Effect of Recapitalisation on Bank Efficiency and Productivity in Ghana

Abstract

Several changes in recent times have characterised the business of banking in the world which solely relied on sufficient capital to implement minimum capital requirement and to ensure banks stay competitively. The Central Bank in Ghana noticed that the minimum required capital of banks as of 2008 was not sufficient to enable them to take more significant ticket transactions. It, therefore, augmented the minimum required capital of universal banks to GH₵ 60 million on 31st December 2009 and GH₵ 120 million for new entrants in 2012. The rational was that the existing banks have to increase their capital according to their risk appetite as the country has discovered oil and gas fields, which required much capital outlay for its operations. This study evaluated the benefit derived from 2009 revised capital of the banking industry to the banks, the impact of the macroeconomic indicators such as inflation and the growth in GDP on the banking sector and the operations of foreign and domestic banks. It covered a 11-year period (from 2005 to 2015) with data from the Ghana Bankers’ Associations, which was cross-validated from the records of the Bank of Ghana. Twenty-Two (22) out of the twenty-six (26), representing 85% of banks that have a universal banking license, were used for the research. The data on inflation and GDP growth rate, which served as macroeconomic indicators, were obtained from the IndexMundi database. The first stage geometric averages based on DEA-MPI indicated that banks were more efficient before recapitalisation than after recapitalisation. Also, there was a cumulative increase in productivity by 3.2% from 2005 to 2009 while the period 2011 to 2015 witnessed a decrease of 1.2%.