Recapitalization And Bank Performance:Evidence From Ghana

The purpose of this study is to examine the effect of recapitalization on the bank?s performance in the Ghanaian banking sector between 2006 and 2016.Employing a panel data set of 25 banks with a robust fixed effect,random effect,and ordinary least squares,the findings on recapitalization in the Ghanaian banking industry is presented.First,we find significant difference in bank performance across the different recapitalization regimes where performance after the recapitalization improved.This implied that recapitalization partly contributed to the improved performance of banks.Second,we find that recapitalization has both propelling and derailing effect on performance.Thus,while recapitalization propelled operational profitability performance(Net interest margins and Loan portfolio profitability),recapitalization reduced financiers profitability(ROA).Third,we find that recapitalization had varying effect given the ownership structure and the form or type of profitability under investigation.Specifically,while recapitalization reinforced operational profitability(NIM and LPP)for foreign,local,listed and unlisted banks,recapitalization at the same time dampened bank financiers? profitability(ROA and ROE)for foreign and listed banks,respectively.Fourth,we established a nonlinear direct “U” shape effect which runs from recapitalization to the different bank performance indicators.From these findings,we conclude that recapitalization should be healthy for the banking sector as continuous increment in the capital base enhanced operational performance.This is buttressed by the evidence from Ecobank?s case that recapitalization actually had positive effect on net interest margin(NIM)and returns on asset(ROA).Also,there is the need for prudence on the side of banks and Bank of Ghana to ensure that the maximum benefits that come with the recapitalization regulation are fully reaped.Lastly,a high level of capitalization is prudent for recapitalization to have a desirable effect on bank?s performance..