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

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  • Anthony Q. Q. Aboagye

    (University of Ghana, GHANA)

Abstract

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 Harberger's 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.

Suggested Citation

  • Anthony Q. Q. Aboagye, 2012. "Bank Concentration And Economic Costs Of Deposit Mobilization And Credit Extension In Ghana," Journal of Developing Areas, Tennessee State University, College of Business, vol. 46(2), pages 351-370, July-Dece.
    • Handle: RePEc:jda:journl:vol.46:year:2012:issue2:pp:351-370
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    Citations

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    Cited by:

    1. Abayomi Oredegbe, 2021. "Cost Efficiency Determinants: Evidence from the Canadian Banking Industry," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(1), pages 1-86, July.
    2. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    3. Abdul Latif Alhassan & Michael Lawer Tetteh, 2017. "Non-Interest Income and Bank Efficiency in Ghana: A Two-Stage DEA Bootstrapping Approach," Journal of African Business, Taylor & Francis Journals, vol. 18(1), pages 124-142, January.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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