Abstract
This study examines the nature and the change in the level of competition in the various financial sub-markets in Ghana, a lower middle-income country and one of Africa’s emerging economies. We apply the recently developed Boone indicator on annual bank-level data of 22 banks from 2011 to 2020. We find the loan market to be the most competitive compared to the asset market and the fee-based services market. Over time, the nature of competition tends to change from being oligopolistic towards a more monopolistic structure. We find bank size and foreign ownership to contribute to the observed market power and the dynamics of the competition in the Ghanaian banking sector.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Data Availability
Data for the studies are available upon request from the corresponding author.
Code Availability
Not applicable.
Notes
Result will be provided on request.
References
Aboagye, A.Q.Q., Akoena, S.K., Antwi-Asare, T. & Gockel, A.F. (2008). Explaining interest rate spreads in Ghana. African Development Review, 20(3), 378–399. http://197.255.68.203/handle/123456789/6685
Acs, Z. J., Desai, S., & Hessels, J. (2008). Entrepreneurship, economic development and institutions. Small Business Economics, 31(3), 219–234. https://doi.org/10.1007/s11187-008-9157-3
Adeabah, D., & Andoh, C. (2019). Market power, efficiency and welfare performance of banks: evidence from the Ghanaian banking industry (No. 192967). ZBW-Leibniz Information Centre for Economics. 10419/192967/1
African Competitiveness Report (2009). World Economic Forum, Geneva. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.372.8274&rep=rep1&type=pdf
Akhavein, J. D., Berger, A. N., & Humphrey, D. B. (1997). The effects of megamergers on efficiency and prices: Evidence from a bank profit function. Review of Industrial Organization, 12, 95–139. https://doi.org/10.1023/A:1007760924829
Alhassan, A. L., & Ohene-Asare, K. (2016). Competition and bank efficiency in emerging markets: Empirical evidence from Ghana. African Journal of Economic and Management Studies, 7(2), 1–23. https://doi.org/10.1108/AJEMS-01-2014-0007
Allen, F., & Gale, D. (2004). Financial fragility, liquidity, and asset prices. Journal of the European Economic Association, 2(6), 1015–1048.
Amidu, M., & Harvey, S. K. (2016). The persistence of profits of banks in Africa. Review of Quantitative Finance and Accounting, 47(1), 83–108. https://doi.org/10.1111/joes.12188
Aryeetey, E. (1994). Financial Integration and Development in Sub-Saharan Africa: A Study of Informal Finance in Ghana, Overseas Development Institute, Working Paper 78, London.
Bank of Ghana (2010). 2010 Annual Report. Retrieved from www.bog.gov.gh
Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(2), 325–332. https://doi.org/10.1007/BF01205442
Beck, T., Demirguc-Kunt, A., & Maksimovic, V. (2004). Bank competition and access to finance: international evidence. Journal of Money, Credit, and Banking, 36(3), 627–648.
Bellemare, M. F., Masaki, T., & Pepinsky, T. B. (2017). Lagged explanatory variables and the estimation of causal effect. Journal of Politics, 79(292), 949–963. https://doi.org/10.1086/690946
Berger, A. N., & Hannan, T. H. (1989). The price-concentration relationship in banking. The Review of Economics and Statistics, 71(2), 291–299.
Bhattacharyya, S., & Nain, A. (2011). Horizontal acquisitions and buying power: a product market analysis. Journal of Financial Economics, 99(1), 97–115. https://doi.org/10.1016/j.jfineco.2010.08.007
Bikker, J.A., Spierdijk. L. & Finnie, P. (2006). The impact of bank size on market power. DNB Working Papers No. 120. De Nederlandsche Bank. Amsterdam.
Bikker, J. A., & Spierdijk, L. (2008). How banking competition changed over time. Tjalling C. Koopmans Research Institute Discussion Paper Series, No. 08–04.
Bikker, J.A., Shaffer, S. & Spierdijk, L. (2012). Assessing competition with the Panzar–Rosse model: the role of scale, costs, and equilibrium. Review of Economics and Statistics, 94(3): 1025–1044. http://www.jstor.org/stable/23355338
Bikker, J. A., & Bos, J. W. B. (2005). Trends in competition and profitability in the banking industry: a basic framework. SUERF.
Bikker, J., & Haaf, K. (2002). Measures of competition and concentration in the banking industry: a review of the literature. Economic and Financial Modelling, 9(2), 53–98.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel models. Journal of Econometrics, 87(10), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
Boone, J. (2004). A new way to measure competition. CEPR Discussion Papers: 4330.
Boone, J., Jan, C., Van, O. & Henry, V.W. (2007). How (not) to measure competition. Centre for Economic Policy Research. Discussion Paper Series no. 6275. London, UK: Pitfall.
Boone, J. (2008). A new way to measure competition. The Economic Journal, 118(531), 1245–1261. https://doi.org/10.1111/j.1468-0297.2008.02168.x
Boot, A. W. A. (2014). Financial sector in flux. Journal of Money, Credit and Banking, 46(1), 129–135.
Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risk taking and competition revisited. The Journal of Finance, 60(3), 1329–1343.
Brownbridge, M. & Gockel, A.F. (1996). The impact of financial sector policies on banking in Ghana, IDS Working Paper 38, Brighton: IDS. http://bldscat.ids.ac.uk/cgi-bin/koha/opac-detail.pl?biblionumber=78746
Bulow, J., & Klemperer, P. (2002). Prices and the winner’s curse. RAND Journal of Economics, 33(1), 1–21. https://doi.org/10.2307/2696372
Busch, T. & Mathisen, J. (2005). Competition and efficiency in banking: Behavioural evidence from Ghana. IMF Working Paper, No 05/17.
Claessens, S. & Laeven, L. (2004). What drives bank competition? Some international evidence. Journal of Money, Credit and Banking 36(3): 563–583. https://www.jstor.org/stable/3838954
Claessens, S., & Laeven, L. (2005). Financial dependence, banking sector competition. And economic growth. Journal of the European Economic Association, 3(1), 179–207
Clarke, G., Cull, R., Peria, M. S. M., & Sanchez, S. M. (2003). Foreign bank entry: experience, implications for developing economies, and agenda for further research. The World Bank Research Observer, 18(1), 25–59.
Colwell, R. J., & Davis, E. P. (1992). Output and productivity in banking. Scandinavian Journal of Economics, 94, 111–129. https://doi.org/10.2307/3440252
Daley, J. & Matthews, K. (2009). Measuring bank efficiency: Tradition or Sophistication? A note. Cardiff Economics Working Papers.
Davcev, L., & Hourvouliades, N. (2013). Banking concentration in FYROM: evidence from a country in transition. Procedia Economics and Finance, 5, 222–230. https://doi.org/10.2139/ssrn.2245002
Davis, L., & Orhangazi, Ö. (2021). Competition and monopoly in the U.S. economy: What do the industrial concentration data show? Competition & Change, 25(1), 3–30. https://doi.org/10.1177/1024529420934011
Degryse, H., Kim, M., & Ongena, S. (2009). Microeconometrics of banking methods, applications and results. Oxford University Press.
Delis, M. D. (2012). Bank competition, financial reform, and institutions: the importance of being developed. Journal of Development Economics, 97(2), 450–465. https://doi.org/10.1016/j.jdeveco.2011.05.012
Devos, E., Kadapakkam, P. R., & Krishnamurthy, S. (2009). How do mergers create value? A comparison of taxes, market power, and efficiency improvements as explanations for synergies. Review of Financial Studies, 22(3), 1179–1211. https://doi.org/10.1093/rfs/hhn019
Dick, A. A., & Lehnert, A. (2010). Personal bankruptcy and credit market competition. The Journal of Finance, 65(2), 655–686.
Duyguna, M., Mohamed, S., & Weyman-Jonesc, T. (2015). Measuring competition using the Boone relative profit difference indicator. Economics Letters, 132(1), 117–120. https://doi.org/10.1016/j.econlet.2015.04.022
Dwivedi, P., Alabdooli, J. I., & Dwivedi, R. (2021). Role of FinTech adoption for competitiveness and performance of the bank: a study of banking industry in UAE. International Journal of Global Business and Competitiveness. https://doi.org/10.1007/s42943-021-00033-9
Fee, C. E., & Thomas, S. (2004). Sources of gains in horizontal mergers: evidence from customer, supplier, and rival firms. Journal of Financial Economics, 74(3), 423–460.
Fernández de Guevara, J., Maudos, J., & Pérez, F. (2005). Market power in European banking sectors. Journal of Financial Services Researc, 27(2), 109–137. https://doi.org/10.1007/s10693-005-6665-z
Goddard, J., & Wilson, J. O. (2009). Competition in banking: a disequilibrium approach. Journal of Banking and Finance, 33(12), 2282–2292. https://doi.org/10.1016/j.jbankfin.2009.06.003
Gries, T., & Naudé, W. (2010). Entrepreneurship and structural economic transformation. Small Business Economics, 34(1), 13–29. https://doi.org/10.1007/s11187-009-9192-8
Günalp, B., & Celik, T. (2006). Competition in the Turkish banking industry. Applied Economics, 38, 1335–1342. https://doi.org/10.1080/00036840500405656
Hasan, I., & Malkamäk, M. (2001). Are expansions cost effective for stock exchanges? A global perspective. Journal of Banking and Finance, 25(12), 2339–2366. https://doi.org/10.1016/S0378-4266(01)00194-7.
Hasan, I., Malkamäki, M., & Schmiedel, H. (2003). Technology, automation, and productivity of stock exchanges: international evidence. Journal of Banking and Finance, 27(9), 1743–1773. https://doi.org/10.1016/S0378-4266(03)00099-2
Hasan, I., & Marinč, M. (2013). Should competition policy in banking be amended during crises? Lessons from the EU. European Journal of Law and Economics, 42(2), 1–30. https://doi.org/10.2139/ssrn.2289748
Hayashi, F. (2000). Econometrics. Princeton University Press.
Hicks, J. R. (1935). Annual survey of economic theory: the theory of monopoly. Econometrica, 3(1), 1–20. https://doi.org/10.2307/1907343
Kar, A. K., & Swain, R. B. (2014). Interest rates and financial performance of microfinance institutions: recent global evidence. European Journal of Development Research, 26(1), 87–106. https://doi.org/10.1057/ejdr.2013.33
Kasman, S., & Kasman, A. (2015). Bank competition, concentration and financial stability in the turkish banking industry. Economic Systems, 39(1), 502–517. https://doi.org/10.1016/j.ecosys.2014.12.003
Knieps, G. (2006). Competition in the post-trade markets: a network economic analysis of the securities business. Journal of Industry, Competition and Trade, 6(1), 45–60. https://doi.org/10.1007/s10842-005-5649-x
Marinč, M. (2013). Banks and information technology: marketability vs. relationships. Electronic Commerce Research, 13(1), 71–101. https://doi.org/10.2139/ssrn.1723083
Mason, E. S. (1939). Price and production policies of large-scale enterprise. The American Economic Review, 29(1), 61–74. https://doi.org/10.4236/fns.2011.22014
Matthews, K., Murinde, V., & Zhao, T. (2007). Competitive conditions among the major British banks. Journal of Banking & Finance, 31(7), 2025–2042. https://doi.org/10.1016/j.jbankfin.2006.11.009
Maudos, J., & Sols, L. (2011). Deregulation, liberalization and consolidation of the Mexican banking system: Effects on competition. Journal of International Money and Finance, 30(2), 337–353. https://doi.org/10.1016/j.jimonfin.2010.07.006
Moffat, B.D. (2008). Efficiency and productivity in Botswana’s financial institutions. PhD Thesis, School of Economics, University of Wollongong. Retrieved from http://ro.uow.edu.au/theses/728
Moudud-Ul-Huq, S. (2021). Does bank competition matter for performance and risk-taking? Empirical evidence from BRICS countries. International Journal of Emerging Markets, 16(3), 409–447. https://doi.org/10.1108/IJOEM-03-2019-0197
Owusu, E. L., & Odhiambo, N. M. (2015). Financial sector reforms and economic growth in Ghana: a dynamic ARDL model. Contemporary Economics, 9(2), 181–192. https://doi.org/10.5709/ce.1897-9254.166
Panzar, J., & Rosse, J. (1987). Testing for monopoly equilibrium. The Journal of Industrial Economics, 35(4), 443–456.
PricewaterhouseCoopers (2019). Banking reforms so far: topmost issues on the mind of banks CEOs. PricewaterhouseCoopers Survey, Retrieved from http://www.slashdocs.com/mupqkn/ghana-banking-survey-2019.html
Quartey, P., & Afful-Mensah, G. (2014). Financial and monetary policies in Ghana: a review of recent trends. Review of Development Finance, 4, 115–125. https://doi.org/10.1016/j.rdf.2014.07.001
Roodman, D. (2009). How to do Xtabond2: An introduction to difference and system GMM in Stata. The Stata Journal, 9(1), 86–136. https://doi.org/10.1177/1536867X0900900106
Rughoo, A., & Sarantis, N. (2014). The global financial crisis and integration in European retail banking. Journal of Banking and Finance, 40, 28–41. https://doi.org/10.1016/j.jbankfin.2013.11.017
Schaeck, K. & Cihak, M. (2010). Competition, efficiency and soundness in banking: An industrial organization perspective. European Banking Centre Discussion Paper No. 2010—20S
Schmiedel, H., Malkamäki, M., & Tarkka, J. (2006). Economies of scale and technological development in securities depository and settlement systems. Journal of Banking and Finance, 30(6), 1783–1806. https://doi.org/10.2139/ssrn.355003
Shahrur, H. (2005). Industry structure and horizontal takeovers: Analysis of wealth effects on rivals, suppliers, and corporate customers. Journal of Financial Economics, 76(1), 61–98. https://doi.org/10.1016/j.jfineco.2004.01.001
Sharma, D., Anil, S., & Mukesh, B. (2013). Efficiency and productivity of banking sector: a critical analysis of literature and design of conceptual model. Qualitative Research in Financial Markets, 5, 195–224. https://doi.org/10.1108/QRFM-10-2011-0025
Simpasa, A. (2010). Characterizing market power and its determinants in the Zambian banking industry. MPRA Paper, No. 27232.
Solís, L., & Maudos, J. (2008). The social costs of bank market power: evidence from Mexico. Journal of Comparative Economics, 36(3), 467–488. https://doi.org/10.1016/j.jce.2008.04.003
Sun, Y. (2011). Recent developments in European bank competition. IMF Working Paper No. 11/146.
Tecles, P. L., & Tabak, B. M. (2010). Determinants of bank efficiency: the case of Brazil. European Journal of Operational Research, 207(3), 1587–1598.
Tirole, J. (1988). The theory of industrial organization. MIT press.
Turk-Ariss, R. (2009). Competitive behavior in Middle East and North Africa banking systems. Quarterly Review of Economics and Finance, 49, 693–710.
Turk-Ariss, R. (2010). On the implications of market power in banking: evidence from developing countries. Journal of Banking and Finance, 34(4), 765–775.
Van Leuvensteijn, M., Bikker, J. A., Van Rixtel, A. A. R. J. M., & Sorensen, C. K. (2010). A new approach to measuring competition in the loan markets of the Euro area. Applied Economics, 43(23), 3155–3167.
Yuan, Y. (2006). The state of competition of the Chinese banking industry. Journal of Asia Economics, 17(3), 519–534.
Acknowledgements
The authors are grateful to the two anonymous reviewers and the Editor-in-Chief for their useful comments which have considerably improved the quality of the paper.
Funding
We declare that no funding was received by any of the authors towards the preparation of this paper.
Author information
Authors and Affiliations
Contributions
RO: conceptualization, methodology, data, analysis and writing. FKA: conceptualization, literature review, data and writing. SGG: conceptualization, literature review, data cleaning and writing. All the authors reviewed and edited the manuscript.
Corresponding author
Ethics declarations
Conflicts of Interest
The authors declare that there is no conflict of interest that is relevant to the contents of this article.
Ethics Approval and Consent
Not applicable.
Rights and permissions
About this article
Cite this article
Oduro, R., Andoh, F.K. & Gadzo, S.G. Dynamics and Drivers of Competition in the Ghanaian Banking Industry. JGBC 17, 175–191 (2022). https://doi.org/10.1007/s42943-022-00046-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s42943-022-00046-y