Capital Adequacy and Profit before Tax of Deposit Money Banks in Nigeria

Abstract

The issue of capital inadequacy, operational inefficiency and credit risk in terms of low profit margins and inflated overhead costs, risk management and heaps of non-performing loans which have posed significant threat to the banking sector. And over the years, Nigeria have experienced varying degrees of bank failure and this have had some harsh effects on the financial sector and the economy at large. In effect, this study investigated effect of capital adequacy on profit before tax of deposit money banks in Nigeria (2004 – 2022). The major objective of the study was to examine the effect of total qualifying capital, adjusted shareholders fund (tier 1 capital) and capital-to risk weighted average ratio of deposit money banks on profit before tax. Quasi experimental research design was adopted. Data for the study was time series secondary data obtained from NDIC 2022 Annual statistical report and CBN. The variables were tested for unit root and were found to be stationary at level and first difference; hence granger casualty test was conducted to ensure co-integration exists among the variables. ARDL model was used to test the hypotheses. From the findings it was discovered that, total qualifying capital has a negative and significant effect on profit before tax of deposit money banks in Nigeria, adjusted shareholders fund has a positive and significant effect on profit before tax of deposit money banks in Nigeria. The researcher therefore recommended that it is advisable for deposit money banks to perform more agility of their capital through

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