Bank of Ghana's costly clean-up of a fragile banking sector

Ghana's financial-sector indicators show a distinct dip in the late 2010s tied not to the broader economy but to a banking-sector crisis the Bank of Ghana itself set out to fix. Between August 2017 and January 2019, the central bank revoked the licenses of nine insolvent or severely undercapitalized banks and consolidated five of them into a new state-backed entity, Consolidated Bank Ghana, after years of weak supervision, related-party lending, and capital shortfalls had left a significant share of Ghana's 34 universal banks unable to meet a newly raised minimum capital requirement of 400 million cedis. Bank of Ghana Governor Ernest Addison later estimated the fiscal cost of the clean-up at around 21 billion cedis, financed mostly through government bonds, and acknowledged in a September 2019 address to the Ghana Association of Bankers that the reforms required unpopular decisions that temporarily unsettled depositors and shrank the number of licensed banks from 34 to 23. The payoff, he argued, was a smaller but better-capitalized industry better placed to support credit growth and withstand shocks, though the episode foreshadowed the far larger fiscal and currency crisis that would hit Ghana just three years later.