Abstract
<p>Capital adequacy is a crucial factor in determining the level of risk absorption of a banking institution. This issue has been discussed widely as it is an important yardstick to gauge the complete picture of banking performance. Capital adequacy is closely related to the economic performance of related country, therefore, this study investigates the financial performance and economic impact of capital adequacy ratio on regional banks in Japan. Five variables were employed that represent economic performance - unemployment rate, inflation rate, real exchange rate, money supply and gross domestic product, while financial performance of the regional banks consisted of six variables, namely the deposit-to-asset ratio, return on assets, return on equity, total assets, total deposits and total loans. 64 regional banks were evaluated over a period of 10 years from 2005 to 2014. Secondary data were composed of World Bank data and the individual financial statements of Japanese regional banks. The results show a various signs of relationships between variables and it was slightly different from previous study. This was supported by result tested by panel regression analysis and correlation analysis conducted in order to measure the relationship between capital adequacy and each variable. This paper among others gives a vast reference to depositor, banking institution and policy maker in not only maintaining but also need to improve the level of capital adequacy for a stable security to all parties.</p>
Highlights
Capital adequacy play a major role in banking security, and besides that, it portrays a bank’s image as a whole, potentially attracting public confidence to invest in the bank
Banking performance is significantly related to the macroeconomic performance, changes in level of gross domestic product (GDP) will affect level of capital adequacy ratio
This study sought to investigate the relationship between financial performance of Japanese regional banks and the economic performance of Japan with the capital adequacy ratio
Summary
Capital adequacy play a major role in banking security, and besides that, it portrays a bank’s image as a whole, potentially attracting public confidence to invest in the bank. There is a solid public relations characteristic to capital adequacy. It is commonly accepted that the readiness of capital is a perfect sign of health of a bank and a satisfactory situation to guarantee the safeguarding of certainty by investors, creditors and depositors. Banking performance is significantly related to the macroeconomic performance, changes in level of gross domestic product (GDP) will affect level of capital adequacy ratio. Banks will conduct strict policies in lending activity since borrower’s ability to repay the loan may decrease.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
