Recapitalization of banks has been a topic of discussion between politicians, economists, bank regulators, academicians and the general public due to its role in the country’s economic growth. This reform has been implemented in a number of countries to improve a strong banking system of which Ghana is not an exception. The main objective of the study is to ascertain the effects of recapitalization on the Ghanaian banking sector. In a decade (2007 to 2017) there ha ve been 3 various recapitalizations (2007, 2012 and 2017) of the Ghana banking industry. The study is conducted to prove if the recapitalization of banks has been worth it using the 2012 exercise as the benchmark. Various literatures are reviewed, and scholars cited. The study adopts quantitative research technique based on ex-post factor design. It uses secondary data on the research variables (cost to income ratio, profit before tax, non-performing loans, return on assets, return on equity, Net interest margin, capital adequacy ratio, liquidity ratios, asset quality ratios) over the period 2007 to 2018. Analytical techniques of both descriptive statistics and independent sample test were adopted for the study. The t-test for equality of means was used to ascertain evidence of statistically significant difference in banking sector performance indicators and the Levene’s test for equality of variance was also adopted. The study concludes that banking recapitalization has the potential to promote the performance of banks in the industry. Hence it was recommended that the central bank (BoG) initiates sufficient regulatory measures to sustain the benefits of banking recapitalization to benefit depositors and the nation as a whole.
In the modern economic world, the banking system plays an important role. The financial sector is crucial to the economies of various countries, and banks remain a core of the sector, especially in developing economies where the capital market is not strong enough [
Recapitalization of banks has been a topic of discussion between politicians, economists, bank regulators, academicians and the general public due to its role in the country’s economic growth. It is an aspect of banking industry reform that is focused on the need for existing banks’ reorientation and repositioning in order to achieve an effective and efficient result. It is a strategy used to tackle banks’ insolvency and prevent future financial distress possibilities. Most banks and financial institutions in Ghana and other countries have suffered due to recapitalization exercises whilst others have benefitted. However, the general impact of this exercise on the overall banking industry of a country remains an empirical one.
Addressing this issue, Adegbaju and Olokoyo [
Spong [
Financial sector reforms have been implemented in a number of countries to improve a strong banking system. They control a large part of the money supply in circulation and can influence the nature and character of any country’s production. When advanced countries pursue the right balance of financial regulation, whether by increasing capital requirements or by imposing restrictions on certain activities, it is essential to understand the possible cost of these laws.
Comparatively with developing countries precisely Africa, despite the financial sector reforms since the 1990s with an aim of improving profitability, efficiency and productivity, commercial banks’ performance have remained poor with substantial gaps in service delivery to private agents [
This study seeks to establish the impact of various capitalization on the Ghana banking industry. Since the introduction of a universal banking license in 2003, the Ghana banking industry has been in growth though the negative aspects can never be overlooked. Based on a limited capacity for dealing, the banking sector then was smaller. In the last sixteen years, the banking industry has gone through three recapitalization programmes. It began in 2007 when banks were tasked to recapitalize to GH¢60 million, then in 2012 when banks were directed to recapitalize up to GH¢120 million and in 2017 when it was increased to GH¢400 million. Many believe the exercise wasn’t done appropriately and some banks could have been saved without necessarily recapitalizing the sector. But according to the Bank of Ghana, such recovery initiatives are systematically designed to make the banks bigger, more stable, and more robust in order to support the Ghanaian economy. With the diverse point of views, it calls for an empirical study to analyze whether recapitalization is the solution to the banking sector crises in Ghana.
Banking in Ghana can be traced back to the early 1950s, when the Bank of England set up the Bank of Ghana in 1953. The Bank was subsequently divided into two: The Bank of Ghana, which acts as an issue bank, to be converted into a complete central bank; and the Ghana Commercial Bank, to become the largest commercial bank with a monopoly on public corporate accounts. On March 6, 1957, the Gold Coast attained independence from Great Britain and became known as Ghana. As expected, the Bank of Ghana took over the management of the currency and issued its first National Currency in July 1958; the Cedi to replace the old West African currency notes. The Ghana Commercial Bank assumed the role and functions of Government bankers and began to take over the finances of most Government departments and public corporations.
The Bank of Ghana (BoG) has been the central bank which oversees all operating banks in Ghana. The arrival of the new government led to the creation of more banks. Banks incorporated by legislation between the periods 1957 to 1965 include: The National Investment Bank as an Investment Banking Institution; the Agricultural Development Bank for the development of Agriculture; the Merchant Bank for merchant banking; and the Social Security Bank to encourage savings. All these institutions were established as state-owned banks in conformity with the economic policy of the time. In the early 1960s, Ghana suffered a serious economic crisis due to its socialist policies, including strict exchange control, trade deficits and import/export issues. This crisis continued until 1983, when there was a shift from economic socialism to a market economy.
However, the crisis in the sector and its timing can be related to the sharp decline in economic performance in the late 1970s. During the early years of independence, the history of the financial sector’s growth was closely linked to comprehensive government policy after 1983. The government intervened in every sector of the economy in an attempt to rapid industrialization. Financial policies were established as part of an overall strategy for industrialization to replace imports. By the 1970s, issues like interest rate controls and credit ceilings ensured that cheap credit was available to government-imposed priority sectors such as manufacturing. Heavy taxation of the banking sector had become a major source of revenue for the government. High reserve requirements were placed on the banks. These and among other restrictive policies created major distortions in the financial sector.
In 1987, the Government of Ghana, in partnership with the World Bank, took steps to improve the banking and financial sector with a Financial Sector Adjustment Program. An economic recovery program was launched in 1983, seeking to restructure the economy and reverse economic decline trends. This made it quite clear to the government that a restructuring of the then troubled financial sector had to be pursued if economic reforms were to lead to a sustained recovery of growth in the economy. Starting in 1983, the Economic Recovery Program (ERP) aimed to stabilize the economy and then promote growth. The economic reforms included measures to promote fiscal discipline, trade and exchange system reforms, and other wide-ranging measures to initiate price liberalization and many economic activities deregulation. After the crisis, the Banking Law was enacted in 1989, enabling appropriate local bodies to file license applications for operating as banking institutions. Subsequently, a number of corporate entities were licensed to operate as banks, including Meridien (BIAO) Trust Bank, CAL Merchant Bank, Allied and Metropolitan and ECOBANK.
Nevertheless, in 1992, the government started privatizing some of the state-owned banks, and the financial sector’s liberalization led to the entry of a number of foreign banks into the banking industry as well as an increase in the number of domestic banks. The liberalization of the financial sector under the Financial Sector Adjustment Programme (FINSAP) and Financial Sector Strategic Plan (FINSSIP) also brought about improved savings, enhanced deposit mobilization, financial deepening, and competition in the banking industry. However, lending rates were high with wider spread between deposit and lending rates. In 2004, the new banking Act was enacted. The introduction of the new Banking Act also led to the elimination of secondary reserves and adjustments in the minimum capital. The minimum capital was initially increased to GHS 60 million in 2007 and then in 2012 it was increased to GHS 120 million. The new Act also saw the introduction of the Universal banking license, which allows banking to provide various forms of banking services. Mergers and acquisitions of some banks also emerged largely on account of the surge in the minimum capital requirement with recent examples including Access Bank and Intercontinental Bank, Ecobank and TTB Bank, and HFC Bank and Republic Bank of Trinidad and Tobago.
Recently, Ghana undertook a serious clean-up exercise in the banking sector in order to protect depositors’ money and avoid bankruptcy. This emerged from mismanagement and unavailability of the stated capitals of some banks. The mismanagement of funds and illegal use of the stated capitals of UT Bank and Capital bank prompted the BoG to further look into all banks to ensure a robust financial sector. This led to the shutting down of the aforementioned banks and granted a takeover by the GCB Bank. As a result, the Bank of Ghana (BoG) in accordance with Section 28 (1) of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), revised upward the minimum paid-up capital for existing banks and new entrants from GH¢120 million to a new level of GH¢400 million (233.33% increase) from the effective date of 11th September 2017 and banks ought to comply by end of December 2018. The aim of the recapitalization according to the BoG is to “further develop, strengthen and modernize the financial sector to support the Government’s economic vision and transformational agenda”. With this directive, banks were given these three options to raise additional capital.
1) Fresh capital injection.
2) Capitalization of income surplus.
3) A combination of fresh capital injection and capitalization of income surplus.
As at 31st December 2018 which happened to be the deadline for banks, there were 23 universal banks that have all met the new minimum paid-up capital of GHC400 million.
According to BoG, out of the 23 banks, sixteen banks met the new minimum paid-up capital requirement of GH¢400 million mainly through capitalization of income surplus and fresh capital injection. The 16 banks are Zenith Bank, Ecobank, GCB Bank, Stanbic Bank, Standard Chartered Bank and Barclays Bank. The others are Access Bank, Consolidated Bank, Republic Bank, Fidelity Bank, UBA, Societe Generale, GT Bank, FBN Bank, Cal Bank, and Bank of Africa.
Due to the inability of some banks to meet the requirements, the Bank of Ghana approved three applications for mergers. First Atlantic Bank, Merchant Bank Limited and Energy Commercial Bank merged, Omni Bank and Bank Sahel Sahara merged, and First National Bank and GHL Bank merged as well. The three resulting banks out of these mergers met the new minimum capital requirement. Their process was successful because private pension funds in Ghana injected fresh equity capital into five indigenous banks through a special purpose holding company named Ghana Amalgamated Trust Limited (GAT). In addition, the state-owned banks ADB and NIB also benefitted from the GAT scheme. The other beneficiary banks (the merged Omni/Bank Sahel Sahara, Universal Merchant Bank, and Prudential Bank) were selected by GAT on the basis of their solvent status and good corporate governance [
In total, the Bank of Ghana has revoked licenses of nine (9) banks in efforts to clean up the banking sector and restore stability and resilience of the financial system. These banks are Heritage Bank, Limited, Premium Bank Limited, uniBank, Sovereign bank, BEIGE bank, Royal bank, Construction bank, UT bank and Capital bank (
Banks | Previous names | Majority ownership | |
---|---|---|---|
1 | Access Bank (Ghana) Plc | Foreign | |
2 | Agricultural Development Bank Limited | Local | |
3 | Bank of Africa Ghana Limited | Foreign | |
4 | Barclays Bank of Ghana Limited | Foreign | |
5 | CAL Bank Limited | Local | |
6 | Consolidated Bank Ghana Limited | Construction Bank | Local |
Beige Bank | |||
Royal Bank | |||
UniBank | |||
Sovereign Bank | |||
7 | Ecobank Ghana Limited | Foreign | |
8 | FBNBank (Ghana) Limited | Foreign | |
9 | Fidelity Bank Ghana Limited | Local | |
10 | First Atlantic Bank Limited | Foreign | |
11 | First National Bank (Ghana) Limited | Foreign | |
12 | GCB Bank Limited | Local | |
13 | GHL Bank Limited | Foreign | |
14 | Guaranty Trust Bank (Ghana) Limited | Foreign | |
15 | National Investment Bank Limited | Local | |
16 | OmniBSIC Bank Ghana Limited | Omni Bank Ghana Limited | Local |
Sahel Sahara Bank Ghana Limited (BSIC) | |||
17 | Prudential Bank Limited | Local | |
18 | Republic Bank (Ghana) Limited | Foreign | |
19 | Societe General (Ghana) Limited | Foreign | |
20 | Stanbic Bank Ghana Limited | Foreign | |
21 | Standard Chartered Bank (Ghana) Limited | Foreign | |
22 | United Bank for Africa (Ghana) Limited | Foreign | |
23 | Universal Merchant Bank Limited | Local | |
24 | Zenith Bank (Ghana) Limited | Foreign |
Note: First National Bank and GHL Bank are in the process of merging.
In the course of the clean-up exercise over GH¢12 billion was spent to protect depositors from losing their funds [
The shutting down and revocation of banks’ license became a shock to the general public when the news out broke. To the ordinary Ghanaian, almost every bank seemed to be doing very well on the outside. This boosted their confidence to save and invest with them until the BoG brought the eye-opener news which placed most Ghanaians in shock, panic and fear. Concerning issues surrounding banking in Ghana, Narh [
The main objective of the study is to ascertain the effect of the recapitalization on the Ghana banking sector. Specifically, the objectives of the study include:
➢ Evaluate the effects of recapitalization on the capital adequacy of commercial banks in Ghana
Year/variable | CIR | Profit before Tax (%) | (NIM) (%) | Asset Quality = | Asset Quality = | Liquidity = | Liquidity = | Non-Performing Loan (NPL) | CAR | ROA (Before tax) | ROE (after tax) |
---|---|---|---|---|---|---|---|---|---|---|---|
2018 | 0.53 | 38.1 | 8.0 | 3.0 | 9.8 | 0.91 | 0.62 | 18.19 | 19.27 | 3.39 | 18.46 |
2017 | 0.54 | 36.4 | 9.4 | 3.0 | 10.7 | 0.84 | 0.60 | 21.59 | 18.55 | 3.58 | 18.69 |
2016 | 0.54 | 29.5 | 9.2 | 4.5 | 8.6 | 0.77 | 0.55 | 17.29 | 18.04 | 3.76 | 17.61 |
2015 | 0.53 | 30.7 | 9.8 | 4.6 | 7.9 | 0.66 | 0.48 | 14.67 | 17.81 | 4.64 | 22.15 |
2014 | 0.51 | 42.6 | 9.7 | 1.9 | 4.9 | 0.68 | 0.48 | 10.98 | 17.93 | 6.62 | 33.08 |
2013 | 0.47 | 45.2 | 9.7 | 1.9 | 6.3 | 0.69 | 0.53 | 12.0 | 18.45 | 6.22 | 30.89 |
2012 | 0.52 | 37.3 | 8.9 | 2.3 | 6.6 | 0.65 | 0.52 | 13.2 | 19.08 | 4.85 | 25.76 |
2011 | 0.6 | 30.5 | 8.0 | 2.3 | 9.4 | 0.71 | 0.50 | 14.15 | 17.41 | 3.86 | 19.74 |
2010 | 0.6 | 27.2 | 9.4 | 4.7 | 9.1 | 0.73 | 0.54 | 17.6 | 19.84 | 3.80 | 20.44 |
2009 | 0.6 | 19.7 | 7.7 | 4.2 | 8.2 | 0.67 | 0.52 | 16.2 | 18.24 | 2.83 | 17.5 |
2008 | 0.6 | 26.1 | 6.6 | 2.2 | 5.2 | 0.53 | 0.47 | 7.69 | 13.84 | 3.23 | 23.7 |
2007 | 0.6 | 30.4 | 6.7 | 1.5 | 4.6 | 0.55 | 0.41 | 6.91 | 14.76 | 3.67 | 25.83 |
Source: (PwC Ghana Bank survey 2010 to 2019 and BoG 2019).
➢ Evaluate the effects of recapitalization on the efficiency of commercial banks in Ghana.
➢ Evaluate the effects of recapitalization on the asset quality of commercial banks in Ghana.
➢ Evaluate the effects of recapitalization on profitability of commercial banks in Ghana.
➢ Evaluate the effects of recapitalization on liquidity of commercial banks in Nigeria
The scope of this research and analysis were such that a large body of published work could be referenced. However, because the scope of this study was to investigate the impact of the recapitalization of the Ghanaian banking industry, the literature review forming the substance of this chapter was deliberately restricted to cover papers relevant to the different facets of this study. This chapter reviews existing empirical research regarding the profitability, performance and state of banks with respect to regulatory capital increase. The aim of this literature review is to provide a comprehensive overview of important findings from other studies and to provide an explanation of possible inconsistencies and deficiencies in current literature.
Recapitalization is the process of restructuring the debt and equity balance of a company, often to make the capital structure of a company more stable. It is basically the strategy used by a company to boost its financial stability or to overhaul its financial structure. The method involves effectively swapping one form of financing for another, such as withdrawing preferred shares from the capital structure of the company and replacing them with bonds. If banks are stuck in a position where their debts are comparatively higher than their assets, the recapitalization plan comes into effect. Bank liquidity is a liability as it is the money that customers deposit, which has to be paid sooner or later. As a result, their balance-sheet weakens, and banks find it difficult to raise capital from the open market. The organization must adjust its debt-to-equity ratio to achieve this. This is done by adding more debt or more equity to its capital. There are many reasons why a company may consider to undergo recapitalization including:
➢ When share prices fall.
➢ To protect itself against a hostile takeover attempt.
➢ To reduce financial obligations and minimize taxes.
➢ To provide venture capitalists with an exit strategy.
➢ Bankruptcy.
If the debt of a company decreases in proportion to its equity, it has a lower leverage. Its earnings per share (EPS) should also decrease following the change. But its shares would be increasingly less risky as the company has fewer debt obligations, requiring interest payments and return on maturity of the principal. The company can return more of its profits and cash to shareholders without debt requirements.
Empirical Studies on Recapitalization of BanksA banking reform’s main objective is to improve bank performance and boost economic growth. Banking reform studies suggest contrasting views on the effect of a banking reform on banking industry efficiency and the contribution to economic growth. In some cases, it did not help economic growth even though it improved upon banking performance [
An earlier study by Berger [
Adegbaju and Olokoyo [
Owolabi and Ogunlalu [
Boahene et al. [
Sufian & Chong [
Oleka and Mgbodile [
Sani, and Alani, [
Trujillo-Ponce [
The study conducted by Raji et al., [
Finally, a study conducted by Athanasoglou et al. [
Credit agencies, researchers, and bank regulators have been evaluating banks’ performance on the basis of a formal approach called CAMELS bank assessment system.
The CAMELS rating is a supervisory rating system that originated from the United States to classify a bank’s overall condition. The ratings are assigned based on ratio analysis of the financial statement combined with on-site examinations made by a designated supervisory regulator. The components of a bank’s condition that are assessed includes six performance measures: capital adequacy, asset quality, efficiency, profitability/earning, liquidity and sensitivity to market risk. This study settled for the first five which includes Capital adequacy, Asset quality, Earnings/profitability and Liquidity but also added other indicators beneficial to banks performance assessment (
The study adopts quantitative research technique based on ex-post facto design.
Variable | Description | Calculation |
---|---|---|
Cost to income ratio (CIR) | Also called the cost/income ratio or C/I ratio is the measure of the costs of running a company in relation to its operating income. The ratio gives investors a clear view of how efficiently the company is being run. The lower the C/I ratio is, the more profitable it should be. | = operatingexpenses operatingincome |
Profit before tax (PBT) | PBT is a measure that looks at a company’s profits before the company has to pay corporate income tax. It deducts all expenses from revenue including interest expenses and operating expenses except for income tax. | = income – operating expenses (including interest but not tax) |
Net interest margin (NIM) | NIM is the ratio of net interest income to invested assets. A positive net interest margin means the investment strategy pays more interest than it costs. Conversely, if net interest margin is negative, it means the investment strategy costs more than it makes. | = InterestReceived − InterestPaid AverageInvestedAssets |
Asset Quality | A measure of the likelihood of default of a loan, combined with a measure of its marketability. It is a measure of the price at which a bank or other financial institution can sell a loan or lease to a third party, as determined by the borrower. We consider Asset quality ratio. i.e. impairment charge to loan and advances Impairment allowance to loan and advances | = Impairmentcharge Loanandadvances = Impairmentallowance Loansandadvances |
Liquidity | Liquidity is the ability to convert assets into cash quickly and cheaply. Liquidity ratios are an important class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital. We consider Liquid funds to total deposits and Liquid funds to total assets. | = Liquidfunds Totaldeposits = Liquidfunds Totalassets |
Return on assets (ROA) | ROA is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company’s management is at using its assets to generate earnings. Return on assets is usually expressed as a percentage. | = Netincome Totalassets |
Return on equity (ROE) | ROE is considered a measure of how effectively management is using a company’s assets to create profits. A good or bad ROE will depend on what’s normal for the industry or company peers. Relatively high or low ROE ratios will vary significantly from one industry group or sector to another. | = Netincome Averagedshareholdersequity |
Non-Performing Loans (NPL) | The sum of borrowed money upon which the debtor has not made the scheduled payments for a specified period. It is considered in default or close to default. Once a loan is non-performing, the odds the debtor will repay it in full are substantially lower. | = TotalNPL Totaloutstandingloans |
Capital adequacy ratio (CAR) | The measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures. It is used to protect depositors and promote the stability and efficiency of financial systems. Two types of capital are measured: tier-1 capital, which can absorb losses without a bank being required to cease trading, and tier-2 capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. | = Tier 1 capital + Tier 2 capital Riskweightedassets |
It uses secondary data on the research variables (cost to income ratio, profit before tax, non-performing loans, return on assets, return on equity, Net interest margin, capital adequacy ratio, liquidity ratio, asset quality) over the period 2007 to 2018 were sourced from the annual Ghana banks survey report of PwC and the Central Bank of Ghana (BoG) reports. Analytical techniques of both descriptive statistics and independent sample test were adopted for the study. The t-test was used to ascertain evidence of statistically significant difference in banking sector performance indicators (cost to income ratio, profit before tax, non-performing loans, return on assets, return on equity, Net interest margin, capital adequacy ratio, liquidity ratio, asset quality) between pre and post-recapitalization periods. Though Ghana has had 3 various capitalization within the time period under study (2007, 2012 and 2017) but for the purpose of this study, the 2012 exercise was used as the basis of assessment.
Time period (Pre-capitalization) = 2007-2012 = 6.
Time period (Post capitalization) = 2013-2018 = 6.
The null hypothesis (H0) and alternative hypothesis (H1) of the Independent Samples t Test can be expressed in two different but equivalent ways:
H 0 : μ 1 = μ 2 (“the two-population means are equal”).
H 1 : μ 1 ≠ μ 2 (“the two-population means are not equal”).
The independent Samples t Test requires the assumption of homogeneity of variance that is both groups have the same variance. A test for the homogeneity of variance, called Levene’s Test.
The hypotheses for Levene’s test are:
H 0 : σ 1 2 − σ 2 2 = 0 (“the population variances of group 1 and 2 are equal”).
H 1 : σ 1 2 − σ 2 2 ≠ 0 (“the population variances of group 1 and 2 are not equal”).
This implies that if we reject the null hypothesis of Levene’s Test, it suggests that the variances of the two groups are not equal; i.e., that the homogeneity of variances assumption is violated.
The test statistic for an Independent Samples t Test is denoted t. There are actually two forms of the test statistic for this test, depending on whether or not equal variances are assumed.
When the two independent samples are assumed to be drawn from populations with identical population variances (i.e., σ 1 2 = σ 2 2 ), the test statistic t is calculated as:
t = x ¯ 1 − x ¯ 2 s p 1 n 1 + 1 n 2 (1)
with
s p = ( n 1 + 1 ) S 1 2 + ( n 2 + 1 ) S 2 2 n 1 + n 2 − 2 (2)
where:
x ¯ 1 = Mean of first sample.
x ¯ 2 = Mean of second sample.
n 1 = Sample size (that is number of observations) of first sample.
n 2 = Sample size (that is number of observations) of second sample.
s 1 = Standard deviation of first sample.
s 2 = Standard deviation of second sample.
s p = Pooled standard deviation.
When the two independent samples are assumed to be drawn from populations with unequal variances (i.e., σ 1 2 ≠ σ 2 2 ), the test statistic t is calculated as:
t = x ¯ 1 − x ¯ 2 s p 1 n 1 + 1 n 2 (3)
where:
x ¯ 1 = Mean of first sample.
x ¯ 2 = Mean of second sample.
n 1 = Sample size (that is number of observations) of first sample.
n 2 = Sample size (that is number of observations) of second sample.
s 1 = Standard deviation of first sample.
s 2 = Standard deviation of second sample.
The calculated t value is then equated to the critical t value from the t distribution table with degrees of freedom
d f = ( S 1 2 n 1 + S 2 2 n 2 ) 1 n 1 − 1 ( S 1 2 n 1 ) 2 + 1 n 1 − 2 ( S 2 2 n 2 ) 2 (4)
Based on Levene’s Test for Equality of Variances when the p-value is less than 5% implies that we reject Null hypothesis, suggesting that the variances of the two groups are not equal.
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
CIR | Pre | 6 | 0.52 | 0.60 | 0.5867 | 0.01333 | 0.03266 | 0.001 |
Post | 6 | 0.47 | 0.54 | 0.5200 | 0.01095 | 0.02683 | 0.001 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | T | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
CIR | Equal variances assumed | 0.041 | 0.843 | 3.863 | 10 | 0.003 | 0.06667 | 0.01726 | 0.02822 | 0.10512 |
Equal variances not assumed | 3.863 | 9.637 | 0.003 | 0.06667 | 0.01726 | 0.02802 | 0.10531 |
Following an independent sample test of equality of means (
The descriptive statistic for profit before tax in the pre and post-capitalization periods presented in
Based on Levene’s Test for Equality of Variances when the p-value is less than 5% implies that we reject Null hypothesis, suggesting that the variances of the two groups are not equal.
Following an independent sample test of equality of means (
The descriptive statistic for Net interest margin in the pre and post-capitalization
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
PBT | Pre | 6 | 19.7 | 37.3 | 28.533 | 2.3800 | 5.8298 | 33.987 |
Post | 6 | 29.5 | 45.2 | 37.083 | 2.5565 | 6.2621 | 39.214 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | T | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Profit before Tax (%) | Equal variances assumed | 0.120 | 0.737 | −2.448 | 10 | 0.034 | −8.5500 | 3.4929 | −16.333 | −0.7674 |
Equal variances not assumed | −2.448 | 9.949 | 0.034 | −8.5500 | 3.4929 | −16.338 | −0.7620 |
periods presented in
Based on Levene’s Test for Equality of Variances,
Following an independent sample test of equality of means (
The descriptive statistic for Asset quality 1 (impairment charge to loan and advances) Impairment allowance to loan and advances in the pre and post-capitalization periods presented in
Based on Levene’s Test for Equality of Variances
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
NIM | Pre | 6 | 6.6 | 9.4 | 7.883 | 0.4629 | 1.1339 | 1.286 |
Post | 6 | 8.0 | 9.8 | 9.300 | 0.2757 | 0.6753 | 0.456 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | T | Df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
(NIM) (%) | Equal variances assumed | 1.915 | 0.197 | −2.629 | 10 | 0.025 | −1.417 | 0.539 | −2.617 | −0.216 |
Equal variances not assumed | −2.629 | 8.150 | 0.030 | −1.417 | 0.539 | −2.655 | −0.178 |
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Asset Quality 1 | Pre | 6 | 1.5 | 4.7 | 2.867 | 0.5194 | 1.2723 | 1.619 |
Post | 6 | 1.9 | 4.6 | 3.150 | 0.4863 | 1.1912 | 1.419 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | Df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Asset Quality 1 (impairment charge to loan and advances) | Equal variances assumed | 0.137 | 0.719 | −0.398 | 10 | 0.699 | −0.2833 | 0.7115 | −1.8687 | 1.3021 |
Equal variances not assumed | −0.398 | 9.957 | 0.699 | −0.2833 | 0.7115 | −1.8697 | 1.3030 |
the variance of the two groups are equal.
Following an independent sample test of equality of means (
The descriptive statistic for Asset quality 1 (Impairment allowance to loan and advances) in the pre and post-capitalization periods presented in
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Asset Quality 2 | Pre | 6 | 4.6 | 9.4 | 7.183 | 0.8280 | 2.0282 | 4.114 |
Post | 6 | 4.9 | 10.7 | 8.033 | 0.8831 | 2.1630 | 4.679 |
shows an increase in the mean values of Impairment allowance to loan and advances from 7.182 to 8.033 for the pre and post capitalization periods respectively. This is an additional confirmation to the increase in the asset quality in this case measured by impairment allowance to loan and advances of the banking sector due to implementation of the capitalization exercise.
Based on Levene’s Test for Equality,
Following an independent sample test of equality of means (
The descriptive statistic for Liquidity 1 (Liquid funds to total deposits) in the pre and post-capitalization periods presented in
Based on Levene’s Test for Equality of Variances
Following an independent sample test of equality of means (
The descriptive statistic for Liquidity 2 (Liquid funds to total assets) in the pre and post-capitalization periods presented in
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | Df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Asset Quality 2 (impairment allowance to loan and advances) | Equal variances assumed | 0.008 | 0.931 | −0.702 | 10 | 0.499 | −0.850 | 1.2105 | −3.547 | 1.847 |
Equal variances not assumed | −0.702 | 9.959 | 0.499 | −0.850 | 1.211 | −3.549 | 1.849 |
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Liquidity 1 (Liquid funds to total deposits) | Pre | 6 | 0.53 | 0.73 | 0.6400 | 0.03376 | 0.08270 | 0.007 |
Post | 6 | 0.66 | 0.91 | 0.758 | 0.041 | 0.100 | 0.010 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Liquidity 1 (Liquid funds to total deposits) | Equal variances assumed | .379 | .552 | −2.230 | 10 | 0.050 | −0.118 | 0.053 | −0.237 | −0.000 |
Equal variances not assumed | −2.230 | 9.650 | 0.051 | −0.118 | 0.053 | −0.237 | 0.001 |
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Liquidity 2 (Liquid funds to total assets) | Pre | 6 | 0.41 | 0.54 | 0.493 | 0.019 | 0.047 | 0.002 |
Post | 6 | 0.48 | 0.62 | 0.543 | 0.024 | 0.059 | 0.003 |
liquidity measured in liquid funds to total assets of the banking sector indicating a positive ability of the sector to pay its debt obligations and margin of safety due to implementation of the capitalization exercise. This is consistent with Asedionlen [
Based on Levene’s Test for Equality of Variances
Following an independent sample test of equality of means (
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Liquidity 2 (Liquid funds to total assets) | Equal variances assumed | 0.474 | 0.507 | −1.623 | 10 | 0.136 | −0.050 | 0.031 | −0.119 | 0.019 |
Equal variances not assumed | −1.623 | 9.547 | 0.137 | −0.050 | 0.031 | −0.119 | 0.019 |
means, the result shows that at 5 per cent level of insignificance, there is an insignificant difference between pre- and post-capitalization means of Liquid funds to total assets (p (0.136 > 0.05)). The null hypothesis of no statistical significance is thereby accepted (
The descriptive statistic for return on assets in the pre- and post-capitalization periods presented in
Based on Levene’s Test for Equality of Variances
However, given that the significance value (0.150) of the test is greater than 0.05. The result of this study therefore suggests that the average difference of 0.995 percent in the performance of return on asset for the pre and post-consolidation periods is not significant (
The descriptive statistic for return on equity in the pre- and post-capitalization
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Return on assets (ROA) | Pre | 6 | 2.83 | 4.85 | 3.7067 | 0.27908 | 0.68360 | 0.467 |
Post | 6 | 3.39 | 6.62 | 4.7017 | 0.57313 | 1.40389 | 1.971 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | T | Df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
ROA (Before tax) | Equal variances assumed | 4.609 | 0.057 | −1.561 | 10 | 0.150 | −0.995 | 0.638 | −2.415 | 0.425 |
Equal variances not assumed | −1.561 | 7.245 | 0.161 | −0.995 | 0.638 | −2.492 | 0.502 |
periods presented in
Based on Levene’s Test for Equality of Variances,
Following an independent sample test of equality of means (
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
Return on equity (ROE) | Pre | 6 | 17.50 | 25.83 | 22.162 | 1.406 | 3.445 | 11.866 |
Post | 6 | 17.61 | 33.08 | 23.480 | 2.778 | 6.804 | 46.288 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | T | Df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
ROE (after tax) | Equal variances assumed | 4.858 | 0.052 | −0.423 | 10 | 0.681 | −1.318 | 3.113 | −8.255 | 5.618 |
Equal variances not assumed | −0.423 | 7.405 | 0.684 | −1.318 | 3.113 | −8.599 | 5.962 |
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
NPL | Pre | 6 | 6.91 | 17.60 | 12.625 | 1.800 | 4.409 | 19.441 |
Post | 6 | 10.98 | 21.59 | 15.787 | 1.637 | 4.010 | 16.081 |
performance of nonperforming loans from a mean of 12.6250 to 15.7867 per cent for the pre- and post-capitalization periods. The observed increase in non-performing loans suggests an evidence that the administrative policy in the post capitalization period (
Based on Levene’s Test for Equality of Variances
Following an independent sample test of equality of means (
Based on Levene’s Test for Equality of Variances,
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
Non-Performing Loan (NPL) | Equal variances assumed | 0.075 | 0.789 | −1.299 | 10 | 0.223 | −3.162 | 2.433 | −8.583 | 2.260 |
Equal variances not assumed | −1.299 | 9.911 | 0.223 | −3.162 | 2.433 | −8.590 | 2.266 |
Period | N | Mini | Maxi | Mean | Std. error Mean | Std. Deviation | Variance | |
---|---|---|---|---|---|---|---|---|
CAR | Pre | 6 | 13.84 | 19.84 | 17.195 | 0.981 | 2.403 | 5.775 |
Post | 6 | 17.81 | 19.27 | 18.342 | 0.221 | .540 | 0.292 |
Levene’s Test for Equality of Variances | t-test for Equality of Means | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
F | Sig. | t | df | Sig. (2-tailed) | Mean Difference | Std. Error Difference | Confidence Interval of the Difference 95% | |||
Lower | Upper | |||||||||
CAR | Equal variances assumed | 9.907 | 0.010 | −1.140 | 10 | 0.281 | −1.147 | 1.005 | −3.387 | 1.094 |
Equal variances not assumed | −1.140 | 5.504 | 0.301 | −1.147 | 1.005 | −3.662 | 1.369 |
0.010 indicating that we reject Null hypothesis that is P < 0.05, which suggests the variance of the two groups are not equal.
From the independent sample test presented in
The Levene’s Test for Equality of Variances to determine the significance or otherwise of variance among the independent samples in the two groups shows that, the respective variances for the pre and post capitalization of CIR, NIM, PBT, Asset quality, Liquidity, ROE, ROA and NPL are insignificant at 5% level indicating the variance between the two groups are equal as far as these variables are concerned. However, CAR shows a significant variance of 0.010 at 5% level indicating the variances between the two groups are not equal.
The independent t-test conducted to ascertain significance or otherwise of the mean difference among the independent samples under investigation produced mixed results as follows:
There is significant improvement in cost to income ratio, net interest margin and profit before tax in the Ghanaian banking sector following the implementation of the capitalization exercise in 2012 as shown in the respective tables.
It is evident that, there is significant improvement in liquidity as measured in liquid funds to deposits but insignificant improvement in liquid funds to total assets as shown in
There is also no evidence of significant difference for the means of return on assets, return on equity, capital adequacy ratio and banking sector’s assets quality between the periods. There was also an insignificant but increase in non-performing loans in the industry.
According to the study by Athanasoglou et al. [
It is recommended that sufficient regulatory measures be put in place to maintain the benefits of banking recapitalization as well as contain the incidence of sharp practices in the sector. It is also important to ensure that the exercise does not produce banks that may become overly influential making it uneasy to be effectively supervised as this may threaten the sector’s stability. Lastly, there should be adequate customer and depositors’ education on banking and its associated risks to enlighten them on what is associated with their investments and savings in order to influence their decisions positively.
In the future, a study will be conducted to make a short-term-aftermath comparison among the three-respective recapitalization exercise using monthly data to determine the level of effectiveness and efficiency of recapitalization on the industry.
The authors declare no conflicts of interest regarding the publication of this paper.
Obuobi, B., Nketiah, E., Awuah, F. and Amadi, A.G. (2020) Recapitalization of Banks: Analysis of the Ghana Banking Industry. Open Journal of Business and Management, 8, 78-103. https://doi.org/10.4236/ojbm.2020.81006