financial system, albeit at a slow pace.10

Figure 1.
Figure 1.

Ghana: Financial Deepening Indicators, 1980–96 1/

Citation: IMF Staff Country Reports 1999, 003; 10.5089/9781451814750.002.A002

Sources: Data a provided by the Ghanaian authorities; and staff estimates.1/ Data for Sub-Sahara Africa are unweighted averages.

31. Financial activity continues to be concentrated in a small number of core banks, though the changes with respect to the late eighties are more visible in this area. The potential for competition is well above the average of sub-Saharan Africa as none of the five top banks is excessively dominant. The Herfindahl concentration index for the top five banks in Ghana is 0.23, well below the average for sub-Saharan Africa (0.38 in 1996). Nevertheless, in August 1998, the two top banks alone held about 44 percent of deposits and 41 percent of assets of the banking system. The top five banks accounted for 76 percent of assets and 78 percent of deposits of the banking system. Public sector banks, which in 1992 accounted for 70 percent of the assets of the banking system, have lost their dominance but still account for 37 percent of assets and 32 percent of deposits (Table 3).11

32. As in many other developing countries, the average share of nonperforming loans in the banking system is very high (27 percent of total credit to the private sector). However, if three small banks are excluded from the calculation, the average drops considerably (14 percent). Most of the nonperforming loans are held by state-owned banks (about 84 percent of the total), representing about 50 percent of total credit to the public of these banks. The average share of nonperforming loans in mixed ownership banks is similar to that of the state owned banks, while in private sector banks it drops to about 7 percent (Table 5).

Table 5.

Ghana: Selected Banking System Indicators as of June 1998

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In percent of total loans.

In percent of total non performing loans.

In percent of total shareholders funds.

As of August 1998.


33. Interest rates have not been very responsive to changes in the macroeconomic environment. In 1995, the average inflation rate was about 50 percent, while lending rates were about 40 percent and saving rates barely reached 30 percent—both negative in real terms. In 1998, inflation more than halved but lending rates have remained around 30-40 percent. The fact that state owned banks with high shares of nonperforming loans still represent a significant segment of the financial market, may be one of the explanations for the behavior of interest rates.12 Moreover, state-owned banks have high operational costs and a large portfolio of nonperforming loans, which increase the share of fixed costs. Demand deposits, which represent 33 percent of total deposits, yield no or little interest, implying that a downward adjustment in the interest rate paid on deposits would only marginally decrease banks’ cost of funds. This cost structure suggests that a decline in interest rates is likely to reduce bank spreads, possibly to levels that will make them unprofitable. Therefore, these banks would be expected to resist as much as possible a decline in interest rates.

34. Another feature of the banking system in Ghana is its high dollarization: 32 percent of total assets and 27 percent of deposits were denominated in foreign currency in June 1998. For borrowers, the main attraction of foreign currency credits is the interest rate, which is much lower than in domestic currency loans; in July 1998, the interest rates on foreign currency loans were 27-36 percentage points lower than those on domestic currency loans, with the spread exceeding any reasonable expectation of devaluation. Lenders also have an incentive to lend in foreign currency as they need to maximize the rate of return on the resources obtained from foreign exchange deposits. Depositors still maintain a high share of their deposits in foreign currency both because of positive real interest rates13 and because of a continued lack of confidence in the sustainability of appropriate economic policies.

35. The dollarization of the banking system in Ghana has led the supervisory authorities to monitor closely the foreign exchange exposure of individual banks to ensure that they are not taking excessive risk. Available information seems to indicate that the net open positions of many of the Ghanaian banks are high.14 A rough estimate for the consolidated banking system showed the net open position to be around 50 percent of shareholders’ funds, though for the public sector banks as a whole it averages about twice as much as the average for mixed and private ownership. The private sector banks as a whole have only a slightly more comfortable open foreign currency position of about 30 percent of shareholders’ funds. Therefore, the banking system in Ghana is very vulnerable to exchange rate movements that could result in large losses in relation to shareholders’ funds. The authorities are considering amending and reissuing foreign exposure regulations before the end of 1998.

D. How Far Have the Reforms Gone?

36. The current structure of the banking system suggests that some progress has been achieved since the first wave of reforms; nevertheless, much remains to be done. Banks seem to rely excessively on income from government securities, with loans to the private sector still representing a relatively small portion of their assets. At an early stage in the banking reforms the supervisory authorities eliminated nonperforming loans from the balance sheet of the banking system at great cost; yet, by mid-1998, the supervisory authorities were again confronted with a banking system with an unacceptably large share of nonperforming loans.

37. In mid-1998, the average share of nonperforming loans in total credits in the banking system was still around 27 percent, only 14 percentage points below the levels early in the first wave of banking reforms (see Table 4).15 It is true, however, that if one abstracts from three small banks with serious problems, the share of nonperforming loans declines to about 14 percent for the whole sector, a more manageable ratio, particularly since the supervisory authorities have kept the pressure on banks to maintain adequate provisions against default risks. In addition, the bulk of nonperforming assets currently in the system does not relate to credit to state-owned enterprises, a widespread problem in the first wave of reforms.

38. The fact that state-owned banks have a significantly higher share of nonperforming loans than private banks suggests that the slow pace of the divestiture program may have endangered the success of the reforms and may now reduce significantly, or even eliminate, government proceeds from the divestiture. In particular, the situation of some state-owned banks is such that a liquidation may prove to be a simpler and more economical way to restore the banking system to full health.

39. On the positive side, the restructuring program has tended to increase the average capitalization of banks; in particular, the swap of bad loans and the enforcement of new regulations in the early nineties has been successful in improving the capital adequacy ratios in the system. Except for three banks that are experiencing problems, all other banks meet or exceed the minimum capital requirements, which is 6 percent of assets.16

40. The regulatory framework developed in 1989, while for the greater part in line with the Basle Committee core principles, needs to be implemented with greater consistency and vigor. Penalties for noncompliance were stated in nominal terms and are now negligible after years of high inflation. In particular, the 1989 law does not provide for prudential regulations regarding foreign currency exposure, which, as mentioned above, have become a serious concern. In addition, the enforcement of the banking law regulations by the supervisory authorities has not been as strict as it could have been: penalties for noncompliance have at times been suspended on an ad hoc basis. For example, several banks are presently in noncompliance with single customer exposure limits. Moreover, improvements in the payment system have been slow, leaving the system open to fraud as shown in the 1997 A-Life incident. However, the authorities have recently renewed their efforts to modernize the payment systems by standardizing checks and using magnetic ink to permit the automation of most clearing procedures.

41. Finally, the revision of the legal framework has not succeeded in increasing significantly the speed with which commercial hanks can recover losses associated with bad credit through the judicial system, thus placing an important obstacle to the development of the banking business.

E. Lessons Learned and Next Steps

42. The early banking reforms of Ghana were considered one of the more successful in Africa.17 Yet, the banking system is still not as healthy and competitive as one would expect six years after these reforms were completed. The main problem with the reforms was that the divestiture program, which was seen as the second phase of the reforms, has progressed very slowly. Therefore, most state-owned banks returned to the same practices that had been at the root of the problems faced by the banking system in the eighties: excessive political influence, weak management, backward information and accounting systems, inadequate credit approval procedures, and poor internal controls. As a result, nonperforming loans increased once again, further slowing down the divestiture process by reducing the attractiveness of these banks to potential investors.

43. To prevent the perpetuation of the existing problems with the banking system, a number of measures could be taken. First and foremost, the divestiture process needs to be accelerated and completed. This process should include the privatization, merger or liquidation of all state-owned banks and the complete divestiture of the shares of both the government and the central bank in all commercial banks. The government should also ensure that the shares held by SSNIT remain á minority (passive) investment.

44. Second, banks not meeting the minimum capital requirement, even if government owned, should be liquidated, if the shareholders are unable to recapitalize the bank. This may require the adoption of a more formal exit policy for financial institutions.

45. Third, bank profits for well-managed banks are high, so competition should be encouraged by allowing new, professionally managed banks to enter the market.

46. Fourth, prudential regulations should be updated and their enforcement strengthened. In particular, the implementation of an adequate foreign exchange exposure limits is urgent. Regulations on single creditor risk needs also to be enforced. Onsite and offsite supervision needs to be reinforced through close monitoring of banking procedures. The use of external auditors, as a complement to supervision by the central bank, may also be considered. Penalties for noncompliance with prudential regulations need to be made more meaningful and fully enforced.

47. Finally, the government needs to improve the environment for banking business. In addition to ensuring a stable macroeconomic environment, the government will need to strengthen the legal framework and the judicial system to facilitate recovery of nonperforming loans, while protecting borrowers from unfair practices. The payment system will also need to be modernized to prevent fraud and facilitate financial transactions.


  • Dziobek, C. and C. Pazarbašioğlu, 1997, “Lessons from Systemic Bank Restructuring: A Survey of 24 Countries,” IMF Working Paper No. 161 (Washington: International Monetary Fund).

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  • Kapur, I., M. Hadjimichael, P. Hilbers, J. Schiff, and P. Szymczac, 1991, “Ghana: Adjustment and Growth,” 1983–91, IMF Occasional Paper No. 81 (Washington: International Monetary Fund).

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  • Kwaku Sowa Nii, 1997, “Central Banking and Monetary Management in Ghana,” CEPA Research/Working Paper No. 9.

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Prepared by Luisa Zanforlin. This chapter benefited from data collected by an MAE mission consisting of Mr. Ugolini (head), Mr. McConnell, and Ms. Schumacher (consultants).


As part of the bank restructuring initiative, the Bank of Ghana acquired shares in commercial banks, an operation conceived as a temporary step, but which has remained to this day. This has given rise to a potential conflict of interest. However, the BoG expects to sell all its shares in commercial banks shortly, as part of the financial sector divestiture program.


The ownership shares in GIB are as follows: Bank of Ghana, 51 percent; the social security national insurance trust (SSNIT), 15 percent; Ghana Commercial Bank, 20 percent; ADB, 9 percent; and State Insurance Corporation (SIC), 5 percent.


This is a partially funded, defined benefit scheme and is the largest financial institution in the country.


Excluding foreign currency deposits. The ratio including foreign currency deposits was 23.5 percent in 1997, but a comparable figure is not available for 1980.


The apparently slow progress toward financial deepening has to be assessed in light of the economic dislocations of the 1970s and 1980s in Ghana. Also, the financial deepening indicators discussed in this charpter do not necessarily capture all facets of financial sector development.


Fifty-two percent of deposits and assets, if one includes banks in which the government has minority shareholding.


Another reason is that the government is still placing significant amounts of government securities to finance its deficit.


Interest rates on foreign currency deposits range around 2-3 percent.


Calculated as the ratio of the difference between assets and liabilities denominated in foreign currency to shareholders’ funds.


The nonperforming loans removed at the time of the restructuring represented about 41 percent of total credit extended to state owned enterprises and private firms. See World Bank (1994).


The calculation of the minimum capital requirement does not follow the Basle Committee recommendations, although in practice it has resulted in levels of minimum capital in excess of the Basle Committee’s 8 percent risk-weighted assets-to-capital ratio.