The sector has had its fair share of scandals and bank closures. The Bank for Housing and Construction, Ghana Cooperative Bank and Meridian BIAO (1) have all been liquidated. Within the 1990's National Investment Bank had cases of embezzlement to the tune of millions of cedis. One such case reported in the press had the Accountant and a Deputy Managing Director dismissed. A scandal in January 1997 at Ghana Commercial Bank and involving the Managing Director of A-Life supermarket chain, who owns 4% of GCB has put to test and raised suspicions about the Bank of Ghana's regulatory capacity. (Sandbrook and Oelbaum 1999). The scandal involved the use of a generous overdraft facility and cheque cashing privileges to cash over 75 billion cedis of GCB and two other banks. (Sandbrook and Oelbaum 1999)
For the 1st quarter of 1998, the actual primary ratio observed was 9.9% amounting to GHC 250.8 bn., that of the secondary ratio was 52.5% amounting to GHC 1325.9 bn. Thus the DMB's exceeded the minimum primary and secondary ratios by 1.9% and 17.5% amounting to GHC 48 bn and GHC 442.1 bn respectively. 1998 particularly saw a rising trend on the part of the actual primary ratios (in %) only stabilizing in the 3rd quarter. that of the secondary ratio increased in the 1st two quarters and declined marginally in the 3rd and 4th quarters. A similar scenario is depicted in the remaining periods.
Interest rates have been excessively high. These rates fell from their 1990 high in 1991 and started a steep ascent recovering in 1994 only to shoot up again the following year, peaking at an all time high in 1997. The bank rate now the prime rate stood at 45%, 91 day treasury bill rates was 42.72% and that of the 182 day T'bills and 1 year notes were 37.70% and 42.80% respectively.
These high interest rates have been attributed to excessive government borrowing from the public and the safe haven T'bills provide to the banks compared to the high risky private sector. The manufacturing sector appears to be the largest user of the loans and advances followed closely by domestic trade. These 2 sectors used up 47% of the total loans and advances (excluding cocoa marketing) of the DMB's. There has been a decrease in the manufacturing share over the period 1990 to 2001. Its share has decreased from 31% to 25% while that of domestic trade has increased from 11% to 23%. There has been a fall in the shares of agriculture, export trade, electricity, services and mining while that of the import trade remained the same with that of transport actually increasing marginally. The share of the electricity, water and gas sector can be explained by the high risk of default and the heavy subsidization by government as well as the inefficiencies within the sector. The falling share of the manufacturing sector is of great concern and which is amplified in the performance of the industry sector in GDP. The increased lending to domestic trade and its unproductiveness is affecting the industrial sector. For any country to develop it needs a strong industrial sector to develop. The mining sector's 1% although not befitting the sector is able to attract foreign capital. A Case worth noting is the purchase of shares and injection of capital by LONMIN PLC in Ashanti Goldfields. The BOG has failed to mop up excess liquidity in the system. Currency outside the banks has increased from its 1990 figure of 20% to 41% of M2 in 2001. Savings and time deposits have increased their share from 23% to 38% while that of demand deposits has seen a remarkable fall from 49% to 21% during the period. This may be attributed to the numerous charges on demand deposits and the attractiveness of treasury bills, which carry interest rates far in excess of the average savings rate banks offer. Excess currency outside the banks also boils down to the fact that, there are a vast majority of small to medium income earners, who cannot meet the minimum saving requirements (such as the minimum opening balance which is unusually high at some banks) of the DMB's; and moreover operating a savings account at times earns negative real returns which discourages (2) individuals from saving and instead prefer to keep their money in hiding places at their homes. The effects of inflation in eroding interest gains cannot be left out.
Be Sure to Continue to Page 3 of "Democracy and Development in Ghana: A Look at Eight Years of NDC Rule ".
