Ghanaian banks’ lending surged, but declining Capital Adequacy Ratios signal risks. Prudent capital management is crucial to ensure financial stability and growth.
The need for Ghana’s banks to adopt prudent capital management has become increasingly urgent as lending activities surge while capital buffers show a declining trend.
Recent data from the Bank of Ghana (BoG) shows that while banks are lending more, the money they keep to protect themselves, known as the Capital Adequacy Ratio (CAR), is decreasing.
Between March 2024 and October 2024, the CAR dropped from 15.9% to 14.3%. This number measures how much money banks have in reserves compared to the loans they give out.
Although the current level is still above the safe minimum of 13%, the steady drop is a warning sign that banks need to manage their finances better to avoid future problems.
At the same time, loans to businesses and individuals grew sharply from GH₵73.5 billion in October 2023 to GH₵94.6 billion in October 2024. This increase shows that banks are helping to grow the economy by supporting businesses and personal needs.
However, when banks lend more, they must also make sure they have enough backup funds to protect themselves if borrowers fail to pay back their loans.
This drop in reserves could create risks for the banking sector if the economy faces unexpected challenges. Experts have pointed out that banks need to strike a balance between growing their loans and ensuring they keep enough money to remain strong.
While the growth in assets and deposits—now at GH₵367.2 billion and GH₵277.3 billion respectively, is a good sign for the economy, it is clear that banks need to be careful.
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Banks are being encouraged to manage their funds wisely, focus on building stronger reserves, and carefully monitor the loans they give out. By doing this, they can continue to grow while staying safe and ready for any challenges in the future.
