A Review of Indices of Capital Adequacy and Performance among Nigerian Banks: A Theoretical Consideration

The paper examines concept of capital adequacy and performance from recapitalized banking system perspective to ascertain whether some indices of financial condition and performance like capital-to-total assets ratio, asset quality, liquidity profile, earning and profitability and competence of management are effective in ensuring bank health in a deregulated banking system. In particular, we investigated, from existing literature, the possibility of financial supermarkets or mega banks existing side-by-side small banks in a consolidated Nigerian banking environment. Hence the paper employed descriptive statistical analysis to analyze conceptually, selected indices of bank capital adequacy and performance (profitability) to propose the way forward for a supermarket cum- small bank industry which will finance the real sector of the Nigerian economy in a bid to stimulate needed economic growth and development in the 21st century. Findings from our analysis confirmed a-priori economic thinking, that the capital adequacy is only a part of a bank’s overall soundness, but that a bank can still be small in its capital base composition and continue to operate profitably provided it maintains a balanced mix in its asset structure to ensure both high liquidity and profitability ratings. We, therefore, recommended that the Nigerian monetary authorities should not focus attention exclusively on the adequacy of bank capital. Rather, they should be concerned with the overall soundness of the bank instead of fixing N25 billion mark capital base requirement to be met by all banks as it will singly do all the magic.