Anthony Q.Q. Aboagye

Technical Efficiency of the Ghanaian Banking Industry and the Effects of the Entry of Foreign Banks

The effects of the entry of foreign banks and changes in bank concentration on the technical efficiency of domestic banks in Ghana over the period 2000–2008 is analyzed. Technical efficiency scores were obtained by the Data Envelopment Analysis. Then, the Tobit regression was used to analyze the impact of hypothesized explanatory variables on bank efficiency. Foreign bank share of total industry assets was used to proxy the impact of foreign banks. The findings suggest that efficiency of domestic banks has been positively affected by the entry of foreign banks and reduction in concentration. Thus, the central banks policy of liberalizing the banking sector appears to be well placed.

Bank Concentration And Economic Costs Of Deposit Mobilization And Credit Extension In Ghana

Welfare losses due to misallocation of resources in the deposit and loans markets and inefficiency costs in both markets resulting from the concentration of the Ghanaian banking industry are estimated, respectively using the Harbergers triangle and deviations from cost efficient stochastic frontier approaches. Corporate governance variables hypothesized in the literature to be correlated with bank inefficiencies were also investigated. Estimates suggest that net welfare loss over 2001 - 2008 averaged 2.6% of gross domestic product (GDP) per year, while inefficiency costs averaged only 0.7% of GDP. Bank concentration is positively correlated with efficiency in both deposits and loans markets. The elasticity of operating costs with respect to deposits exceeds the elasticity with respect to loans. We recommend that steps be taken to reduce bank concentration as the resultant narrowing of interest rate spreads will likely yield welfare gains that exceed efficiency gains realizable from increased concentration.

A Baseline Study of Ghanian Microfinance Institutions

We conducted a baseline study of the historical performance of 34 rural and community banks (RCBs), 27 credit unions (CUs), and 2 savings and loans companies (S&Ls), which are licensed microfinance institutions in Ghana, for future comparisons. The study also investigated their potential for long-term survival. The RCBs and CUs were drawn from five political administrative regions. We found that RCBs and CUs have done reasonably well. Regional differences, however, exist in the performance of both RCBs and CUs, and there are significant differences in performance of RCBs vis-à-vis CUs. Both have good potential for long-term survival, but CU appears to be better positioned. We identified disparate levels of performance and future potential between the two S&Ls studied.

African innovations in harnessing farmer assets as collateral

Purpose - The purpose of this paper is to document and appraise two innovations by which nontraditional forms of collateral are being used to make smallholder crop and livestock farmers bankable in Ghana and Zimbabwe. Design/methodology/approach - The setup and operations of the warehouse receipt system (WRS) in Ghana were evaluated for the extent to which the WRS was meeting crop farmers’ expectations and the WRS’s own objectives. Owners of the WRS, a certified warehouse operator in a big city, and two operators of certified community warehouses in farming communities were interviewed. Two focus group discussions with crop farmers were also held. Information about the setup and operations of the Tawanda Nyambirai Livestock Trust (TNLT) Private Limited in Zimbabwe (TNLT) and extent of serving the credit needs of livestock farmers was obtained by telephone from the managing director. Data were gathered in April 2014 and were analyzed later. Findings - Due to low output no smallholder farmer targeted by the WRS had been issued with a tradable certified warehouse receipts to serve as collateral to potential lenders. Grain aggregators (non-farmers) have aggregated enough grains from farmers to be issued warehouse receipts. Grain farmers report substantial reduction in post-harvest losses when they lodge farm proceeds with certified community warehouses. For the TNLT, more than 140 farmers had deposited 700 cattle and had been issued with tradable certificates of deposit within one year of TNLT to obtain revolving credit from one bank. Other benefits and challenges are highlighted. Originality/value - Both approaches have potential of helping to solve liquidity constraints of farmers.

Bank competition, financial innovations and economic growth in Ghana

This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The paper also aimed at finding the causality among bank competition, financial innovations and economic growth in Ghana. We carried out the research using quarterly data from 1990 to 2009. The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, we employed the ARDL cointegration procedures to enable us establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. The results showed that, in the long run, bank competition is positively related to economic growth whilst financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. In the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that, there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth. The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy.

Cost analysis and efficiency of sub-district health facilities in two districts in Ghana

To establish the full costs borne by sub-district health facilities in providing services, we analysed the costs and revenues of 10 sub-district health facilities located in two districts in Ghana. The full costs were obtained by considering staff costs, cost of utilities, cost of using health facility equipment, cost of non-drug consumables, equipment maintenance expenses, amounts spent on training, community information sessions and other outreach activities as well as all other costs incurred in running the facilities. We found that (i) a large proportion of sub-district health facility costs is made up of staff salaries; (ii) at all facilities, internally generated funds (IGFs) are substantially lower than costs incurred in running the facilities; (iii) average IGF is several times higher in one district than the other; (iv) wide variations exist in efficiency indicators and (v) there is some evidence that sub-district health facilities may not necessarily be financially more efficient than hospitals in using financial resources. We suggest that the study should be replicated in other districts; but in the mean time, the health authorities should take note of the conclusions and recommendations of this study. Efforts should also be made to improve record keeping at these facilities.

Risk exposure and corporate financial policy on the Ghana Stock Exchange

Purpose - The purpose of this paper is to examine the extent to which corporate managers alter their capital structure in response to risk exposures on the Ghana Stock Exchange (GSE). Design/methodology/approach - A panel data covering the period from 2002 to 2007 was employed under the framework of the seemingly unrelated regression approach. Findings - The paper finds that the direction and magnitude of the impact of risk exposures depends on capital structure measurement variables; namely, financial leverage, debt ratio, or short-term debt to equity. The paper also finds that corporate managers adjust their capital structure differently in response to different kinds of risk exposures namely business risk or financial risk. Specifically, operating risk, bankruptcy risk, and bankruptcy cost in addition to other firm level characteristics such as asset structure, firm size and profitability are found to be significant driving factors in shaping corporate financial policy on the GSE. Originality/value - The main value of this paper is to analyze the relationship between risk exposures and corporate financial policy from a developing country perspective.

Effect of financial development on international trade in Africa: Does measure of finance matter?

ABSTRACT Although improving international trade on the back of financial sector development is one of the preoccupations of countries in Africa, empirical literature on financial development-trade nexus has not been rigorous in examining how finance shapes trade. In this study, we examine the effect of financial development on international trade in Africa relying on data for 46 countries over the period 1980–2015. Results from our system generalized method of moments reveal differential effects of finance on trade. In particular, we notice that, private credit does not promote trade while domestic credit positively affects trade. These effects are robust to measures of trade. Thus, improving the level of private (domestic) credit dampens (amplifies) exports and trade openness. However, we also find a U-shaped relationship between private credit and trade measures suggesting that financial sector development may be detrimental (helpful) to trade for economies with low (high) level of private credit.

Freedom, competition and bank efficiency in Sub-Saharan Africa

Purpose This study aims to consider the effect of financial (banking) freedom and competition on bank efficiency. Design/methodology/approach With data from 11 Sub-Saharan African countries over the period 2006-2012, the study estimates both competition (market power) and bank cost efficiency using the same stochastic frontier framework. Subsequently, Tobit models, including instrumental variable Tobit regression, are used to assess how financial freedom affects the relationship between competition and bank efficiency. Findings The results show that increase in market power (less competition) leads to greater bank cost efficiency, but the effect is weaker with higher levels of financial freedom. This is not consistent with the quiet life hypothesis. Practical implications Policymakers usually take the view that opening up banking markets to greater competition may lead to higher efficiency. However, the results have shown that allowing banks to maintain some level of market power may be necessary to ensure banking system efficiency. Originality/value This study deepens the understanding of the inconsistent relationship between competition and bank efficiency, by using the same framework to measure both competition and efficiency, and by providing new empirical evidence on how the level of financial freedom affects this relationship.

Loss reserve variability and loss reserve errors: An empirical analysis of the Ghanaian property and liability insurance industry

Purpose - – The purpose of this study is to assess the level and variability of Ghanaian property and liability insurer’s reserve estimates to examine its sources and ascertain if reserve errors are random or not (i.e. manipulated or not). Design/methodology/approach - – It uses information on insurer claim reserve provisions, claims outstanding, claims incurred and claims paid for the period of 2000-2010. Categorizing the sources of variation as endogenous and exogenous, the authors use the panel correlated standard error regression model to determine sources and magnitude of industry reserve error. Findings - – The study finds that size, age, lag of loss reserve error, inflation rate and real gross domestic product are significant in determining the degree of reserve error variation. Type of ownership (domestic or foreign) is, however, not a significant source of variation. Further, the authors found that industry reserve errors are random (not manipulated) across firms, suggesting that sampled insurers act independently on reserve error decision making and are not influenced by industry trends and competition. Research limitations/implications - – The main research study limitation is the difficulty involved in obtaining annual statements from insurance companies in Ghana. Reluctance of companies to make statements available impeded on the smooth flow of the study during data collection. Practical implications - – Policy-wise, this suggest that regulatory bodies can uniquely set reserve error levels for existing firms with little influence on competition. Further, the Ghanaian insurance regulator does not to focus on the type of ownership (foreign or local) when setting regulatory standards. However, size of the company and age (length of operation) should be considered. Originality/value - – This paper is the first empirical study to examine the loss reserve error and loss reserve variability of Ghanaian property and liability insurance companies.