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The Determinants of Banks’ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries

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  • Rafet Aktas
  • Suleyman AÇIKALIN
  • Bilge Bakin
  • Gokhan Celik

Abstract

The legal authorities set the minimum capital level for the banks. Recent studies have shown that variables used to explain capital structure of non financial firms, such as size, profit, leverage, liquidity and risk, could also be helpful in understanding banks’ capital structure. This paper aims to evaluate the impact of bank-dimensional and environmental factors on bank’s capital adequacy ratio in South Eastern European (SEE) region. Size, profitability (ROA), leverage, liquidity, net interest margin (NIM), and risk are used as bank-dimensional explanatory variables in a feasible GLS regression model. On the other hand, economic growth rate, inflation, real interest rate, Eurozone stock market volatility index, deposit insurance coverage, and governance indicator are added to the original model to control for environmental factors. Annual data from 71 commercial banks belong to 10 different countries in SEE region for the period of 2007 – 2012 is used. This region mainly consists of the “transition economies†which are still experiencing the difficulties of turning into efficient market economies with high economic potentials. The results of our study show that among the bank dimensional explanatory variables size, ROA, leverage, liquidity, net interest margin and risk have statistically significant effects in determining CAR for the banks in the region. Among the environmental factors, economic growth rate, Eurozone stock market volatility index, deposit insurance coverage, and governance have statistically significant effects in determining CAR for the banks in the SEE region.

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  • Rafet Aktas & Suleyman AÇIKALIN & Bilge Bakin & Gokhan Celik, 2015. "The Determinants of Banks’ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 7(1), pages 79-88.
    • Handle: RePEc:rnd:arjebs:v:7:y:2015:i:1:p:79-88
    DOI: 10.22610/jebs.v7i1(J).565
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    2. Tatjana Spaseska & Ilija Hristoski & Dragica Odzaklieska, 2022. "The Impact Of Capital Adequacy Ratio On Banks’ Profitability In The Republic Of North Macedonia," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 15-37, February.
    3. Nenubari John Ikue & Joseph Osaro Denwi & John Akin Sodipo & Linus B. Enegesi, 2022. "Bank-specific performance indicators, macroeconomic variables and capital adequacy of Nigerian banking industry," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(6), pages 288-299, September.
    4. Kamal Naser & Abdullah Al-Mutairi & Ahmad Al Kandari & Rana Nuseibeh, 2015. "Cogency of Capital Structure Theories to an Islamic Country: Empirical Evidence from the Kuwaiti Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 979-988.
    5. Hassan Kablay & Victor Gumbo, 2021. "Determinants of Capital Adequacy Ratio of Banks in Botswana," Journal of Mathematics Research, Canadian Center of Science and Education, vol. 13(6), pages 1-38, December.
    6. Ahmad Mohammad Obeid Gharaibeh, 2023. "The Determinants of Capital Adequacy in the Jordanian Banking Sector: An Autoregressive Distributed Lag-Bound Testing Approach," IJFS, MDPI, vol. 11(2), pages 1-22, June.

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