Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Capital Adequacy and Bank Stability in Nigeria: A panel ARDL Approach of selected listed Deposit Money Banks in Nigeria

ONYENAGUBOM, Christian and NONGU, Aondoaseer Moses

Abstract

This study examined to examine the effects of capital adequacy on the stability of quoted banks in Nigeria from 2010 to 2022. The study used a panel of eight banks in Nigeria, Access, First Bank, FCMB, Fidelity Bank, GTB, UBA, Union Bank of Nigeria and Zenith bank, all listed in the Nigerian Stock Exchange. The study was based on the expos fato research design and used secondary data sourced from the annual reports of the sampled banks. The study examined a number of significant capital adequacy variables that are difficult to neglect when trying to understudy the effects of capital adequacy. These variables include bank capital to total credit ratio (BCTCA), loan to deposit ratio (LDR), debt to equity ratio (DER) and risk weighted asset (RWA). The study adopted the Panel Autoregressive Distributed Lag (PARDL) technique to estimate our parameters. From the study’s findings, it can be concluded that loan to deposit ratio (LDR) and debt to equity ratio (DER) have significant inverse effect on bank stability in Nigeria, while bank capital to total credit ratio (BCTCA) and risk weighted asset (RWA) have significant positive effect on the stability in Nigerian banks. So, in summary, increasing or reducing the capital adequacy indicators matter to bank stability in Nigeria. Based on the findings and conclusions, the study proffers the following recommendations: that Nigerian banks that desire to improve their stability should reduce the ratio of loan to deposit and debt to equity, but increase bank capitalization to total credit ratio and their risk-weighted assets

Keywords

Capital adequacyBank stabilityZ-ScoreNigeriaPanel ARDL

References

Ajayi, S. O., Ajayi, H. F., Enimola, D. J., & Orugun, F. I. (2019). Effect of capital adequacy ratio (car) on profitability of deposit money banks (dmb’s): a study of dmb’s with international operating license in Nigeria. Research Journal of Finance and Accounting, 10(10), 84-91. Aliu, A.A., Abdullahi, N.A., & Bakare, T.O. (2020). Capital adequacy and financial performance of deposit money banks with international authorization in Nigeria. Accounting and Taxation Review, 4(4): 78-91. Aliyu, A. A., Abdullyhi, N. A., & Bakare, T. O. (2020). Capital adequacy and financial performance of deposit money banks with international authorization in Nigeria. Accounting and taxation review, 4(4), 78-91. Amahalu, N., Okoye, E. I., Nweze, C., Chinyere, O., & Christian, O. (2017, July). Effect of capital adequacy on financial performance of quoted deposit money banks in Nigeria. In Chapter 57 in the proceedings of the 2017 International Conference on African Entrepreneurship and Innovation for Sustainable Development (AEISD). Anaeto, E., Komolafe, B. & Ujah, E. (2019; June 25). New capital-base for banks may rise to N230bn. The Vanguard. Retrieved (04/04/2021) from https://www.vanguardngr.com/2019/06/new-capital-base-for-banks-may-riseto-n230bn/, Aroghene, K. G., & Ikeora, J. J. E. (2022). Effect of non-performing loans (npls), capital adequacy (ca) and corporate governance (cg) on bank stability in Nigeria. Finance & Accounting Research Journal, 4(4), 180-192. Atuahene, S. A., Yusheng, K., Benturn-Micah, G., & Aboagye, A. K. (2021). Impact of capital adequacy on banks’ performance: considering the basel international regulatory framework for banks. ETIKONOMI, 20(1), 45-54. ?ihák, M., & Hesse, H. (2010). Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 38, 95-113. Demirgüç-Kunt, A., Detragiache, E., & Tressel, T. (2008). Banking on the principles: Compliance with Basel Core Principles and bank soundness. Journal of Financial Intermediation, 17(4), 511-542. Dias, R. (2021). Capital regulation and bank risk?taking–new global evidence. Accounting & Finance, 61(1), 847-884. Ezu, G., Nwanna, I. O., & Eke-Jeff, O. M. (2023). Effect of capital adequacy on the performance of deposit money banks in Nigeria. International Journal of Novel Research in Marketing Management and Economics, 10(1), 53-63. Igbinosa, S. O. & Naimo, F. A. (2020). Capital adequacy and bank stability/soundness in subSahara Africa. European Journal of Accounting, Finance and Investment, 6(5), 38-54. Ikue-John, N., & Nkoro, E. (2019). Dynamics of capital adequacy and profitability of internationalized deposit money banks in Nigeria. Bussecon Review of Finance & Banking), 1(1), 18-25. Ingves, S. (2003). Banking crisis from an international perspective, A seminar paper on financial safety nets organized by International Monetary Fund (IMF). Konboye, l. E. & Nteegah, A. (2018). Banking sector capitalization and deposit money banks’ profitability in Nigeria. Int. J. Soc. Sc. Manage., 3(3), 203-213. Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of financial economics, 93(2), 259-275. Michael, E. I., Etukafia, N. I., Akpabio, E. E. & Etuk, M. I. (2018). Capital adequacy and the value of banks in Nigeria: a post-consolidation review. Journal of Finance and Bank Management, 6(2), 64-75. Mishkin, F. S. (1992). The Economics of money, banking and financial markets (3 rd ed) (New York: Harper Collins Publishers). Nwagbara, C. (2020). CBN may announce new recapitalization plan soon. Nairametrics. Retrieved (07/15/2023) from https://nairametrics.com/2020/01/13/cbn-mayannounce-new-recapitalisation-plan-soon/, Nwankwo, S. N. P. (2019). Effect of capital adequacy on commercial bank’s financial performance in Nigeria, 2010-2017. European Journal of Accounting, Finance and Investment, 5(4), 1-21. Obadire, A. M. (2022). Banking regulation effects on African banks’ stability. Journal of Financial Risk Management, 11(4), 707-726. Obilikwu, J. (2018). The impact of capital, concentration, size and liquidity on banking industry performance in Nigeria. International Journal of Economics and Financial, 8(4), 54-60. Ofeimun, G. & Akpotor, V. A. (2020). Effect of capital adequacy on banks’ performance in Nigeria: 2010 – 2019. Economics and Social Sciences Academic Journal, 2(7), 1-9. Ogbebor, P. I., Oguntodu, J. A., & Osho, L. A. (2020). Capital adequacy and return on assets of deposit money banks quoted in Nigeria. International Journal of Management Sciences and Business Research, 9(2), 111-120. Ogunode, O. A., Awoniyi, O. A., & Ajibade, A. T. (2022). Capital adequacy and corporate performance of non-financial firms: Empirical evidence from Nigeria. Cogent Business & Management, 9(1), 2156089. Oke, B. & Ikpesu, F. (2022). Capital Adequacy, Asset Quality and Banking Sector Performance in Nigeria. Acta Universitatis Danubius. Œconomica, 18(5). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1843 Okoi, I. O., Ocheni, S. I. & Orok, A. B. (2019). Impact of banking sector reforms on economic growth in Nigeria. European Journal of Scientific Research, 154(2), 230-240. Oleribe, O. O. & Taylor-Robinson, S. D. (2016). Before Sustainable Development Goals (SDG): Why Nigeria Failed to Achieve the Millennium Development Goals (MDGs). Pan African Medical Journal, 24, 156. Oyetayo, O. J., Osinubi, T. S. & Amaghionyeodiwe, L. (2019). Capital adequacy and banks performance: a case study of selected banks in Nigeria. International Journal of Economics, Commerce and Management, VII(9), 63-78. Ozili, P. K. (2018). Banking stability determinants in Africa. International Journal of Managerial Finance, 14(4), 462-483.

More Articles from IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH

Effect of Monetary Policy on Profitability of Deposit Money Banks in Nigeria

Author: Stephanie Nguhemen Gbande, Mike T. Soomiyol, Timothy Tyona, Gaius Msendoo Asombo

Cognitive Diversity and Performance of Deposit Money Banks in Nigeria

Author: 1Nwangwu, Okwudiri Iheanyi, 2 Pepple, Grace Jamie PhD

Banking Innovations and Industrial Sector Performance in Nigeria: Evidence from ARDL Model

Author: Peter Ngbede Ajam, Abiodun Edward Adelegan, Benson Emmanuel

Environmental Sustainability and Entrepreneurial Performance in Nigeria: A Case Study of Enugu State

Author: i, Azolike Nkiru Nkechi, ii, Okwor Emmanuel Ejimnkonye, iii, Eneaniofu Daniel Mmaduakonam