Towards sound and effective regulation of competition in the banking industry in Ghana to promote stability efficiency and economic growth

Abstract

International trade and investment cannot succeed without the banking or more generally, the financial sector which usually plays the role of financial intermediaries between banks, traders and investors. The financial sector therefore plays a very key role in the promotion of trade and investment which ultimately lead to sustainable economic growth, hence, the need to ensure that the financial sector is properly regulated against systemic risks and threats which usually result in scandals having a devastating effect on the economy. The banking sector in Ghana is one of the most vibrant banking sectors in the sub region boasting of a tremendous growth in the number of banks, especially foreign banks in the past decade due largely to the effective legal reforms and policy directives of the Bank of Ghana. The growth in the number of banks and the influx of banks from a more technologically advances jurisdictions presents competition and an effective and efficient means of banking supervision as well as a proper regulation of the relationship between banks. The recent increase in the minimum capital reserve for banks is likely to cause the merger and acquisition of banks in Ghana. Notwithstanding the central bank’s pre-emptive actions with policies and legal reforms to purge the banking sector of threats and systemic risks, there still remain serious gaps in the existing legal and institutional framework of banking supervision and regulation. One of such gaps is the non- existent of a comprehensive legal and institutional framework to regulate anti- competition practises such as price fixing, collusion and abuse of dominant positions and the proper regulation and monitoring of mergers and acquisitions such that monopolies are not created. This gap creates a threat to the efficient and effective operation of the banking sector and where it is not properly addressed, it may have a direct impact on economic growth and sustainable development. A comprehensive legal and institutional framework on competition has proven to have direct impact on the country’s economic growth and development. Properly regulated competition policy among banks promotes innovation, efficiency and financial inclusion without compromising the financial stability of the economy. The importance of a comprehensive legal policy on competition for the banking sector cannot be underestimated as it encourages market contestability through an effective regulation of entry of capitalised banks and the timely exit of those that are insolvent and ensure that the relationship between banks are properly regulated and supervised. 9 Notwithstanding alternative means proposed by scholars to promote economic growth, law has proven to be a great tool to be used for the socio- economic development of a country, especially developing countries. Law is the most effective and efficient means of establishing relevant institutions, applicable rules and regulations to stimulate economic development. This study attempts to exploit the general legal provisions which affect banking supervision and regulation in Ghana and seek to highlight the systemic risks the existing legal and institutional framework pose to the banking sector. The study then proposes an effective and efficient solution to curb these threats by analysing the South African model law and institutional provisions on competition for the banking sector and proposes an adoption and modification of the model to suit the needs of Ghana to ensure an effective regulation of anticompetition practices in the banking industry in Ghana to promote stability, efficiency and economic growth.