The Banking Sector in Ghana: Issues in relation to Current Reforms by Edmund Benjamin-Addy

Chapter One 
1.0 Introduction 
The study examines the challenges confronting commercial banks in Ghana as they strive to hon-

our the recapitalization directive issued by the industry’s regulator, that is, Central bank of Gha-

na. It begins by outlining the background to the study, followed by the statement of the problem, ra-

tionale and objective of the study prior to presenting the research questions. The research meth-

odologies, significance of the study, as well as the chapter organization have all been featured in 
this opening chapter. 
1.1 Background of the Study 
Banking reforms have been an ongoing phenomenon around the world right from the 1980s; 
it has however more intensified in recent years due the impact of globalisation which is 
precipitated by continuous integration of the world market and economies. Financial 
restructuring mainly involve the recapitalization of the banks with equity injection where 
liquidity was low, and the cleaning up of the balance sheets of non-performing assets. 
Capitalization refers to the process of determining the quantum of funds that a firm needs to 
run its business. Various financial management experts have indicated varying degrees of 
definition for capitalization. According to Guthman and Dougall (2002) “capitalization is the 
sum of stocks and bonds outstanding”. Bonneville and Dewey (2002) also note that 
“capitalization is the balance sheet value of stocks and bonds outstands”. Dewing (2004) is of the 
view that “capitalization is the sum total of the par value of all shares”.

Capitalization is an important component of reforms in the banking industry, owing to the 
fact that a bank with a strong capital base has the ability to absolve losses arising from non 
performing liabilities. Attaining capitalization requirements may be achieved through 
consolidation of existing banks or raising additional funds through the capital market 
Banking sector reforms and recapitalization have resulted from deliberate policy response to 
correct perceived or impending banking sector crisis and subsequent failures. This crisis can be 
triggered by weakness in banking system characterized by persistent illiquidity, insol-

vency, undercapitalization, high level of non-performing loans and weak corporate govern-

ance, among others. 
The global financial and economic crisis presents significant challenges for many African 
countries including Ghana. It has also exposed weaknesses in the functioning of the global 
economy and led to calls for the reform of the international financial architecture. Although the 
crisis was triggered by events in the United States housing market, it has spread to all re-

gions of the world with dire consequences for global trade, investment and growth. The crisis 
presents a serious setback for Africa because it is happening at a time when the region is mak-

ing progress in economic performance and management. 
Recapitalization in Ghana comes with every amendment to the existing banking laws. 
Indigenous and foreign commercial banks in Ghana have therefore been instructed to 
augment their capital level to a minimum of GH¢60 million by December of 2012. The 
indigenous banks according to the Bank of Ghana (BOG) have been given a longer period to 
meet the deadline, this is having been given GH¢25 million by 2010 and GH¢60 million by 
December 2012. 

The Banking Sector in Ghana: Issues in relation to Current Reforms by Edmund Benjamin-Addy