Capital Adequacy & Banking Risk An Empirical Study on Vietnamese Banks

Abstract

Since the globally financial crisis occurred in 2008, Supervisory has become one of the most centric activities that all banks’ governors over the world are focusing on and Vietnamese banking system is not an exception. The State Bank of Vietnam is required to loosen the entry barriers for foreign entity at the WTO integration as well as to tighten financial policies in banking industry, in which capital adequacy is an useful tool to assess and control the sector’s performance. This paper aims to present a look on the relationship between degree of capital adequacy, risks and profitability indicators of Vietnamese commercial banks through both theoretical and empirical studies. The former provides the brief knowledge about capital regulation, the overview of Basel Capital Accord and the Vietnamese regulations on banks’ capital adequacy in general. Using the secondary data, the empirical study examines the effects of several independent variables on banks’ adequate capital. The paper reveals that the combination of capital risk, owner’s equity risky assets ratio, return on equity, and return on assets have statistically significant influence on Vietnamese banks’ capital adequacy.