DETERMINANTS OF CAPITAL ADEQUACY OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

Capital adequacy is critical to the safety and soundness of banks as it serves as a buffer or cushion for absorbing losses. This study examined the determinants of capital adequacy of deposit money banks in Nigeria. The study adopted correlation research design in a sample of 9 banks for a period of five years (2014-2019). Random effect regression technique of data analysis was employed, and the study found a signicant association between capital adequacy ratio and the determinants of capital adequacy of banks in Nigeria. The study found that firm performance (ROA) of the sample deposit money banks has significant positive impact on the capital adequacy ratio (CAR). The results show that bank size (BSZE) of the sample deposit money banks has significant positive effect on the capital adequacy ratio (CAR). And, also loan to deposit ratio (LDR) of the sample deposit money banks has significant positive impact on the capital adequacy ratio (CAR). The study concludes that ROA, BSZE and LDR are significant determinants of capital adequacy of banks in Nigeria during the period under review. The study recommends that regulators (CBN) should encourage banks to improve on their size, financial performance and enhanced risk assets (loans and advances). Management of deposit money banks in Nigeria should deploy more strategies that could improve the capital adequacy of their banks, so as to ensure sound banking industry in Nigeria.