The Impact of Financial Sector Policies on Banking in Ghana

Abstract

Ghana has implemented a financial sector reform programme since the late 1980s.The banking system had suffered severe shallowing together with widespread bank distress as a consequence of the pre-reform policies of financial repression, government control of banks and the prolonged economic crisis.The financial sector reforms included the liberalisation of allocative controls on banks, restructuring of insolvent banks and reforms to prudential regulation and supervision.This paper examines why the banking system in Ghana was in need of reform in the 1980s and evaluates the impact of the financial sector reforms.The conclusion reached is that while the reforms have brought about improvements in the banking system -banks are now more prudently managed and supervised -major constraints to efficient financial intermediation remain, not least macroeconomic instability and the still very shallow nature of financial markets.

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