Bank Recapitalization and Market Concentration in Ghana’s Banking Industry: A Herfindahl-Hirschman Index Analysis
Global Journal of Business Research, v. 7 (3) pp. 31-45, 2013
16 Pages Posted: 29 Jan 2013
Date Written: 2013
Using Concentration Ratio and Herfindahl-Hirschman Index techniques, the paper investigates the concentration levels of the banking industry in Ghana and forecasts the future concentration levels of the industry should consolidations triggered by the new bank recapitalization policy occur in the industry. The study finds that the HHI indices provide evidence for the contention that for the past eight years the banking industry in Ghana has been highly competitive with no signs of concentration. Evidence also exists to underpin the conclusion that any consolidation of four banks or less stimulated by the new bank recapitalization policy will not upset the existing market concentration. However, consolidation of five or more banks will culminate in high concentration which will be inimical to the interest of customers. The paper, therefore, recommends that, all things being equal, policy makers should permit consolidation of four or less banks if that is the only way the banks will meet the new bank recapitalization requirement.
Keywords: Banking, Market Concentration, Herfindahl-Hirschman Index, Ghana
JEL Classification: D40, D41, E02, G21
Suggested Citation: Suggested Citation