Financial Intermediation and Economic Growth: The Case of Ghana

Abstract

Ghana‟s financial sector has undergone several reforms due to regulatory noncompliance and poor supervision, which led to the cleanup of many unprofitable banks in 2018. Directives from the Bank of Ghana (BOG) to the commercial banks to keep high reserves ratio and maintain interest rate ceilings may negatively affect the competitiveness of the financial sector. A quantitative research approach embedded with Explanatory Sequential Survey Design was employed. Financial institutions in Ghana and uniform distribution of bank outlets across its population were used. The study used the census sampling method to select all the twenty-three commercial banks in Ghana that survived the minimum capital requirement increment. Bank assets, credit administration, and financial transactions through e-banking services were used to measure the impact of financial intermediation on economic growth. It was established that a significant positive relationship exists between financial intermediation and economic growth in Ghana. Bank asset to GDP has a positive relationship with economic growth. There was a positive relationship between economic growth, which was proxied by per capita income and bank assets. It was recommended that there should be a policy and educational campaigns by the government and Bank of Ghana through the National Council for Civic Education that will promote financial intermediation by ensuring more financial inclusion among those in the informal sector and the rural areas.