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Bank of Ghana requires Banks to maintain a statutory capital adequacy ratio (CAR) of 10%. Why...

Bank of Ghana requires Banks to maintain a statutory capital adequacy ratio (CAR) of 10%. Why strong CAR is so important for Banks and what are the mandatory provisions for Banks with less than 10% CAR?

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Answer #1

CAR (Capital Adequacy Ratio) is the ratio of a bank's capital to its assets which are risk weighted. A CAR > 10% is required as per Basel standards and this required to ensure that the bank has sufficient capital to withstand any loss and to continue functioning normally in case of any adverse event and also protect the interests of the depositors.

In case CAR falls below 10%, then the bank is required to inject additional capital to ensure that the ratio of capital to risk remain adequate and meet regulatory conditions. Only after Basel standards are met, the bank can resume operations and this is regulated by the national banking regulator.

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