Chapter ONE

1.0 Introduction

This chapter attempts to supply an overview on the job statement of the full research work, aims of the survey, relevancy of the survey, methodological analysis applied as the research unfolds and the organisation of the survey.

1.1 Background

Ghana is one of the fast emerging developing states in West Africa with twice the per capita end product of the poorer states in West Africa. With good endowed natural resources, Ghana still relies to a great extent on international fiscal and proficient aid. Gold, chocolate and lumber are the major beginnings of foreign exchange. The debut of Ghanas Economic Recovery Program ( ERP ) in 1983 to retrieve the ab initio really weak private sector engagement did better systematically but although still degrees were modest during 1987-91.

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Over the past old ages Ghana has witnessed dynamic alterations in its private Sector. The figure of Bankss has increased from 9 in 1989 to 21 at May 2006 ( ) . These Bankss serve a outstanding function as corporate entities that provide investing capital in the economic system to back up employment chances, human resources development and contribute towards national and community development programmes ( Aryeetey, E. & A ; Gockel, F. 1990 ) . They chiefly furnish loans to persons and companies to finance assorted undertakings which lead to economic and private sector development.

Brownbridge, M. , & A ; Gockel, A.F. ( 1997 ) are besides of the position that these fiscal establishments support nest eggs and investing in the economic system, which plays a major function in the overall development in footings of increasing productiveness of resources in the economic system. They farther highlighted that this function of Bankss in the Ghanese economic system is important, in that defects in the industry straight affect the tendency of economic growing.

In recent times Ghana has discovered rough oil, which is expected to hike the economic growing by bigger borders. Ghana has a alone welcoming attitude towards foreign investors ; the long political stableness of the state has attracted a batch of concern investors to set up concerns in the state. The rate of foreign investors has non reduced as better chances in making concern in Ghana are yielded in the long-run. The political province of the state has besides been really peaceable with a vibrant ambiance to set up concerns.

During the 5th banking awards ceremonial in Accra, Dr. Paul Acquah ( Governor of Bank of Ghana ) revealed that the banking industry in Ghana has become extremely competitory due to the increased edification of client demands coupled with enormous planetary competition. He farther stated that these grounds over the old ages have been the driving force for Bankss, in peculiar private owned Bankss, to concentrate on increasing stockholders value, presenting superior services aimed at accomplishing over all client satisfaction and value.

The construct of competition has introduced an overpowering challenge among administrations worldwide. Most administrations are forced to vie by quickly reacting to alterations in national and universe economic systems, technological alterations, new concern environments, cultural diverseness and deregulating in emerging capital markets to better overall organizational public presentation. Privately owned concerns in Ghana are invariably entwined in this ferocious conflict of planetary competition and the pressing demand to prolong its being in the turning rate of alteration in its environment.

Recent tendencies in the Ghanese economic system have revealed that acute competition in the concern sector has been as a consequence of an unfastened market which promotes private sector engagement. Though most private owned administrations have managed to last, a considerable figure of them do neglect due to grounds non limited to economical and fiscal factors.

A survey conducted by Dun and Bradstreet ( cited by Gaughan Patrick A. 1999, pp. 432 ) reveals that there are three most common factors that cause concern failure such as economic, fiscal and experience factors ( mention to Table 1 ) .

In some developing states market forces are wholly eliminated as a consequence of controls imposed by the opinion authoritiess. These controls create inauspicious effects on the economic system such as big financial shortages coupled with weak macroeconomic direction taking to high rising prices in the economic system. The effects are by and large felt by Bankss and other non-banking establishments, in that, loans borrowed by persons or administrations are non paid back due to economic adversity ( Brownbridge M. , & A ; Gockel A.F. , 1997 ) .

Harmonizing to Pfeffer J. ( 1994 ; p. 6 ) , People and how administrations manage them are going more of import because many other beginnings of competitory success are less powerful than they one time were. He emphasises the fact that in recent times most administrations rely extensively on the traditional beginnings of competitory success such as merchandise and procedure engineering, regulated markets, entree to capital resources, and economic systems of graduated table which provide an undistinguished competitory influence as compared to the yesteryear. He farther argues that organizational civilization and possible employee parts derived from pull offing employees in an administration are important as compared to the traditional beginnings of competitory success. Employees have been referred to as assets to a house or an administration when they possess the right accomplishments needed to work efficaciously and expeditiously ( Odiorne G. S, 1984 ) . However, these employees may possess diverse capablenesss that lead to assorted possible parts to an administration because of old instruction, experience, or single qualities. In position of the fact that employees contribution to the administration determines extensively competitory success, their single accomplishments are considered critical ( Pfeffer J. 1994 ) .

1.2 Problem Statement

The gradual transmutation of Ghana has had a batch of positive feedback from other states, but will this transmutation termed economic growing survive the long-run or would it fall in someplace in the hereafter?

What are the chief strengths and failings of the private sector?

Will the private sector support sustainable development?

Has Ghanas enterprise to increase private sector engagement been successful?

What measures has Ghana taken liberalise its economic system to promote private sector engagement?

Recent find of rough oil ( black gold ) in Ghana has brought higher hopes to speed uping the states development ends into world. This is what the recent ex-president of Ghana, President John Kufuor had to state in an African programme with the BBCs Focus “ We ‘re traveling to truly whizz, speed up, and if everything plants, which I pray will go on positively, you come back in five old ages, and you ‘ll see that Ghana truly is the African tiger, in economic footings for development. ” Will this oil find farther pull new entrants into the fiscal sector and in the affirmative will this advance a competitory private sector environment?

1.3 Aims of the Study

The chief aim of this thesis is to demo the function of the private sector in lending to concern fight and economic growing. The research limits its focal point on the influx of private non-financial and fiscal establishments in the Ghanese economic system as a consequence of the debut of Financial Sector Adjustment Programme ( FINSAP ) in Ghana. The economic system over the old ages has witnessed an addition in private sector engagement, which has significantly promoted concern fight and contributed to a vivacious economic system at big.

Table 2: Smart Objective of the Study

Strategic Operation Tactical

Specific Evaluate the function of the private sector ( Privately owned fiscal establishment ) lending to concern fight and economic growing. Show a platform for private sector engagement in economic development. Supply a primary rating for developers and investors who aspire to make concern in Ghana.

Measurable To fall within the model of the private sector and factors taking to concern fight and economic growing. Increase existent GDP. Impact of the private sector on economic growing. Note authorities policies that would forestall inauspicious effects on critical sectors of the economic system.

Attainable To urge effectual and sustainable concern development scheme and policies that will heighten more engagement in the private sector. Increase economic growing and better effectual and efficient concern programs.

Embark on comprehensive concern fight and productive public presentation within the assorted concern sectors.

Realistic The research will look extensively into authorities development ends every bit good as the private sectors function in development. Access to economic studies studies from IMF. Ghana Government studies on development undertakings. The IMF proctors on a annual footing the economic state of affairs in Ghana.

Time-Limited To finish the thesis within two months. This thesis expects to suggest recommendation based on the information available at the clip of composing. The recommendations and proposals are expected to be considered and if applicable implemented by other developing states every bit good.

Beginning: Self-prepared.

Specifically, the thesis critically focuses on the followers:

  • The function of the private sector ( in private owned fiscal establishments ) lending to economic growing in Ghana.
  • To look into the drive forces of Ghanas emerging markets.
  • The function of the authorities advancing the private sector.
  • The challenges and restraints confronting the private sector.
  • To measure the schemes being employed by Ghana in the private sector and its impact on the economic system.

1.4 Significance of the Study

The survey will be good in many respects:

  • To assist place the success and constrictions of the important economic parts from private sector with respects to its part to economic growing concern competiveness.
  • It besides reviews the strengths of the fiscal sector to back up enlargement of the private sector development and more significantly handiness of recognition installations to advance concerns.
  • It will assist investors to acquire a just thought of concern constitution chances.
  • To assist explicate schemes to assist implement better policies and publicities for the private sector development.

1.5 Methodology

This survey uses secondary informations and literature to measure the subject. It besides uses SWOT analysis to analyze the strategic place of Ghana in bettering its economic and concern countries.

The research will use the usage of CAMEL attack as the overall model to measure the fiscal strength and stableness of the Banking Industry in Ghana, where ;

C Capital adequateness, A Asset quality, M Management capableness,

E Quality and degree of net incomes, L Adequacy of liquidness

1.6 Administration of the survey

The paper is divided into five chapters. Chapter one presents the debut, job statement, aims of the survey, significance of the survey, methodological analysis and the administration of the survey. Chapter two gives an overview of the Ghanese fiscal sector every bit good as grounds that led to the fiscal sector reforms. Chapter three gives an overview of the Ghanese private sector. Chapter four uses CAMEL attack to analyze 4 major in private owned fiscal establishments. The concluding chapter looks at the overall findings, decisions and recommendations.

Chapter TWO

2.0 Overview of the Ghanese economic system

This chapter provides an overview of the Ghanese economic system and the Ghanaian Financial System. The chapter besides looks at grounds that led to the debut of the fiscal sector reforms, a SWOT analysis of fiscal sector accommodation plan ( FINSAP I & A ; II ) .

Ghana is one of the developing states in sub-Saharan Africa that introduced structural and economic reforms to turn to its extended macroeconomic defects, cut down poorness and to liberalise the fiscal sector. The wide money/GDP ratio fell significantly to 12.5 % in 1983 as compared to 29 % in 1976, whiles currency/M2 ratio besides decreased from 35 % in 1970 to 50 % in 1983. Bank sedimentations decreased from 19.5 % of GDP in 1977 to 7.4 % of GDP in 1984 because there was deficiency of assurance in the banking industry ( Brownbridge, M. , & A ; Gockel, A. F. 1997 ) .

During the 1980s the Ghanese economic system was hit by the most annihilating economic crisis ( ) . This gave rise to legion extended economic drawbacks in the Ghanese economic system. Leechor Chad reveals in an article published by the World Bank the undermentioned economic crisis that plagued the Ghanese economic system between the old ages 1982 to 1983:

  • The countrys power systems, communicating, postal and railroad services ceased to work decently and the whole state was in a province of pandemonium.
  • Tax aggregation had declined to about 5 % to GDP, investing dropped drastically beyond the degree required to keep capital stock.
  • Real income per capita which was continuously decreasing for a decennary was a 3rd below the degree reached in the early 70s as at 1983.
  • Foreign exchange militias deteriorated well.

The Ghanese economic system was to a great extent controlled by the authorities in footings of puting unrealistic involvement rates and sectoral recognition ceilings ; Bankss were forced to concentrate on loaning to precedence sectors ( agribusiness, export and fabrication ) regardless of the borrowers public presentation in footings of profitableness and their capableness to payback the loan. The economic system was regulated to foreign investings and the strong being of rigorous capital flow ordinances ( The Corporate Guardian, July-September 2006 ) . Governments heavy intercession in the fiscal system set the phase for economic defects a few such as deficiency of competition, high incidence of inefficiency, adversity and the intensifying rate of non-performing loans ( Leith, C. J. , & A ; Sderling, L. 2000 ) .

Since the late eightiess, the authorities of Ghana continued to implement fiscal sector reforms as an built-in portion of its on-going Economic Recovery Program ( ERP ) ( Brownbridge, M. , & A ; Gockel, A. F. 1997 ) . Ghanas enthusiasm to originate the ERP with close coaction with the International Monetary Fund ( IMF ) during the twelvemonth 1983-85 was to liberalize the fiscal sector and set up an unfastened market-based economic system by extinguishing monetary value ceilings, cut downing the inflow of foreign imports, diversifying feasible sectors of the economic system and stabilising financial shortage. Ghana in 1984 launched the Structural Adjustment Program ( SAP ) with the primary purpose of cut downing its engagement in the economic system and leting the free interaction of demand and supply ( The Corporate Guardian, July-September 2006 ) . However, during the period 1983-88 the public presentation of the banking industry deteriorated with high degrees of non-performing assets ( NPAs ) and inefficient sedimentation mobilisation which made most public Bankss bankrupt ( Leith, C. J. , & A ; Sderling, L. 2000 ) . The authorities launched the first stage of the Financial Sector Adjustment Program ( FINSAP ) in 1988. This was to to the full deregulate every bit good as liberalise the fiscal sector and better resource allotment within the assorted sectors of the economic system ( ) .

Since 1983, Ghana has attached great importance to its divestiture inaugural plan. About 200 stated-owned endeavors ( SOEs ) were being considered for variegation under authoritiess ongoing denationalization enterprise. At the terminal of the last two old ages, authorities still owned 35 endeavors valued at more than 60 % of GDP in 2003 ( IMF Survey, 2005 ) . Governments expenditure during 1986-1991 increased and this called for policy reforms to enable authorities to run into its high disbursement. Government depended on the revenue enhancement system to back up its high degree of disbursement. The Parliament of Ghana in 1993 increased revenue enhancement on crude oil. However, the revenue enhancement system could non supplement its GDP portion to fit the outgo. Consequently this brought about shortage funding. Government resorted to other signifiers of financing its outgo such as extended adoption from the Central Bank ( publishing new notes ) , public and foreign adoption, and denationalization of sate-owned endeavors ( Leith, C. J. , & A ; Sderling, L. 2000 ) .

Over the old ages, Ghana has witnessed a monolithic transmutation in its economic system as a consequence of uninterrupted execution of fiscal sector reforms to deregulate the economic system and stimulate nest eggs, investing and growing. The Central Bank is invariably implementing policies adopted under FINSAP to guarantee the entrants of in private owned fiscal establishments, free involvement rates, stabilise the cedi against foreign currencies, promote the flow of foreign investing and let easier entree to credits ( ) .

The Ghana Stock Exchange ( GSE ) was set up in 1989 as a private company limited under the Company codification. The Stock Exchange act of 1971 ( Act 384 ) allowed it to work as an authorised Stock Exchange. The Securities Industry Law PNDCL 333 ( 1993 ) as amended bestowed regulative rights to the Security Regulatory Commission ( SRC ) with its chief map to register, protect, help and oversee all stakeholders in the securities market. In April 1994 the Ghana Stock Exchanges position became a public company limited ( ) . At the terminal of 2003, listed companies equity increased to 26 as compared to 22 in 2002 ( ) . The public presentation of the Ghana Stock Exchange ( GSE ) has improved enormously. All-share Index increased by 91.3 % in 2005 as compared to 154.7 % in 2003 ( ISSER 2005 ) .

Flow of foreign investing increased from $ 110.0 million in 2003 to $ 139.3 million in 2004. In 2004 the cedi depreciated by merely 2.2 % against the US dollar, 10.7 % against the Euro and 12.1 % against the lb sterling. There was rather an betterment in the value of the cedi as compared to the old twelvemonth ( 2003 ) when the cedi depreciated by 22.5 % against the Euro and 13.0 % against the lb sterling. Average rising prices fell from 26.7 % in 2003 to 12.6 % as at December 2004 ( ISSER 2005 ) .

Ghana is the 2nd largest manufacturer and exporter of chocolate ; the agribusiness sector histories for approximately 50 % of GDP and is considered the anchor of economic development ( ) . Real GDP growing in 2004 was 5.8 % ( ) . The enormous public presentation of the Agricultural sector has supported Ghanas singular rate of economic growing over the old ages. The Agricultural sector contributes significantly to GDP growing. In 1990 GDP increased by merely 3.3 % , this was due to the negative 2 % growing rate in the Agricultural sector that twelvemonth. The twelvemonth 1991 witnessed a GDP growing rate for the Agricultural sector by 5.8 % which accordingly increased the whole Ghanese economic system GDP by 5.3 % in that twelvemonth. The sector has besides contributed vastly to the state foreign exchange net incomes ; 38.5 % in 1999, 35.4 % in 2000, 33.9 % in 2001, 35.5 % in 2002. ( ) . Other chief exports are gold, lumber, bauxite, manganese ore and diamond ( BOG Quarterly Economic Bulletin, April June 2005 ) .

The public presentation of the agribusiness sector over the old ages has vastly improved with growing rate of 7.5 % in 2004 as compared to 6.1 % in 2003. The production of chocolate for export contributed 46.7 % during the twelvemonth 2004, a important part of over all growing ( ISSER 2005 ) . The harvests and livestock part increased from 2.3 % in 2003 to 5.4 % in 2004, the largest part to the agricultural sectors GDP. The forestry and logging sub-sectors increased by 6.1 % in 2003, but dropped with a growing rate of 5.8 % in 2004. ( ) .The riddance of maximal loaning rates and minimal clip sedimentation rates succeeded to some extent in the liberalisation of involvement rates in 1987. Direct controls in the signifier of recognition ceilings were besides abolished. During the 1990s Bankss were at autonomy to monetary value sedimentations and loans and to administer loans consequently ; nevertheless the Bank of Ghanas high modesty demand limited the financess available for allotment ( Brownbridge M. & A ; Gockel A. F 1997 ) . These high modesty demands prevented Bankss from developing their loan portfolios and accordingly, most Bankss preferred to put in attractive and slightly riskless authorities securities ( )

Interest rate dropped steadily owing to the Monetary Policy Committee ( set up by the Bank of Ghana in 2004 ) diminishing premier rate from 21.5 % in 2003 to 18.5 % in 2004. Consequently, the commercial Bankss base rate has decreased from 29 % to 25.4 % . Interest rate for 91-Treasury measure fell from 18.71 % early portion of the twelvemonth to 17.08 % at the terminal of 2004. Interest rates for the 182-Day Treasury measure dropped from 19.78 % during the early portion of the twelvemonth to 17.85 % at the terminal of 2004. Inter-Bank involvement rate besides fell from 17.12 % in January to 16.23 % at the stopping point of the twelvemonth 2004 ( )

The Banks spread ( 21.3 % ) is still excessively high as compared to the other African states ( see table 3* ) . The banking industry has been structured in a manner that Bankss are able to set their involvement rates harmonizing to policy rates. Banks maintain a high spread to guarantee that their net incomes are non significantly influenced by their involvement borders ( BOG fiscal stableness study 2004 ) . However, harmonizing to the BOG fiscal stableness study 2006 the outgrowth of new Bankss will take to an efficient fiscal sector which is expected to cut down the force per unit area on loaning spread due to the fact that Bankss will continuously seek to derive market portion by viing for clients.

Table 3: Selected Commercial Bank Interest Rates, 2000 and 2004

Deposit Rate Lending Rate Spread

2000 2004 2000 2004 2000 2004

Gabon 5.0 5.0 22.0 18.0 17.0 13.0

Ghana 16.8 7.5 47.0 28.8 30.2 21.3*

Kenya 8.1 2.4 22.3 12.5 14.2 10.1

Mauritius 9.6 8.2 20.8 21.0 11.2 12.8

Mozambique 9.7 9.9 19.0 19.2 9.3 9.3

Nigeria 11.7 13.7 21.3 19.2 9.6 5.5

Tanzania 7.4 4.2 21.6 13.9 14.2 9.7

Uganda 9.8 7.7 22.9 20.6 13.1 12.9

Zambia 20.2 11.5 38.8 30.7 18.6 19.2

Beginning: International Financial Statistics, IMF

Fiscal and Monetary Policy

The fiscal policies implemented by pecuniary governments in Ghana before the execution of FINSAP were direct authorities controls on all sectors of the economic system. Government inordinate control in the economic system by puting monetary value and involvement ceilings coupled with weak macroeconomic jobs lead to a high degree of rising prices ( Ziorklui, S. Q. 2001 ) .

Ghanas financial policy chiefly aims at diminishing domestic debt, guaranting economic stableness, cutting down on the increasing degree of involvement payments to accomplish the needed existent involvement rates. Consequently, the Bank of Ghana has adopted legion schemes to turn to financial shortage and authoritiess borrowing ( ) . Budget shortage was 0.55 % of GDP during the 2nd one-fourth of the twelvemonth 2005 as compared to 1.18 % of GDP during the last one-fourth of 2004. This showed important lessening in the overall budget balance ( Bank of Ghana Quarterly economic bulletin, April-June 2005 ) .

The Bank of Ghana in 2004 set up the Monetary Policy Committee ( MPC ) to chiefly concentrate on explicating effectual pecuniary policies, doing available statistical informations and supplying necessary support in footings of advise for pecuniary policy preparation ( ) . The MPC seeks to command rising prices, stabilise monetary value and exchange market, pull off external debt and develop the capital market ( ) .

2.1 The Ghanaian Financial System in Brief

Ghanas banking sector has evolved over the old ages. There are 23 major Bankss ( refer to postpone 7 ) operating in the banking sector in Ghana as at 2006. The Ghanese banking sector is made up of 19 cosmopolitan Bankss, 2 Development Banks, 2 Commercial Bankss including Apex Bank and 121 Rural Banks ( ) . The debut of cosmopolitan banking in Ghana is overpoweringly altering the manner Bankss function in the economic system. Unfortunately, non all Bankss runing in Ghana are eligible to be cosmopolitan Bankss. To be eligible for Bankss to run as cosmopolitan Bankss they are expected to hold at least 70 billion as stockholders capital ( ) . Harmonizing to the Bank of Ghana cosmopolitan banking substitutes the celebrated three-pillar banking theoretical account, viz. development, merchandiser and commercial.

Table 4: List of Major Banks in Ghana – 2006


ABL Amalgamated Bank 2000 Universal Bank

ADB Agricultural Development Bank 1965 Development Bank

BBG Barclays Bank Ghana 1918 Universal Bank

CAL CAL Merchant Bank 1991 Universal Bank

EBG Ecobank Ghana Limited 1990 Universal Bank

FAMBL First Atlantic Bank 1995 Universal Bank

FBL Fidelity Bank Limited 2006 Universal Bank

GCB Ghana Commercial Bank 1952 Universal Bank

GTB Guaranty Trust Bank 2006 Universal Bank

HFC HFC Bank Limited 2002 Universal Bank

ICB International Commercial Bank 1996 Universal Bank

INTER Intercontinental Bank Plc 2006 Universal Bank

MAB Metropolitan & A ; Allied Bank 1995 Commercial Bank

MBG Merchant Bank Ghana Limited 1972 Universal Bank

NIB National Investment Bank 1963 Development Bank

PBL Prudential Bank Limited 1997 Commercial Bank

SBL Stabic Bank Ghana Limited 2000 Universal Bank

SCB Standard Chartered Bank 1896 Universal Bank

SG-SSB SG-SSB Bank Limited 1976 Universal Bank

TTB The Trust Bank 1994 Universal Bank

UBA United Bank for Africa 2005 Universal Bank

UNI Unibank Ghana Limited 1999 Universal Bank

Zenith Zenith Bank 2005 Universal Bank

Beginning: hypertext transfer protocol: // % 20Banks % 20 & amp ; % 20Addresses % 20November % 202008 ( 1 ) .pdf

Until 1957 the West African Currency Board ( WACB ) acted as the lone board under the

Colonial government conferred with the authorization to interchange sterling to Gold Coast lb. Government of the so Gold Coast declared its purpose to publish its ain currency after independency. Politicians and economic experts were of the strong sentiment that with the constitution of a Central Bank, Ghanas independency will hold a important significance in political history. In position of this, readyings started which ended up in the constitution of the Bank of Ghana on the 4th of March 1957 under the Bank of Ghana Ordinance ( No.34 ) of 1957 passed by the British Parliament. The whole thought for the constitution of a Central Bank was to run into the fiscal demands of huge autochthonal sectors of the economic system every bit good as the new independent Ghana authorities.

After the constitution of Bank of Ghana ( replaced WACB ) as the cardinal bank, the 1957 regulation empowered the bank to chiefly presume the undermentioned function in Ghana when it foremost begun formal operations on 1st August 1957 ( ) :

  • Printing out and delivering bank notes and coins.
  • Lender of last resort for Bankss in Ghana.
  • Using financial and pecuniary policies to modulate money supply and keeping pecuniary stableness.
  • Rede the authorities and be the chief beginning to finance to the authorities of Ghana.
  • Supervise and modulate all Bankss in Ghana.

The legal and regulative models in which fiscal mediators operate in Ghana are as follows ( ) :

  • Bank of Ghana Act 2002, Act 612
  • Banking Act, 2004 ( Act 673 )
  • Fiscal Institutions ( Non-Bank ) Law 1993, PNDC Law 328
  • Companies Code Act 179, 1963
  • Bank of Ghana Notices /Directives / Circulars / Regulations

Non-Banking Financial Sector

Ghana has achieved important success in the economic system peculiarly in the non-banking sector as a consequence of originating the structural accommodation plan, liberalising the economic system and by go throughing the Banking jurisprudence in 1989 and the Non-bank fiscal jurisprudence in 1993. These enterprises embarked by the authorities of Ghana have paved manner for new entrants in the private sector and besides transformed the bing fiscal establishments to diversify into the fiscal system. Consequently, there has been a rapid growing of Non-Bank Financial Institutes ( NBFIs ) with the premier purpose of supplying fiscal services to possible mark groups outside the banking system ( Ziorklui, S. Q. 2001 ) .

Harmonizing to the Ghana Investment Promotion Centre the fiscal system in Ghana includes the following licensed non-Bank Financial Institutions:

  • Insurance companies
  • Stock exchange
  • Building Society
  • Mortgage Finance Co.
  • Venture Capital Funding Financing
  • Trust Company
  • Recognition brotherhoods
  • Discount houses
  • Fiscal houses
  • Renting companies
  • Savingss and loans associations

2.2 Aims of Financial Sector Adjustment Program ( FINSAP )

Harmonizing to Ziorklui S. Q. ( 2001 ) , FINSAP was introduced and implemented in two stages. He farther outlines the chief aims in both stages of the execution. The first stage was implemented in 1988 with its chief aims as follows ;


  • Embark on restructuring to turn to financially hard-pressed Bankss.
  • Mobilize nest eggs and strive to better efficiency in the allotment of recognition.
  • Establish an effectual regulative and supervising system to supervise and better the banking sector.
  • Improve and beef up the money and capital markets.
  • To set up a non- acting assets recovery trust. The 2nd stage of FINSAP was implemented in 1990 with the undermentioned aims ;


  • Promote foreign investing and increase private engagement in the banking sector in Ghana.
  • Continue the execution of policies adopted under the first stage of the fiscal sector accommodation plan ( FINSAP 1 ) to reconstitute the fiscal sector.
  • Better pull off the aggregation of non-performing loans by Non-Performing Assets Recovery Trust ( NPART ) .
  • Promote and develop non-Bank fiscal Institutions ( NBFIs ) to be more effectual and efficient in nest eggs mobilisation.

2.3 SWOT Analysis Financial Sector Adjustment Program ( FINSAP )

This subdivision seeks to find whether the chief aims under the execution of the fiscal sector reforms ( FINSAP ) are come-at-able with regard to the current economic state of affairs. This survey employs SWOT analysis to analyze the major strategic place of the fiscal sector reforms ( FINSAP ) with mention to the above aims. The analysis covers major cardinal elements necessary to guarantee macroeconomic stableness, sedimentation mobilisation, betterment in the fiscal sector in footings of recognition installations and to prolong significant private sector engagement.

Table 5: SWOT Analysis on FINSAP


  • Monetary governments in Ghana have expressed first-class credence of FINSAP before and after old ages of execution.
  • The Central Bank is to the full committed to the dynamic policies being introduced and implemented under the fiscal sector reforms ( FINSAP ) to guarantee growing and stableness in the economic system.
  • The being of democratic political stableness and good administration has exhibited positive marks of long-run concern planning, contributing environment for investing and fiscal liberalisation taking to economic development.
  • The handiness of competent and skilled human resources.
  • Effective divestiture programme execution which has improved the public presentation of the private sector direction and capital.
  • Strategically, Ghana is located on the seashore of West Africa which facilitates export and import.
  • The Ghanese economic system is characterized by end product growing, increasing private sector activities and investing chances.


  • Concerns are being raised as to whether the current concentrated province of the Ghanese economic system is floaty plenty to absorb or back up the constitution of new Formal Financial Institutions.
  • The Agriculture sector is considered to be the anchor of state ; nevertheless, this sector is perceived to be hazardous and has contributed adversely in recognition allotment from Banks or recognition groups, significant bad debts and capitalisation.
  • High involvement rates coupled with inordinate adoption by the authorities from the Bankss accordingly, limits the recognition available for Banks to impart to concerns in the private sector.
  • The fabrication sector in the economic system has non been exploited to its full capacity. This has resulted in highly low production capacity of some little and average graduated table endeavors.
  • Low productiveness of work force which could be improved with the right sort of equipment and preparation.
  • Corruptness in Ghana is one of the major reverses in the development and growing of the state.
  • Lack of equal substructure and societal comfortss. The criterion of life is low and bulk live below poorness line.
  • The Ghanese economic system lack indispensable institutional and legal model to follow effectual prudential ordinances.



  • The World Banks engagement financially in patronizing the fiscal sector reforms ( FINSAP ) under the on-going economic recovery programme.
  • Emergence of foreign investors into the Ghanese fiscal market as a consequence of rigorous trade ordinances in other Sub-African states.
  • Ghana is perceived by its neighbouring states to be economically stable and a peaceable state to back up investing.
  • Greater focal point on engineering which plays a cardinal function in the economic development.
  • Emerging foreign markets for agricultural merchandises and consumer merchandises from Ghana.
  • Leverage the image of its democratic and comparatively stable political environment towards set uping itself as a regional hub for offshore services.
  • The construction of the Ghanese economic system is excessively dependent on foreign aid which is largely in the signifier of imports, financess, AIDSs and investing.
  • The high influence of exchange rate on investing determinations turn to increase the portion of foreign trade in the economic system.
  • The free entree of non-residents to domestic capital market.
  • Poor nest eggs wont of possible investor.
  • Lack of development of necessary educational and training substructure ensuing in limited scalability for the industry.

Chapter THREE

3.0 Overview of the Private Sector of Ghana

This sector can besides be classified as the system of the operation of markets ; besides called concern sector. The private sector of Ghana over the old ages has seen drastic development as a consequence of the authoritiess initiative to better the economic system. The engagement has been overpowering including all the assorted sectors.

3.1 Features of the Private Sector

The private sector is made up of all the non governmental administrations that are in private owned. Some private industries were one time owned by authorities but through denationalization have established private partnerships.

It is estimated by the Ministry of Trade and Industry, Ghana ( MOTI ) that in 1998 the Ghanese private sector consisted of about 80,000 registered limited companies and 220,000 registered partnerships.

The SME sector in Ghana is made up of this undermentioned mark group:

  • Micro endeavors: made up of up to 5 employees with fixed assets valued at non more than $ 10,000.
  • Small endeavors: made up of between six and 29 employees with fixed assets valued up to at $ 100,000.
  • Medium endeavors: this group employs between 30 to 99 employees with fixed assets of up to $ 1,000,000.

This mark group includes the extremely trained and expertness in professions that require formal instruction and the usage of new engineerings in their mundane work. There besides exists another mark group which will be classified as the informal private sector.

They normally have the undermentioned qualities:

  • Personal capital, one individual director and proprietor of the concern taking all the determinations.
  • Poor managerial accomplishments due to limited or no formal instruction, therefore populating the development of concern growing.
  • Lack of entree to utilize of new engineerings, market information and terrible bounds to recognition from fiscal establishments.

Typical of this mark group is lack of non-financial aid and their involuntariness to discourse their concern schemes with other people. The thought of presenting new engineering, to pull off process and scheme development theoretical accounts does non look to be an option. Data on this mark group is inaccurate but it is estimated that this group makes the bulk of the private sector.

The authorities has been able to place the informal private sector and has introduced sponsored concern support services such as the National Board for Small Scale Industries ( NBSSI ) . Their aims include:

  • To lend to the creative activity of an enabling environment for the development of small-scale endeavors.
  • To lend to the development of an entrepreneurial civilization in Ghana.
  • To ease entree to recognition for little endeavors.
  • To supply non-financial support for sustainable small-scale endeavor development.
  • To ease the growing of endeavor sector associations.

A 2005 Bank of Ghana study on recognition to SMEs found that:

The portion of SMEs in entire exposure of Bankss has increased from 0.95 per centum of GDP in 2001 to 1.54 per centum of GDP by 2004 ; whereas entire recognition to the private sector increased from 11.8 per centum to 13.05 per centum of GDP over the same period. This is an indicant that these endeavors are sharing in the general growing in loaning. The swings in loaning in favour of SMEs are more marked in commercialism, less so for agribusiness, services and fabrication, and weakest for the conveyance and other sectors. This mark shows positive improved entree to fiscal recognition and the engagement of SMEs in the private sector development.

The informal private sector which provides more occupations for Ghanaians such as those who make a life from private conveyance services, husbandmans, bargainers ( market adult females ) , artisans all of whom contribute to the economic system. The job with this sector is that although its a agency of support, their capital base is really little and there is a likeliness of their concern fall ining.

3.2 Goals of the Private Sector

Private sector development is seen as an indispensable factor of sustaining and spread outing concerns which stimulate economic growing and cut down poorness rate. Governments function is really necessary to be able to come on with any development scheme. The policies and enterprises must be effectual and tailored to accommodate the economic environment. The authorities of Ghana has embarked on many enterprises to advance private sector development to back up its millenary end aspirations of going a in-between income state.

The private sector development undertaking focuses on:

  • Helping the Government in edifice on its investing liberalisation by back uping its attempts to reconstitute, reform and commercialize its proficient research and development constitution along competitory and demand goaded rules.
  • Supporting attempts by the export industry to better their design and the publicity of their merchandises.
  • Supplying to a wide section of the private sector the necessary fiscal and proficient aid to back up the development of commercially bankable undertakings by bettering their feasibleness and quality.
  • Helping the Government in developing a plan to upgrade the bringing of legal services to the commercial and fabricating sectors.

3.3 The Impact of Private Sector Development

  • Promotes economic growing
  • Poverty decrease.
  • Create employment.
  • Promotes international trade
  • Promotes direct foreign investing
  • Promotes societal duty

3.4 Benefits of Private Sector Development

Private sector development shapes the economic system:

  • Improves the regulative environment for concern, including trade facilitation: markets frequently require ordinance to protect consumers, workers and the environment ; to guarantee efficient markets and better balance the public involvement with that of profit-seeking houses. Ill designed ordinance can sabotage the benefits of free trade. Heavy ordinance limits the flexibleness of markets and there
  • Establishes believable market-supporting establishments to ease competition: the ability of markets to work soundly is the flow of fiscal recognition. Trade is able to
  • Creates transparence and competition in concern: debut of more.
  • Farmers are able to acquire recognition installations to better at that place harvest production.
  • Direct fiscal aid to take up rural development undertakings.
  • Scholarship strategy to back up preparation and instruction of autochthonal husbandmans as a manner of societal duty from established private companies.
  • Easy handiness of credits and loans from fiscal establishments due to the competitory.

3.5 SWOT Analysis for Private Sector Development

Table 6: Swot Analysis for Private Sector Development


  • Political stableness to promote investing and concern constitution.
  • Easy concern entry entree.
  • Introduction of cosmopolitan banking licence.
  • Creates income and employment to better the criterion of life.
  • Reduce poorness most particularly in the rural countries.


  • Ghana is a primary trade goods manufacturer with a narrow export base ; this makes it really vulnerable to external dazes in the signifier of fluctuating trade good monetary values.
  • Support of authorities to supply services.


  • High competition among fiscal establishments taking to low involvement rates on recognition strategies.
  • Private fiscal establishments have good distributed subdivisions in the states to supply services to possible clients.
  • Creates an environment for making concern.
  • Creates a platform for Ghana to be able to accomplish its millenary ends.


  • High trust on foreign influxs to finance development undertakings due to low domestic nest eggs and investings.
  • Stagnating authorities gross and quickly increasing authorities outgo has resulted in immense financial shortages and domestic debt.
  • Lack of quality instruction in the rural countries which could be a strong force to better the economic system.
  • Lack of new engineering and high cost of upgrading.
  • Lack of substructure to back up the altering economic system.

Chapter FOUR

This chapter seek to analyze the fiscal strength and stableness of 4 major in private owned Bankss by utilizing the CAMEL attack as the overall model to measure the public presentation of the Bankss in the fiscal sector of Ghana from the twelvemonth 2000 to 2004. The chapter besides makes usage of SWOT analysis to analyze the major strategic place of in private owned Bankss lending to concern fight and economic growing in the Ghanese economic system.

4.0 CAMEL Approach

The CAMEL attack applied in this subdivision analyses 4 major in private owned fiscal establishments Capitalization, Asset quality, Solvency, Profitability and Liquidity in the fiscal sector. The analysis makes a comparing over the old ages in order to analyze the well being of in private owned fiscal establishments in Ghana. This well being is reflected in the function of the private sector in economic development. The fiscal soundness indexs shown below seek to exemplify the tendency over the old ages.

4.1 Capital Adequacy Ratio ( CAR )

The adequateness ratio for the 4 Bankss as shown in figure 1 below is good above the Bank of Ghana statutory demand of 10 % . However, due to adverse micro-economic development, Ecobanks CAR in 2004 was 9.93 % . The overall public presentation in footings of capacity of the Bankss to run into their liabilities has been rather encouraging as compared to old old ages. This establishes strong assurance in the banking system.

4.2 Asset Quality

The plus quality which is computed as proviso ratio is used as a public presentation index to measure the well being of banking operations. The chief primary map of Bankss as mentioned in subdivision 1.1 is to call up nest eggs and impart these financess in the signifier of loans to persons and companies to finance assorted undertakings which lead to economic and private sector development. These loans must be serviced to do resources available for the bank to map. When loans are non paid back, this may ensue in the accretion of non-performing loans which limits the Bankss loan portfolio and enables Bankss to run into their fiscal demands when due.

Table 7: Asset Quality Ratio ( 2000 2004 )

BANKS 2000 2001 2002 2003 2004

BBG 2.1 1.3 1.1 3.3 3.3

SCB 7.1 8.3 0.5 1.0 0.4

Ecobank 1.5 1.8 1.2 2.1 1.0

SG-SSB 3.6 7.4 6.4 7.5 3.0

The proviso ratio of the 4 Bankss form 2000 to 2004. In 2000 the proviso rate was every bit high as compared to that of 2004. This was a clear indicant that the Bankss quality of loans and progresss were deteriorating. There has been a consistent autumn in the proviso ratio in 2001 and 2002. This downward tendency in the proviso ratio is an indicant of good plus quality.

4.3 Profitableness

Profitableness has been the trademark of most concerns worldwide. In general Bankss in Ghana strive to prolong sound and profitable banking operations. The industry makes usage of the ROA and ROE ratios in mensurating the grade to which it expeditiously allocates its resources to maximize stockholder value.

4.3.1 Return on Assets ( ROA )

Highlights on the ROA tendency over the period 2000 to 2004. This ratio is critical and as such is invariably monitored by bank governments. This ratio throws more light on public presentations of the bank. It can be seen in figure 3 that the 4 Bankss have fluctuation consequences for the period ; this signifies competition in the full banking industry.

Table 8: Tax return on Assetss ( 2000 2004 )

BANKS 2000 2001 2002 2003 2004

BBG 0.7 0.7 0.6 0.6 0.9

SCB 0.4 0.5 0.4 0.5 0.7

Ecobank 0.5 0.4 0.4 0.4 0.6

SG-SSB 0.6 0.7 0.4 0.4 0.7

4.3.2 Return on Equity ( ROE )

The downward tendency in the ROE was besides apparent in the banking industry in Ghana during the twelvemonth 2000 to 2004 as shown in figure 4 and table 9. This was due to really high runing cost of the 4 Bankss. Most of this cost was attributed to upgrading of engineering and the constitution of new subdivisions to make other parts of the state.

Over the old ages the downward tendencies has been more apparent as consequence of high runing cost of the 4 Bankss ( refer to postpone 9 and calculate 4 ) .

Table 9: Tax return on Equity ( 2000 2004 )

BANKS 2000 2001 2002 2003 2004

BBG 8.7 8.2 5.4 5.5 5.2

SCB 4.6 4.2 2.8 2.7 3.3

Ecobank 6.1 5.3 3.9 3.8 3.7

SG-SSB 4.6 4.2 2.8 2.7 3.3

4.4 Cost Efficiency

Figure 5 shows the cost efficiency tendency over the period 2000 2004 of the 4 Bankss compared to the banking industry in Ghana. The cost efficiency of the bank is derived by calculating the dealing cost ratio ( see Appendix 1 ) . As show in the tabular array below most of the Bankss have non been that efficient with the exclusion of BBG. This fluctuating public presentation is due to early phases of acute competition in the banking industry. The downward tendency can besides be attributed to new subdivisions in the County which are non yet doing net income.

Table 10: Tax return on Cost Efficiency ( 2000 2004 )

BANKS 2000 2001 2002 2003 2004

BBG 3.2 3.3 3.8 3.9 3.8

SCB 3.9 3.4 4.2 5.2 5.7

Ecobank 3.5 4.1 2.9 4.2 4.6

SG-SSB 3.9 3.4 4.2 5.2 5.7

In a nutshell, the CAMEL attack is used as the overall model in analyzing the fiscal strength and stableness of the fiscal sector in Ghana. The engagement of the private sector in the Ghanese economic system is due to the stableness of the fiscal sector and as a consequence lending to better the economic system. The authorities of Ghanas committedness to prolonging a vivacious economic system has called the phase for improved policies to pull more private sector investing.

Chapter FIVE

5.0 Summary and Conclusion

This survey shows that the private sector over the old ages has played a major function in the part of concern fight and economic growing. Private fiscal establishments have successful managed to turn to of import issues such as unemployment, constructing capacity to run into the demands of autochthonal Ghanaians. Their engagement has enhanced the quality of services and merchandises provided by concerns and besides have introduced high competition amongst concerns.

The literature reappraisal in this survey highlights the importance of the private sectors commitment to introduce, quickly adapt to dynamic concern environmental alterations and implement steps to invariably better its overall productiveness to the economic system. The literature seeks to confirm the turning outlooks of the research survey. The turning Ghanese economic system has witnessed monolithic alterations in its fiscal system. The findings reveal that the execution of the FINSAP by the authorities and the prudent supervising and regulative model provided by the Central Bank has significantly improved Ghanas fiscal sector. These policies have deregulated and liberalized the economic system and have lead to the entryway of many private Bankss and the inflow of foreign investing. This has widened fiscal establishments in footings of supplying broad scope of services and merchandise groups to its valued clients.

Fiscal and pecuniary policies introduced by the Central bank aimed at guaranting economic stableness, cut downing domestic debts, commanding rising prices, stabilising monetary value and hiking the foreign exchange market all of which have supported the success of the private sector. The debut of Universal banking in Ghana by the Central Bank has besides paved the manner for the in private owned fiscal establishments to concentrate on supplying high quality services and merchandise groups to its banking sections viz. retail, corporate and investing banking client.

The CAMEL analytical model used for the survey has confirmed that the betterment of the fiscal sector has paved the possible function of the private sector to lend to concern fight and economic growing. The private sector could non hold had such a positive consequence on the economic system without the intercession of FINSAP.

The chief decision that can be drawn from the survey is that the success of the private sector has significantly improved the Ghanese economic system. However, the chief challenge of the private sectors function is how to better upon its success to guarantee sustainable growing, competition and economic growing.

With the current public presentation of the Ghanese economic system is it ready to back up new private concerns?

5.1 Recommendations

To enable the private sector capitalize on its current success and still keep a prima function in lending to economic growing the undermentioned recommendation are offered.

  • The authorities should make more attractive policies aimed at pulling foreign investors into the private sector.
  • The authorities of Ghana should present effectual policies to turn to the current planetary economic crisis. These policies should function as a shock absorber for the private sectors uninterrupted development.
  • Development of cardinal establishments including codifications and criterions of private sector administration.
  • Government should decently turn to the SMEs development sector because it holds bulk of low skilled group which is a possible driver to economic growing.