ANALYSIS OF MICRO PRUDENTIAL DETERMINANTS OF CAPITAL ADEQUACY IN DEPOSIT MONEY BANKS

Abstract

This work presents an analysis of micro prudential determinants of capital adequacy of deposit money banks (CADMBs) in Nigeria between the periods of 1990-2021 (32years). This was done in respect to the measures of micro prudential determinants of CADMBs, namely; Profitability (PROF), Liquidity Ratio (LIQR), Bank Size (BS), Ratio of Total Loan and Advances to Total Assets (RTLADTA) and Ratio of Total Deposits to Total Assets (RTDTA) in relation to CADMBs proxied with Capital Adequacy Ratio (CAR) of deposit money banks (DMDs) in Nigeria. The data for the study was sourced from CBN statistical bulletin, CBN bank supervisory annual report and NDIC annual report. Then, the stationary and normality tests was carried out, followed by the descriptive statistics, correlation and multiple regression tool of analysis with the aid of E-VIEW 9.0 statistical package. The findings revealed that PROF exerts negative insignificant effect on CAR of banks in Nigeria; LIQR exerts negative significant effect on CAR of banks in Nigeria; BS exerts positive significant effect on CAR of banks in Nigeria; RTLADTA exerts positive significant effect on CAR of banks in Nigeria and RTDTA exerts positive insignificant effect on CAR of banks in Nigeria. Thus, the study concluded that the identified measures of micro prudential determinants have significant effects on CADMBs. The study recommended that banks should also ensure strict compliance with regulatory requirements concerning CAR, risk management and loans administration since they may have a toll on the profitability and sustenance of the banks.
 Keywords: Prudential, Determinants, Capital Adequacy, Liquidity and Bank Size.