EFFECT OF THE NEW ECONOMY IN BANKING SECTOR: EXPERIENCE OF GHANA

Abstract

Ghana’s banking sector is a critical component of its economy. However, there are growing trend of banking sector blues which caught the attention of the public recently. It is largely due to the woefully performance of the economy over the last years. In view of this, the research paper analyzed the relationship between the banking sector’s performance and new economy and the contribution of the new economy to the success of Ghana’s banking industry using time series data spanning from 1990 to 2016. The key time series model adopted to achieve the set objectives were the Augmented DickeyFuller (ADF) Test, Johansen Cointegration Test, Granger Causality and Descriptive Statistics. The results shows presence of positive correlation between the banking sector’s performance and the new economy in the long run. The results also indicated that, a good performance in banking industry bolsters economic growth and GDP at large. However, causality test for the anticipated causal relationship between the banking sector and new economy proved to be correlated, thus, a causal relationship. The research recommends that, government policies aim at improving the banking industry should target reducing hyperinflation, stabilizing the monetary policy rate and increasing private sector credits to banks and nonbanks financial institutions and finally encourage foreign direct investment. In conclusion, the new economy has leapfrogged the activities of banking industries in Ghana. Banks have gradually equipped themselves with high tech tools and state –of-art technologies except the rural banks.