According to the World Bank’s 8th Ghana Economic Update, more than half of Ghana’s 23 banks are in a strong position to avoid needing recapitalization. Over two-thirds of the required recapitalization target, which had been expected to be completed in three years, was successfully accomplished by the majority of banks within a year, according to the World Bank.
In order to strengthen the banking sector’s resilience and enable it to offer substantial support for the recovery of the real economy, the Bank of Ghana expects that these recapitalization operations will be completed early.
The 8th Ghana Economic Update from the Bretton Woods institution highlighted that the banking sector is now stronger and better capitalised than during the DDEP, with increased profitability, though some emerging risks remain.
The Bank of Ghana further stated that those banks affected by the Domestic Debt Exchange Programme (DDEP) in 2023 are still following the Central Bank’s directives and implementing their approved capital restoration measures.
According to the Bretton Woods institution’s 8th Ghana Economic Update, the banking industry is now stronger and more capitalized than it was under the DDEP, with higher profitability, even though some emerging risks remain.
Notably, banks have experienced significant increases in profitability; in December 2023, return-on-equity after taxes increased to 34.2% from -34.4%. In a similar vein, return on assets increased throughout that time from -3.8% to 5.4%.
The increased regulatory norm of 10.0% was easily by the Capital Adequacy Ratio (CAR) of 13.9% in December 2023, owing to regulatory relief that prevented losses from the domestic debt restructure from being completely recognized.
However, the non-performing loan (NPL) ratio for the sector jumped from 16.0% in December 2022 to 20.7% in December 2023 and then to 25.7% in April 2024.
The rise is mostly attributed to increased credit risk, which is a result of the macroeconomic crisis of 2022’s delayed repercussions.
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