The impact bank recapitalisation requirement on profitability of local and foreign banks in ghana

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The Bank of Ghana embarked on a “clean up” exercise in the banking sector to strengthen the sector and protect the properties of depositors. This exercise caused some of the banks in Ghana to exit the industry due to revocation of license, too many non performing loans or insufficient capital reserve. Among the reforms, the minimum capital reserve for financial institutions in Ghana, which was initially GHS 120 million (USD $20,859,324) was increased to GHS 400million (USD 69,531,080). Banks were required to get their capital reserve up to that amount by the end of 2018. Among the clean-up, the capital adequacy ratio was set at 10%. Research has shown that effect on bank recapitalization differs from foreign- owned and locally-owned banks in Ghana. Since it was too soon observe the effects of bank recapitalization in 2017, this study delved into the impact bank recapitalization has on foreign-owned and locally-owned universal/commercial banks in Ghana. Foreign banks that is mentioned many times in this study refers to banks established in other countries (and majorly owned by foreigners) but have set up offices in Ghana. Locally banks as used in this paper refers to banks who have majorly owned by indigenes, in this case Ghanaians. A total of eight banks were used in this study; four locally banks and four foreign owned banks. The returns on asset, returns on equity, capital adequacy ratio and total assets of these banks were collected for the period 2007-2009. Ghana’s Real GDP growth rates for the same period were collected. The data collected can be described as a panel data, thus a panel data analysis is used. A Hausman Test was run to help determine the appropriate results to use for the analysis of this study. The results revealed that capital adequacy ratio had a positive relationship with ROA of both types of Banks. It was also established that total assets had a negative relationship on ROA of these banks. GDP growth rate had a positive coefficient for local banks but the opposite was recorded for foreign banks.
Undergraduate thesis submitted to the Department of Business Administration, Ashesi University, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2020