This study set
out to investigate the effect of funding sources on the lending patterns of
banks in Ghana. Using a large and representative sample of 22 banks operating
in Ghana from 2005 to 2011, the study investigated the funding sources, the
lending patterns of banks in Ghana as well as the effect of funding sources on
lending patterns. The study made use of a panel data methodology using a panel
corrected errors estimation technique.
The findings of
the study indicate that deposits comprise the majority of funding sources while
non deposit funding sources and internal funding follow in that order. On
lending patterns of banks in Ghana, the study finds that most of the loans are
allocated to the tertiary sector followed by the secondary sector with the
primary sector lagging behind. Additionally, the regression results show a
positive and significant relationship between lending to the primary economic
sector, the tertiary economic sector, total lending and deposits. Furthermore,
the findings suggest that in Ghana, banks finance loans to the primary and
secondary sector using internal funds. The study gives rise to very important
policy recommendations. It is recommended that policy makers should put in
place policies that would make it more attractive for banks to channel more of
their lending to the primary economic sector especially as their deposits
increase.
