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An Empirical Analysis of Capital Adequacy Determinants in Nigerian Banking Sector

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  • Odunayo Magret Olarewaju
  • Joseph Olorunfemi Akande

Abstract

It is an acknowledged economic fact that banks cannot underestimate the role of Capital adequacy since adequacy of capital in banks directly influences the amount of funds available for loans disbursement which invariably affects their risk appetite, efficiency and stability. This paper seeks to examine the determinants of capital adequacy in Nigerian quoted deposit money banks for the years 2005-2014. The study employs both descriptive and fixed effect panel regression. The descriptive analysis shows that the mean and median values are within the minimum values and the standard deviation shows the expected growth rate deviation for each of the identified determinants of capital adequacy. From the analysis of panel data using Cross-Sectional Specific fixed effect estimations, it is discovered that a direct relationship exists among ETA, ROA and SIZ while an inverse linear relationship that exists among ROA, CR, DEP and LIQ are statistically significant in determining the level of capital adequacy among the deposit money banks in Nigeria. The study recommends the need for all these affected banks to gear up and invest more on the significant factors that can lead to improvements in their capital adequacy in order to achieve viability, sustainability and stability in the long run.

Suggested Citation

  • Odunayo Magret Olarewaju & Joseph Olorunfemi Akande, 2016. "An Empirical Analysis of Capital Adequacy Determinants in Nigerian Banking Sector," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 132-142, December.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:12:p:132-142
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    References listed on IDEAS

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    1. Kleff Volker & Weber Martin, 2008. "How Do Banks Determine Capital? Evidence from Germany," German Economic Review, De Gruyter, vol. 9(3), pages 354-372, August.
    2. Reint Gropp & Florian Heider, 2010. "The Determinants of Bank Capital Structure," Review of Finance, European Finance Association, vol. 14(4), pages 587-622.
    3. Volker Kleff & Martin Weber, 2008. "How Do Banks Determine Capital? Evidence from Germany," German Economic Review, Verein für Socialpolitik, vol. 9(3), pages 354-372, August.
    4. David E Allen & Robert John Powell, 2013. "The Determinants of Capital Structure: Empirical evidence from Thai Banks," Information Management and Business Review, AMH International, vol. 5(8), pages 401-410.
    5. Rubi Ahmad & M. Ariff & Michael Skully, 2008. "The Determinants of Bank Capital Ratios in a Developing Economy," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 15(3), pages 255-272, December.
    6. Oecd, 2013. "The App Economy," OECD Digital Economy Papers 230, OECD Publishing.
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    Cited by:

    1. MOHAMMED, Badamasi Idris & NWALA MAUREEN, Nneka & MOHAMMED, Jibril, 2023. "Impact of Liquidity Management on Capital Adequacy Ratio of Listed Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(12), pages 1762-1774, December.
    2. Nenubari John Ikue & Joseph Osaro Denwi & John Akin Sodipo & Linus B. Enegesi, 2022. "Bank-specific performance indicators, macroeconomic variables and capital adequacy of Nigerian banking industry," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(6), pages 288-299, September.

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    More about this item

    Keywords

    credit risk; re-capitalization; heterogeneity; bank-specific factors;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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