Abstract:
The expansion of financial services, particularly those offered by commercial
banks, has coincided with faster economic growth. Banks are becoming more
exposed to borrowers with high debt servicing costs due to rising consumer and
corporate debt. Following the worldwide financial crises of 2008–2009, the
banking sector has become unstable. This study investigated the relationship
between macroeconomic variables and bank stability in Ghana. The analysis
relied on secondary data collected from January 2007 to December 2021. This
study analyzed the short and long-run dynamics between macroeconomic
variables and bank stability measured by the capital adequacy ratio. The bounds
test showed a long-run relationship between the variables of the study. From the
ARDL error correction model, exchange rate and return on asset have a positive
long-term impact on bank stability. On the other hand, the Ghanaian bank
stability was negatively impacted in the short term by the exchange rate. The
variables return to equilibrium at a significant rate of 28.9%. The study
recommended that banks should establish internal policies that ensure adequate
liquidity levels, strengthen the institutional environment in the country, strict
compliance with laws and regulations, and currency hedging
