A recent report reveals that around 22% of banks operating in Ghana have not met the required 13% Capital Adequacy Ratio (CAR) threshold. This gap highlights the ongoing challenges faced by the banking sector, particularly in the aftermath of the Domestic Debt Exchange Programme (DDEP). According to IC Insights, these banks need to consistently follow recapitalisation plans, enforce stricter credit risk standards, and maintain profitability to rebuild their capital buffers to levels seen before the DDEP.
The majority of these underperforming banks are indigenous, with local institutions bearing the brunt of the capital shortfall. Despite these challenges, IC Insights notes that the banking sector is making positive strides toward capital restoration, especially as it approaches the final year of regulatory relief.
As of October 2024, the sector's overall solvency has improved. The capital adequacy ratio, with regulatory reliefs, stood at 14.3%. Without the reliefs, however, it was lower at 11.1%. This marks a significant improvement from the previous year when the CAR was just 7.3%. The positive trend reflects growing optimism for continued progress as the country moves into 2025, which will be the final year of these regulatory interventions.
The Monetary Policy Report from November 2024 highlighted further improvements in solvency indicators. Specifically, the capital adequacy ratio with reliefs rose to 14.2% in October 2024, up from 13.4% in October 2023. However, the Non-Performing Loan (NPL) ratio, a key indicator of credit risk, increased from 18.3% to 22.7% during the same period, indicating that challenges in managing credit risk persist.
The banking sector’s recovery, particularly in terms of capital restoration, is encouraging but remains a work in progress. IC Insights emphasized that continued regulatory support and strong credit management will be crucial in ensuring that banks can maintain their solvency and move closer to pre-DDEP capital levels. For the indigenous banks, adherence to these strategies is essential for regaining financial stability and ensuring long-term sustainability.
With the final year of regulatory relief in sight, stakeholders are hopeful that the necessary reforms and capital injections will strengthen the sector, improve risk management, and contribute to overall financial stability in Ghana's banking landscape.
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