Abstract
This research aims to evaluate the impacts of liquidity, profitability, size, loans and capital structure on banks’ capital adequacy ratio (CAR) in the Western Balkan region using annual data from 103 commercial banks operated in Western Balkan countries for the period between 2010 and 2018. Panel data fixed effect method is employed. The data comprises of a total 51 observations for panel least squares. The empirical findings obtained panel data regression show that profitability proxies by the return on asset (ROA) have the largest impact on CAR among other financial ratios. In addition, liquidity and size have statistically significant positive effects in determining capital adequacy ratio for the banks in the region, unlike leverage ratio. However, the leverage ratio has a negative impact on the capital adequacy ratio. The policy implications of this study suggest that in order to accomplish requirements for capital adequacy expectations are to have good indicators in regard to performance, liquidity and size.
Highlights
Banking institutions founded by private capital and functioning in the market as intermediary financial units are oriented toward profit maximization while taking into account the regulatory goal of depositors‘ protection. Allen and Gale (2003) concluded that a bank is a cooperative enterprise that provides insurance to consumers
This research aims to evaluate the impacts of liquidity, profitability, size, loans and capital structure on banks‘ capital adequacy ratio (CAR) in the Western Balkan region using annual data from 103 commercial banks operated in Western Balkan countries for the period between 2010 and 2018
This empirical study is designed to evaluate the relationship between CAR as a dependent variable and independent variables are identified as profitability, bank size, liquidity and return on assets (ROA), liquid assets to total assets (LATA), total assets (TA), loans to total assets (LTAR), total equity to total assets (TETA) as explanatory variables and residual or error of the panel data, in Western
Summary
Banking institutions (and ) founded by private capital and functioning in the market as intermediary financial units are oriented toward profit maximization while taking into account the regulatory goal of depositors‘ protection. Allen and Gale (2003) concluded that a bank is a cooperative enterprise that provides insurance to consumers. Banking institutions (and ) founded by private capital and functioning in the market as intermediary financial units are oriented toward profit maximization while taking into account the regulatory goal of depositors‘ protection. Banks must conduct and accomplish their activities in accordance with domestic and international regulatory (credit, cash, and liquidity) criteria when transitioning. The banking system potentially does not have bad repercussions only for the soundness of the financial system, but it has an impact on the economic growth of a country. From this point of view, the importance of a healthy banking system is of high importance in the development of macroeconomic aspects of the real economy
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