Bank Deposit Mobilization, Loan Advancement and Financial Stability: The Role of Bank Branches in an Emerging Market

Abstract

This study investigates the relationship between bank branches, financial intermediation and financial stability in Ghana using 35 banks between 2009 and 2017. Employing a panel, two-step dynamic GMM model, a non-linear “inverted U-shaped” relationship is documented between bank branches and financial stability. This implies that initial increases in bank branches promote financial stability but beyond 191 and 173 bank branches, bank branching derails banking stability. The findings further reveal that bank branches enhance the positive effects of deposits on bank stability whilst reducing the negative consequences of bank lending on financial stability. These findings imply that while bank management can rely on bank branches to enhance loans and deposits in promoting banking stability, bank management should also be cautious about the number of bank branches they keep giving that beyond a certain threshold, it may impede stability.