Abstract
Determinants of capital adequacy ratio (CAR) in the Nigeria banking subsector was carried out using a panel data of 2010 to 2016 from selected commercial banks in Nigeria. A panel data model was specify to show the relationship between Capital Adequacy Ratio and some variables likely to be the determinants of CAR. Thus, this study examines the relationship between capital adequacy ratio and firm specific (deposits, net interest margin, commercial banks branches, return on asset, inflation and exchange rate. In order to investigate these issues a quantitative method research approach was utilized, by using documentary analysis. The study used panel data functional relationship technique to analyze the data. From the study, the regression result shows a positive relationship of 1.8900 on DP and CAR. The test of hypothesis stated in chapter four and the regression results, the findings show net interest margin with a P-value of -2.51. This however, was compared a confidence interval of 5%. -2.51<0.05 we reject the null and accept the alternative hypothesis that there is a significant relationship between net interest margin and capital adequacy ratio. The same procedure was carried out for other variables stated in the study. The implication of this result is that capital adequacy tends to depend on some of this variables. Therefore, a well-functioning banking system contribute in stabilizing inflation and exchange rate. Also a well-functioning bank encourages technological innovation by identifying and funding entrepreneurs with the best chances of successful innovation. This suggestion emerges from the idea that economic growth requires investment and for realisation of investment, capital is necessary.
Highlights
Foreign exchange rate reserves are affected by policies adopted by a nation’s central bank or monetary authority
Research in Nigeria had looked at the impact of foreign exchange rate and external reserves with Bureau De Change (BDC) rate on monthly data (Ngozi et al, 2016), the need for this study is to empirically investigate the determinants of foreign exchange rate in the Nigerian context using external reserves and other variables on a risk aversion and production theory
There is a positive relationship between RS and foreign exchange rate (FX) in Nigeria
Summary
Foreign exchange rate reserves are affected by policies adopted by a nation’s central bank or monetary authority. A nation may either adopt fixed, floating or mixed exchange rate regime. In the history of Nigeria, the floating, fixed and mixed exchange rate regimes have been adopted so as to safeguard the currency. Nigeria adopts the fixed exchange rate system which is adapted from the Bretton Woods system, the need for reserves if a country adopt the fixed exchange rate system. Most central banks hold assets to pay liabilities or debts. These assets are held in one or more currencies. In Nigeria, reserves are held in the United States dollar and they can be traced in the balance of payment accounts
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