The insolvency and subsequent corporate restructuring of banks in Ghana marked a pivotal moment in the country’s financial history. Between the years 2017 and 2019, Ghana’s banking sector underwent an unprecedented period of reform which was prompted by widespread regulatory breaches, poor governance, undercapitalization, and unsustainable lending practices. The crisis exposed deep-seated vulnerabilities within the banking sector. In response, the country’s central bank of Ghana and primary regulator (“BoG”) embarked on a comprehensive reform agenda aimed at restoring stability, protecting depositors, and rebuilding public confidence.

This turning point not only reshaped the structure and operations of financial institutions but also laid the groundwork for a more resilient, transparent, and well-regulated banking environment. This article explores the causes of the crisis, the reforms undertaken, and the lessons that continue to shape Ghana’s financial landscape.

Insolvency & Corporate Restructuring

Insolvency occurs when a business cannot pay its debts on time or when its liabilities exceed its assets. This can arise due to poor financial management, changes in the business environment, or global economic challenges. When a company faces insolvency, it often turns to corporate restructuring as a solution. Insolvency may lead to legal proceedings such as bankruptcy, liquidation or restructuring of a company. For a detailed explanation on insolvency and other related matters, kindly read our article on The Role of Insolvency Practitioners in Business Recovery.

Corporate restructuring as defined in our previous article on Corporate Restructuring & the Role of the Board in Ghana is the process of making major adjustments to a company’s financial and operational structure, often in response to financial difficulties. This may include making positive adjustments to the company’s debt, operations, or organizational setup, aimed at minimizing financial risk and improving business performance. It is often undertaken in situations like insolvency, declining profits, market shifts, or mergers and acquisitions. The main goal of corporate restructuring is to restore profitability, reduce debt, improve efficiency, or refocus the company’s strategy.

To gain more insight on insolvency, corporate restructuring and other related issues, please refer to our previous articles on  The Key Role of Due Diligence in Corporate Restructuring Transactions in Ghana and Practical Steps in a Corporate Restructuring Transaction in Ghana.

Roots of the Insolvency

The crisis in Ghana’s banking sector did not happen overnight. It was caused by years of poor management within the banks and weak oversight from regulators. These problems were ignored for too long, which led to the eventual collapse of several banks. Some of the key causes include but is not limited to the following:

a. Weak Corporate Governance: Many banks lacked good governance structures for overseeing the extension and recovery of loans. In several cases, credit was extended to individuals or entities closely associated with the institutions such as executives, directors, or major shareholders without adequate risk assessment or appropriate oversight. Additionally, some banks engaged in high-risk investments without sufficient internal controls or regulatory scrutiny.

b. Undercapitalization: Several banking institutions were unable to meet the previously mandated minimum capital requirement of GHS 120 million. This indicated long-standing financial weaknesses and with the introduction of a new and significantly higher minimum capital threshold of GHS 400 million by the BoG, these institutions were left critically undercapitalized and unable to operate sustainably, further exposing the weakness of the sector.

c. Non-Performing Loans: Most banks experienced a high volume of non-performing loans, where borrowers consistently failed to meet repayment obligations. These unpaid loans severely strained the liquidity positions of the banks, reduced their available working capital, and ultimately diminished their capital base, making them financially unstable and unable to meet regulatory requirements.

d. Fraud & Misappropriation: Investigations conducted by BoG revealed that some bank owners and executives misused depositors’ funds and invested some of the funds in companies where they had direct or indirect interests, or falsified financial statements to conceal losses and create a misleading picture of financial stability of the banks and these caused several losses to the banks.

e. Regulatory Lapses: BoG acknowledged significant supervisory and regulatory shortcomings in the years leading up to the banking crisis. These lapses included weak enforcement of licensing requirements, inadequate background checks on prospective bank owners and directors, and insufficient ongoing supervision of operational and financial practices within licensed institutions. These regulatory gaps contributed significantly to the decline of public confidence in the banking sector and necessitated the subsequent clean-up and restructuring exercise undertaken by the BoG with the aim of restoring financial stability, protecting depositors, and re-establishing trust in the banking system.

BoG’s Reform Measures

BoG’s response to the factors outlined above included the introduction of strong regulations, increasing the minimum capital needed by banks to operate, and making reforms to improve how financial institutions are managed and supervised. These measures were implemented by BoG through the following means:

1. License Revocations:  This measure aimed to eliminate insolvent, non-compliant, and poorly governed financial institutions that posed systemic risks to the economy due to unsafe practices, weak governance, and lack of the required minimum capital to operate. As a result, the licenses of the following nine banks were revoked: UT Bank, Capital Bank, Construction Bank, Beige Bank, the Royal Bank, Sovereign Bank, Heritage Bank, Premium Bank and UniBank. These institutions were assessed by the BoG to be insolvent and beyond recovery, warranting regulatory intervention through license withdrawal.

2. Creation of Consolidated Bank Ghana (“CBG”): As part of efforts to maintain financial stability during the banking sector clean-up, the BoG established Consolidated Bank Ghana LTD (“CBG”) in August 2018 following the license revocation of five insolvent banks, namely UT Bank, Capital Bank, Sovereign Bank, UniBank and the Royal Bank. CBG was set up as a bridge bank to ensure uninterrupted banking services, protect depositors’ funds, preserve public confidence, safeguard jobs, and manage the assets and liabilities of the defunct institutions.

3. Minimum Capital Requirement: As part of its efforts to strengthen the banking sector and ensure greater stability, BoG significantly increased the minimum capital requirement for universal banks from GHS 120 million to GHS 400 million in 2017. This policy was designed to reinforce the stability of banks, improve their ability to withstand financial shock, and promote sound risk management practices. It compelled existing banks to raise additional capital, either by injecting fresh equity, merging with other institutions, or restructuring their operations. Banks that failed to meet the new requirement faced license revocation or had to exit the market. This reform brought about many consolidations and marked a major step toward building a more resilient, efficient, and trustworthy banking system to support Ghana’s long-term economic development.

4. Asset Quality Reviews & Governance Reforms: The aim of the review was to identify underperforming or non-performing loans, assess provisioning practices, and verify the accuracy of banks’ asset valuations. The asset quality review revealed that many banking institutions had overvalued assets, poor credit risk controls, and significant exposure to related party and insider lending which was often without adequate collateral or due diligence.

In response to these findings, the BoG introduced governance reforms to strengthen oversight and accountability within financial institutions. This included enforcing fit-and-proper criteria for board members and key management personnel, setting limits on related-party transactions, and requiring enhanced internal controls and risk management frameworks as established in the Banks & Specialized Deposit-Taking Institutions Act, 2016 (“Act 930”). The reforms also emphasized the importance of independent boards, transparent reporting, and ethical leadership in the banking sector and were intended to ensure that banks operated with greater integrity, transparency, and resilience while protecting depositors and safeguarding the broader financial system.

5. Establishment of the Financial Stability Council: This was set up in 2018 to provide a coordinated and proactive framework for monitoring and preserving financial system stability. It is governed by laws such as the Bank of Ghana Act, 2002 (Act 612), as amended by Act 918, Securities Industry Act, 2016 (Act 929), Ghana Deposit Protection Act, 2016 (Act 931) amongst others. Its functions include sharing of data and risk assessments across sectors, developing coordinated responses to financial crises, recommending fiscal policies to minimize systemic threats, and supporting effective resolution frameworks for failing institutions. Some significant milestones of the council include facilitating a coordinated regulatory approach during the government’s banking sector restructuring, aiding in managing insolvent banks and stabilizing the system between the years 2017–2019 and supporting policy frameworks such as loan restructuring and liquidity relief to maintain institutional solvency during the COVID-19 pandemic.

Challenges of BoG’s Reforms

The introduction of the reforms by the BoG brought about several challenges that affected individuals in various ways and attracted criticism from people across different sectors of society. Some of the key challenges and criticisms include:

1. Job Losses: The closure and consolidation of financial institutions led to significant layoffs, especially in affected banks, microfinance institutions, and savings and loans companies. It caused thousands of workers to lose their livelihood, creating social and economic strain to these workers and their families.

2. Delays in Depositor Payments: Many customers experienced significant delays in accessing their funds at the banks. These delays were caused by the lengthy claim verification processes used by banks to prevent fraud, the high volume of claims received by the banks and limited bailout funds amongst others. Despite assurances from the government and BoG that depositors would be repaid, the disbursement process was often slow and phased, largely due to the need to verify claims, recover assets, and mobilize bailout funds. These delays caused widespread frustration and financial hardship, especially for individuals and small businesses who relied on these funds for daily operations, education, healthcare, and personal expenses. The impact was particularly severe in rural areas and the informal sector, where access to alternative financial services was limited and financial literacy was lower. Many affected depositors lost confidence not only in the failed institutions but in the broader formal financial system.

3. Impact on Credit Access: The collapse of institutions reduced the number of credit providers, particularly in the microfinance and SME lending space. Small businesses and individuals struggled to access financing, which affected economic activity.

4. Financial & Psychological Stress: The banking sector crisis and subsequent regulatory actions had far-reaching emotional and financial consequences for various stakeholders. Many affected employees lost their jobs or faced prolonged uncertainty about their employment status and severance benefits. Customers, particularly retail depositors, experienced intense distress; some lost access to their funds for extended periods, while others lost their life savings or retirement investments altogether. Shareholders in the affected institutions suffered major financial losses due to the collapse or restructuring of the banks, with little to no opportunity for recouping their investments.

5. Burden on Public Finances: The financial sector clean-up placed a significant burden on Ghana’s public finances. To restore confidence and protect depositors, the government

was compelled to intervene by issuing bonds and creating bailout packages totaling over GHS 11 billion. These funds were used primarily to settle depositor claims, especially for customers of insolvent banks, microfinance institutions, and savings and loan companies whose licenses had been revoked.

A portion of the funds was also used to recapitalize viable financial institutions, including the establishment of the CBG, to take over the operations and liabilities of failed banks. These interventions, while necessary to prevent a broader systemic collapse, significantly increased the country’s public debt stock and placed additional strain on an already constrained fiscal space.

Positive Impacts of the Reforms

Despite the challenges associated with the BoG’s reform initiatives, the measures led to several positive outcomes that have helped shape the current structure and resilience of Ghana’s banking sector. These include:

a. Ghana’s banking sector became more stabilized after the reform as a result of the removal of weaker and insolvent institutions which helped to reduce systemic risk and strengthen overall sector resilience.

b. The increase in minimum capital requirements helped to build a strong capital base for banks in Ghana and made them capable of withstanding economic shocks.

c. The new corporate governance directive introduced by the BoG in 2018 which established clear standards for the composition, roles, and responsibilities of boards of directors, including requirements for independent directors and the fit-and-proper guidelines significantly enhanced transparency, accountability, and board oversight within the banking sector.

d. Regulatory enforcement and depositor protection measures introduced by BoG and other regulators strengthened enforcement and introduced depositor protection measures to restore public trust. Some key actions included the introduction of stricter regulatory compliance, the launch of the Ghana Deposit Protection Scheme administered by the Ghana Deposit Protection Corporation to secure small depositors’ funds, and the revocation of licenses of insolvent institutions. These efforts, alongside improved supervision and governance reforms, reinforced confidence in the formal banking system.

e. The establishment of new institutions such as the CBG and the Financial Stability Council helped to manage the transition and improve oversight in the banking sector.

Conclusion

The insolvency and subsequent corporate restructuring of banks in Ghana marked a critical turning point in the country’s financial sector. Despite the challenges of the reform such as job losses, public criticism, and transitional instability, they ultimately laid the foundation for a more stable, resilient, and accountable banking system. The clean-up exercise not only addressed the immediate threats posed by weak and insolvent institutions but also introduced stronger regulatory framework, enhanced corporate governance, and improved risk management practices. As Ghana continues to strengthen its financial system, the lessons learned from this period remain crucial in guiding future policy decisions and maintaining confidence in the banking system.

By: Ama Anima Konadu

Junior Associate

VINT & Aletheia Attorneys & Consultants