As an expert with over 20 years in the Ghanaian banking sector, having served in senior risk management roles at institutions like Stanbic Bank Ghana, I emphasize that maintaining a healthy Capital Adequacy Ratio (CAR) is crucial for compliance with the Bank of Ghana’s (BoG) Capital Requirements Directive (CRD) under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930). The CAR, which must be at least 10% as per BoG guidelines aligned with Basel II/III principles, measures a bank’s capital against its risk-weighted assets. During the 2017-2019 banking sector cleanup, banks like UT Bank and Capital Bank collapsed due to CARs falling below this threshold, often from poor asset quality, excessive non-performing loans (NPLs), and inadequate capital buffers. This led to BoG revoking licenses under Section 123 of Act 930 to protect depositors. As of 2025, post-Domestic Debt Exchange Programme (DDEP) recovery, banks continue to face pressures from inflation and currency volatility.

To bolster a declining CAR and avoid insolvency or sanctions (such as fines, restrictions on dividends, or license revocation per BoG Notice No. BG/GOV/SEC/2018/04), a bank can implement the following measures, grounded in practical examples from Ghanaian operations and international best practices:

1. Capital Injection through Equity Raising: Issue new shares or seek fresh equity from existing shareholders or new investors. For instance, in early 2025, following DDEP impacts, banks like Access Bank Ghana raised additional capital via rights issues to restore CAR above 10%. This directly increases Tier 1 capital, providing a buffer against losses. In practice, this requires BoG approval and shareholder buy-in, as seen in GCB Bank’s recapitalization efforts in 2024.
2. Retained Earnings and Profit Optimization: Retain profits by suspending dividends and focusing on cost control to build internal capital. Banks can enhance profitability through loan recovery drives, reducing operational expenses (e.g., digitizing processes to cut branch costs), and optimizing interest margins. A real-world example is Ecobank Ghana’s strategy in 2025, where aggressive NPL recovery from sectors like energy improved net income, boosting retained earnings and CAR without external funding.
3. Asset Quality Improvement and Risk-Weighted Asset Reduction: De-risk the balance sheet by selling off non-performing assets or provisioning adequately for impaired loans, as mandated by BoG’s Credit Risk Management Guidelines. This lowers risk-weighted assets (RWA), improving CAR. Internationally, Barclays used asset sales during the 2008 crisis to similar effect. In Ghana, Stanbic Bank divested high-risk loans to asset management companies in 2024, reducing RWA by over 15% and stabilizing CAR.
4. Subordinated Debt Issuance for Tier 2 Capital: Raise Tier 2 capital via subordinated bonds or loans, which count towards CAR under BoG rules (up to 50% of Tier 1). This is cost-effective for short-term boosts. For example, during post-DDEP recovery in 2025, some banks issued subordinated debt to meet enhanced capital requirements, avoiding sanctions.
5. Operational Efficiency and Risk Mitigation: Implement enterprise-wide risk management (EWRM) frameworks to reduce operational risks that inflate RWA, such as adopting advanced measurement approaches under Basel II for better capital allocation. Practically, integrating fintech for credit scoring, as per the Payment Systems and Services Act, 2019 (Act 987), can lower default rates. A local case is Fidelity Bank’s use of AI-driven tools in 2025 to monitor liquidity, preventing CAR erosion from mismatches.
6. Strategic Mergers or Acquisitions: Merge with stronger entities to pool capital, as encouraged by BoG (e.g., recent consolidations in 2024-2025). This dilutes risks and enhances CAR through synergies.

These measures must be overseen by the Board’s Risk Committee, with regular stress testing as per BoG’s Liquidity Risk Management Guidelines. In day-to-day operations, early warning indicators like rising NPL ratios (above 5% per BoG thresholds) trigger these actions, ensuring resilience. Failure to act, as in the UT Bank case, led to insolvency; proactive steps, like those at Stanbic, support sustainable banking.