Effect of the Minimum Capital Requirements on Performance of Banks in Ghana

Abstract

The Ghanaian banking sector in recent years has seen some developments after the recapitalization exercise embarked on in 2012. This study generally assesses the impact of the 2012 recapitalization on the performance of banks within the Ghanaian banking sector. The study specifically aimed at examining the effect of the regulatory increase in capital of banks in Ghana on their performance as well as the impact of the regulatory increase on the lending behaviour of these banks. Employing a quantitative research approach, and with the use of the paired t-test statistical too on data gathered from some 32 banks in the country as at 2016, the study made the following findings: ROA and ROE after recapitalization were in decline in the sense that the average ROA value of 4.27 before recapitalization decreased to 4.12 showing a decline of 0.15. Likewise, ROE with an average value of 15.45 moved to 13.69, showing a decline of 1.76. It was with NIM that the recapitalization somewhat led to an increase which was not much; from 6.09 before recapitalization to 6.23 after recapitalization at just a 0.14 increase. These findings show that the recapitalization exercises rather brought a decline in the return on assets as well as on equity as proven by the pre and post recapitalization means of the variables. With these findings made, it can be said that investing in more capital does not necessarily lead to an increase in the performance as some practices of management are likely to cause the investment not to yield the needed outcome. From this assertion, the study’s second objective which is to examine the regulatory increase on lending behaviour somewhat showed that the banks performed poorly with regards to their lending behaviour seeing that there was rather a decline on the returns made to equity as well as assets.