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The Impact Of Capital Adequacy Ratio On Banks’ Profitability In The Republic Of North Macedonia

Author

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  • TATJANA SPASESKA

    (UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA)

  • ILIJA HRISTOSKI

    (UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA)

  • DRAGICA ODZAKLIESKA

    (UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA)

Abstract

The safety and solvency of the banking institutions are related to the banks’ capital. The banks’ capital is regulated by international regulation and it is under the supervision of the central bank. Namely, Basel Accords determines the minimum of the capital adequacy ratios. The banks’ capital adequacy ratio influences the working success of banking institutions and, at the same time, the kind of risks the banks can take over. This way, the capital adequacy ratio indirectly influences the banks’ financial results. Hence, the main objective of the research in this paper is to analyze the impact of the capital adequacy ratio on the banks’ profitability in North Macedonia. The empirical study is based on the utilization of the Auto-Regressive Distributed Lag (ARDL) method for time series analysis via EViews v10. The results of the study have shown that there is a positive, yet statistically insignificant relationship between the Capital Adequacy Ratio (CAR) and the Return on Average Assets (ROAA) of the Macedonian banks, both in the short- and long-run. However, the impact of Deposit-to-Asset Ratio (DAR) on ROAA is both positive and statistically significant both in the short- and long-run.

Suggested Citation

  • 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.
    • Handle: RePEc:cbu:jrnlec:y:2022:v:1:p:15-37
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    References listed on IDEAS

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    1. 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.
    2. Gockov Gjorgji & Hristovski Goran, 2019. "Determinants of Liquidity and its Relationship with Profitability – The Case of Macedonian Banking Sector," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(1), pages 85-92.
    3. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    4. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
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