Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.5, No.18, 2014 118 The Effects of Financial Sector Recapitalization Policy on the Performance of Banks in Ghana: A Comparative Study of Ghana Commercial Bank and Ecobank Ghana Jamal-Deen Kukurah 1 Fatawu Alhassan 2 Ahmed Sakara 3 1.Department of Mechanical Engineering, Tamale Polytechnic, Box 3ER, Tamale Northern Ghana 2.Department of Hotel Catering and Institutional Management, Tamale Polytechnic, Box 3ER, Tamale Northern Ghana 3.Department of Marketing , Tamale Polytechnic, Box 3ER, Tamale Northern Ghana *alhassanfatawu29@yahoo.com Abstract The Bank of Ghana in 2008 firmed up its policy to raise the minimum capital of banks in the country. This study examined the relevance of recapitalization in the banking industry. Specifically, the study investigates the basis for banks capital regulation in Ghana, assessed the impact of recapitalization on the performance of banks and identified challenges posed by the exercise to banks in Ghana. Secondary data were extracted from the banks and analyzed using ratio to measure the banks performance. The first phase, 2009 recapitalization is adopted as the base year, testing the performance of banks three years before the 2009 recapitalization exercise and a year after the 2009 recapitalization exercise to see the significance of the recapitalization. The study found that it is not all the time that recapitalization transforms into good performance of the bank and it is not only capital that makes for good performance of banks. The study posits that bank recapitalization exercise has significant relationship on the pre and post recapitalization profitability indices of the selected banks. The study recommends that there should be a critical look at the mode by which banks raise funds and that banks should be train on post recapitalization issues. Keywords; Recapitalisation, Banking Sector, Ghana Commercial Bank, Ecobank 1.1 INTRODUCTION The banking sector in any economy serves as a catalyst for growth and development. Banks are able to perform this role through their crucial functions of financial intermediation, provision of efficient payment system and facilitating the implementation of monetary policies. It is not surprising therefore, that governments the world over attempt to evolve an efficient banking system, not only for the promotion of efficient intermediation, but also for the protection of depositors, encouragement of efficient competition, maintenance of public confidence in the system, stability of the system and protection against systemic risk and collapse. Banking business is undoubtedly one of the most regulated industries in the world, and the rules on bank capital are one of the most prominent aspects of such regulation. This prominence results from the central role that banks play in financial intermediation, the importance of bank capital for bank soundness and the efforts of the international community to adopt common bank capital standards. Regulation and supervision remain an integral part of the mechanism for ensuring safe and sound banking practice. Capital adequacy has been the focus of many studies and regulators as it is considered to be one of the main drivers of any financial institution’s profitability (Berger, 1995; White and Morrison, 2001; Navapan and Tripe, 2003). Banks are constantly exposed to financial risks and can only adequately absorb the shocks of bad assets if they are adequately capitalized. Capital (equity and long-term debt) represents a source of funds to the bank along with deposits and borrowings. Pringle (1971) observed that an undercapitalized bank will find itself subjected to high levels of short-term borrowing at potentially high excess costs during periods of tight money. In anticipation of the expected economic growth mainly on the account of oil production, the banking industry of Ghana repositioned itself to contribute to this growth and to cope with the related risks. The repositioning was largely driven by the key regulator and within. In 2008 the Bank of Ghana firmed up its policy to raise the minimum capital of banks from GH¢7million to GH¢60 million after due consultation with the banking industry. All foreign owned banks were required to attain the new level by December 2009, while Ghanaian owned banks had up to December 2012 to attain the same level of capital. However, the Ghanaian owned banks were required to reach GH¢25 million Ghana cedis by end of 2009. From the foregoing that the study assessed the relevance of recapitalization in the banking industry of Ghana to appraise the exercise against the time deadlines set by the Central Bank using two listed banks – Ghana Commercial Bank Limited and the Ecobank Ghana Limited. 1.1.1 Statement of the Problem The resolve of the Central Bank of Ghana to place the banking system in a regional and international context and