The effect of foreign banks on the performance of Ghanaian banks

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2008-06-26
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Abstract
In recent years, foreign bank participation has increased tremendously in several developing countries. Ghana has had its fair share of this emerging global phenomenon. Though the number of countries embracing foreign bank entry is growing, many questions regarding this process are still being debated, including: 1. What draws foreign banks to a country? 2. Which banks expand abroad? 3. What do foreign banks do once they arrive? and 4. What are the effects of foreign bank entry on the performance of domestic bank? The main objective of this paper is to attempt to find out the determinants of foreign bank entry into Ghana and to empirically examine its effects on the profitability and efficiency of domestic Ghanaian banks. The annual balance sheets and income statements of 5 local and 5 foreign banks were used in the empirical estimation. In addition, a questionnaire survey was applied to executives of nine (9) out of the thirteen (13) foreign banks currently operating in Ghana in order to determine the factors that influence foreign banks’ decision to invest in Ghana. The period under consideration extends from 2000 - 2007. The survey results point to an indication that political stability, government incentive policies and anticipated high investment return favour Ghana as host country for investment and that Ghana is an important part of foreign banks’ globalization strategy. The empirical analysis reveals that foreign bank entry did not significantly affect the net interest margin non-interest margin and the overhead costs of domestic banks over the survey period. The results however, exhibit a strong negative correlation between foreign bank presence and local bank profit — before — tax. It also reveals that foreign bank entry led to significant improvement in the efficiency of domestic banks over the period.
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A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Executive Master of Business Administration, 2008
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