Recapitalization and banks’ financial performance: evidence from the ghanaian banking industry
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Date
2023
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KNUST
Abstract
Prior to recapitalization, commercial banks in Ghana were in a bad position to finance large projects because they lacked the financial muscle to compete in industries that required more capital to invest in. While recapitalization may address this concern, the effect of the exercise on banks’ financial performance after the 2017 recapitalization exercise remains a subject of empirical investigation. Thus, the principal aim of this research was to examine the role of recapitalization on financial performance of selected commercial banks in Ghana. The study relied on panel data from sixteen (16) commercial banks in Ghana from 2014 to 2021. The researcher employed Seemingly Unrelated Regression (SUR) to remove the effect of the cross-sectional dependence in the panel fixed effects model. The main dependent variable was financial performance of the commercial banks represented by profitability, liquidity, and asset quality of the commercial banks. Based on the empirical findings, recapitalization had a significant impact on the financial performance of the selected commercial banks in Ghana. Specifically, recapitalization had negative and significant effects on all the profitability measures; net interest margin (NIM), return on asset (ROA), and return on equity (ROE). Similarly, recapitalization had a significant negative impact on asset quality of the commercial banks. However, the study found a negative relationship between recapitalization and liquidity of the commercial banks. The adverse impact on the profitability of commercial banks suggest that Ghana's regulatory increase in bank capital has not improved the profitability condition for the country's banking sector. It is therefore recommended that banks should increase their total asset base and diversify in order to generate more income from their assets.
Description
A dissertation submitted to the depar tment of accounting and finance, kwame nkrumah university of science and technology, kumasi in partial fulfillment of the requirements for the award of a master of business administration, accounting