Ghana's banking sector was undercapitalised for much of the decade before the 2017 cleanup. Former Bank of Ghana First Deputy Governor, Dr. Maxwell Opoku-Afari, revealed this critical finding. The sector also suffered from weak governance and poor risk-management practices.
The 2017–2019 banking sector cleanup and recapitalisation was essential to restore confidence. It aimed to strengthen prudential standards and reinforce governance. This involved resolving weak institutions and aligning practices with core supervisory principles. The fiscal costs, however, were significant.
This situation fits into Ghana's broader economic narrative of fiscal challenges. The resolution and cleanup costs for the domestic banking system reached about 7.1% of Gross Domestic Product (GDP) between 2017 and 2021. The state largely absorbed these costs. This happened because an effective deposit insurance framework was not in place at that time. Additionally, recapitalisation bonds equivalent to about 2.6% of GDP were issued. These bonds supported undercapitalised banks after the Domestic Debt Exchange Programme (DDEP).
Dr. Opoku-Afari presented these insights in his paper titled “How not to Miss a Crisis: Lessons from Ghana.” He stated that weaknesses were visible well before the crisis. These included persistent fiscal deficits, weak revenue mobilisation, and quasi-fiscal operations. Rising sovereign exposure within the banking system also contributed. He noted that political incentives and overly optimistic assumptions delayed corrective action. Risks only crystallised later.
The former Deputy Governor highlighted a disconnect between underlying fundamentals and financing conditions. Fiscal policy continued to be approved despite elevated vulnerabilities. Market access was maintained, including oversubscribed Eurobond issuances. External partners also continued providing financing. This raised questions about risk pricing and the effectiveness of domestic oversight. It also questioned how surveillance frameworks captured liquidity and rollover risks.
This feedback loop is crucial for understanding the subsequent domestic debt build-up. As fiscal financing shifted towards Cedi-denominated instruments, banks became primary absorbers of government issuance. This tightened the sovereign–bank nexus. It also increased macro-financial costs if market confidence was lost. The significant costs incurred underscore the importance of robust financial sector oversight. It also highlights the need for timely policy interventions to prevent future crises.
Decision-makers must now focus on strengthening regulatory frameworks. They must also ensure fiscal discipline to avoid similar scenarios. The lessons from this period will inform future economic policies. This will help safeguard Ghana's financial stability and protect public funds.