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Determinants of Capital Adequacy Ratio in the Banking Sector: Evidence from the Arab Region

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  • Rami Obeid

Abstract

The capital adequacy ratio is one of the most important indicators used to assess the ability of the banking sector to absorb shocks. Therefore, central banks have paid attention to the importance of monitoring this ratio on an ongoing basis, given the vital role of the banking sector in supporting the economy. In this paper, we investigate the banking and economic factors that could affect the capital adequacy ratio in the Arab banking sector, by using dynamic panel data model for a panel of 35 banks spread across seven Arab countries during the period 2015 to 2020. The results show that there is a positive and significant relationship between credit risk (ratio of non-performing loans to total loans) and the size of the bank on the one hand, and capital adequacy ratio on the other hand. There is also a negative significant relationship between bank profitability (return on assets) and capital adequacy ratio, while there is no significant relationship between dynamic provisions and capital adequacy ratio. Finally, regarding the role of economic variables, the study shows that the real GDP growth rate has a significant positive impact on the capital adequacy ratio in the Arab region.

Suggested Citation

  • Rami Obeid, 2023. "Determinants of Capital Adequacy Ratio in the Banking Sector: Evidence from the Arab Region," International Journal of Business and Management, Canadian Center of Science and Education, vol. 18(5), pages 1-63, August.
    • Handle: RePEc:ibn:ijbmjn:v:18:y:2023:i:5:p:63
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    References listed on IDEAS

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    1. 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.
    2. Rami Obeid & Bassam Awad, 2018. "Interaction of Monetary and Macro-prudential Policies: The Case of Jordan- Credit Gap as an Example," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(1), pages 99-111.
    3. Rami Obeid & Bassam Awad, 2018. "Interaction of Monetary and Macro-prudential Policies: The Case of Jordan- Credit Gap as an Example," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(1), pages 99-111.
    4. Rami Obeid & Mohammad Adeinat, 2017. "Determinants of Net Interest Margin: An Analytical Study on the Commercial Banks Operating in Jordan (2005-2015)," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 515-525.
    5. Yakup Asarkaya & Serkan Özcan, 2007. "Determinants of Capital Structure in Financial Institutions: The Case of Turkey," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 1(1), pages 91-109.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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    Cited by:

    1. Karaś, Marta Anita & Boda, Michał, . "Stabilność i wyniki finansowe banków w krajach Europy graniczących z konfliktem militarnym w Ukrainie," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2024(2).
    2. Marta Anita Karaś & Michał Boda, 2024. "Stabilność i wyniki finansowe banków w krajach Europy graniczących z konfliktem militarnym w Ukrainie," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 64-111.
    3. Rami Obeid, 2023. "The Impact of Macroprudential and Monetary Policies Instruments on the Private Credit Growth in the Arab Banking Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 13(5), pages 10-14, September.

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    JEL classification:

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

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