An Empirical Analysis of Capital Adequacy Determinants in Nigerian Banking Sector

Abstract

<p>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.</p>