Financial sector restructuring policy and savings mobilization: a study of the Banking Sector in Ghana.

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The study provided an analysis of savings mobilized by banks in Ghana during the repressed and liberalized financial periods. Specifically, the study considered overall private and public deposits mobilized by banks, dealing with demand, savings and time deposits .The percentage change during and after liberalization was calculated aimed at showing the trend in savings mobilization by banks .The percentage of public and private savings to overall savings and the percentages of demand, savings and time deposits to overall deposits were calculated. The periods of analysis were divided into three; before, during and after the implementation of the financial reforms, starting from 1981 and ending in 1999. Low savings characterized the banking sector for years before the Structural Adjustment Program, which began in 1983. Whilst foreign inflows and savings were on the increase, domestic savings mobilization continued to fall. FINSAP which began in 1987 as a component of the ERP/SAP was aimed at restructuring the financial system and eventually leading to an increase in savings in the economy in general and the banking sector in particular. Observations of real deposit rates indicate that they were negative or extremely low for most years before the implementation of the reforms. The low and fluctuating trend in savings mobilized by banks could partly be attributed to the negative deposit rates. The unorthodox monetary measures used during the repressed period affected negatively savings mobilization by banks. It was also observed that the general characteristic of savings after financial liberalization did not differ significantly from the repressed period, thus indicating the inability of the reforms in itself to increase savings mobilization without regard to other macro-economic indicators. Literature on the negative effects of financial repression particularly the works of McKinnon (1973) and Shaw (1973) were analysed. Literature on interest rates and savings behaviour led to various explanations in which there appeared no clear relationship between the two as advocated by McKinnon and Shaw in their early work on financial repression. Empirical studies were also cited to examine the impact of financial repression on savings. Other factors that affect savings, income, taxation, demographic conditions were also examined. The growth and development of the formal banking sector in Ghana was examined. Banking diffusion and the current distribution of bank branches throughout the country showed that in terms of number and institutional structure, the banking sector is relatively diverse and apparently adequate. The contribution of the informal sector in savings mobilization came under examination. An overview of the economy in general and the financial system in particular before the ERP and FINSAP was carried out. The study examined the various objectives and structure put in place for FINASP and matched these against the overall broad objectives of reforms of financial system set out by the World Bank and the International Monetary Fund.
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 degree of Master of Science in Development Policy and Planning