An Empirical Analysis of Capital Adequacy in the Banking Sub-Sector of the Nigeria Economy

Abstract

The paper sets out to examine the impact of capital adequacy in the banking sub-sector and the growth of Nigeria economy. It specifically seeks to ascertain the effect of bank capital base and macroeconomic variables. Nigeria's data set from CBN statistical bulletin (2009) during the period 1980-2010 was used. It employed the error correction framework and co-integration techniques to test the relationship between bank capital base and macroeconomics variables. This implies that political stability may reduce financial distress and bankruptcy why foreign investment will affect Banks capital in most developing economy in the period of financial crisis. However, the study also establishes that there is a negative relationship between inflation and banks capital base as inflation erode banks capital in most developing economy. This simply means that Nigerian government should regulate investment policy why banks regulators should strive to keep inflation rate at a minimum level, if possible below 5% for them to be more efficient so as to be globally competitive.

Determinants of Systematic and Unsystematic Liquidity Risk in Islamic Banks

“…NPL (Non-performaing loans) is measured by the ratio of default loans to gross loans. CAR (Capital Adequacy Ratio) is calculated by the ratio of capital expenditure to asset (Ogege, Williams & Emerah, 2012). LR (Leverage ratio) is calculated by the ratio between total debt and total assets.…”

“…LR (Leverage ratio) is calculated by the ratio between total debt and total assets. If the ratio is high, the liquidity risk tends to be high (Ogege et al, 2012). BS (bank size) is measured by log of total assets.…”

Evaluating Performance of Commercial Banks in Pakistan: An Application of Camel Model

“…According to the state bank of Pakistan, a minimum 10 percent CAR is required. Capital Adequacy can be the percentage ratio of a monetary organization's primary capital to its resources (advances and investments), utilized as a measure of its monetary strength and stability [171].…”