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Determinants of Capital Adequacy Ratio of Banks in Botswana

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  • Hassan Kablay
  • Victor Gumbo

Abstract

Capital Adequacy Ratio (CAR) plays a very important role in the financial success of banks and acts as a buffer to prevent and absorb any unexpected losses. This study examines explanatory variables that influence CAR for nine banks in Botswana. Multiple linear regression was used for analysis, with CAR as the dependent variable and thirteen financial ratios as the independent variables. The study period is 2015-2019. Based on the data for this period, it was established that out of the thirteen financial ratios utilised, only four were found to have significant impact on the CAR of the nine banks under study, which are- Asset to Equity Ratio (A E), Return on Equity (ROE), Non-Performing Loans Ratio (NPL RATIO) and the Cost-to-Income Ratio (C I). The A E Ratio was found to be the most influential driver of the CAR and the NPL Ratio was found to be the least influential driver of the CAR for the banks under study.

Suggested Citation

  • Hassan Kablay & Victor Gumbo, 2021. "Determinants of Capital Adequacy Ratio of Banks in Botswana," Journal of Mathematics Research, Canadian Center of Science and Education, vol. 13(6), pages 1-38, December.
    • Handle: RePEc:ibn:jmrjnl:v:13:y:2021:i:6:p:38
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    References listed on IDEAS

    as
    1. Rafet Aktas & Suleyman AÇIKALIN & Bilge Bakin & Gokhan Celik, 2015. "The Determinants of Banks’ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 7(1), pages 79-88.
    2. Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Hayman Manurung & Tubagus Nur Ahmad Maulana, 2014. "Determinant of Capital Ratio: A Panel Data Analysis on State-owned Banks in Indonesia," EcoMod2014 6745, EcoMod.
    3. Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Haymans Manurung & Tubagus Nur Ahmad Maulana, 2014. "Determinant Of Capital Ratio: A Panel Data Analysis On State-Owned Banks In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(4), pages 1-18, April.
    4. Pamuji Gesang Raharjo & Dedi Budiman Hakim & Adler Haymans Manurung & Tubagus Nur Ahmad Maulana, 2014. "Determinant Of Capital Ratio: A Panel Data Analysis On State-Owned Banks In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(4), pages 1-20, April.
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    Cited by:

    1. Ahmad Mohammad Obeid Gharaibeh, 2023. "The Determinants of Capital Adequacy in the Jordanian Banking Sector: An Autoregressive Distributed Lag-Bound Testing Approach," IJFS, MDPI, vol. 11(2), pages 1-22, June.

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    More about this item

    JEL classification:

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

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