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Determinants of Capital Adequacy in Deposit Money Banks: Evidence from Nigeria

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  • Henry Ikechukwu Onwere

Abstract

The research sets out to examine the impact of capital adequacy in the banking sub-sector and the growth of Nigeria’s economy. It specifically seeks to ascertain the effect of bank capital base and macroeconomic variables. Data set from Central Bank of Nigeria statistical bulletin (2014) during the period 1984-2014 was used. The error correction framework and co-integration techniques to test the relationship between bank capital base and macroeconomics variables were employed. Findings from the study indicates that political stability may reduce financial distress and bankruptcy while foreign investment will affect Banks capital in a developing economy like Nigeria in a period of financial crisis. However, the study also established a negative relationship between inflation and banks capital base as deposit money banks had their capital eroded due to inflation. The study made some recommendations for Nigeria’s policy makers which include the regulation of foreign investment and the use of monetary policy to keep inflation rate at a minimum level, if possible below 5% to enable deposit money banks in Nigeria compete globally and operate efficiently.

Suggested Citation

  • Henry Ikechukwu Onwere, 2015. "Determinants of Capital Adequacy in Deposit Money Banks: Evidence from Nigeria," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 4(6), pages 337-346.
    • Handle: RePEc:rss:jnljee:v4i6p4
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    References listed on IDEAS

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    1. Raza, Syed Ali & Shahbaz, Muhammad & Nguyen, Duc Khuong, 2015. "Energy conservation policies, growth and trade performance: Evidence of feedback hypothesis in Pakistan," Energy Policy, Elsevier, vol. 80(C), pages 1-10.
    2. Syed Ali Raza, 2015. "Foreign direct investment, workers’ remittances and private saving in Pakistan: an ARDL bound testing approach," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 16(6), pages 1216-1234, December.
    3. Catalan, Mario & Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings or stock market development - Which leads?," Policy Research Working Paper Series 2421, The World Bank.
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