DETERMINANTS OF CAPITAL ADEQUACY OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

The study evaluates the determinants of capital adequacy of Nigerian Banks for the period of 2007 to 2021. The study used capital adequacy ratio as the dependent variable, while bank-specific factors and macroeconomic variables were used as the independent variables and the study adopted the technique of regression analysis. We found a significant positive influence of ROA, assets quality (AQ), Loan to Assets ratio, and audit quality on capital adequacy ratio of Nigerian banks. The results imply that Nigerian banks tend to maintain a reasonable capital adequacy ratio to maintain stability and comply with the requirements of the Central Bank. Our result further revealed insignificant negative influence of ROE, Bank size and inflation on capital adequacy but significant negative influence of deposit to total deposit to assets ratio (DPS) on CA while liquidity ratio and two of the macro economic variables (GDP and Interest rate) showed an insignificant positive influence on capital adequacy. We found that NDBs focused on maintaining profitability, asset quality and loan to total assets ratio for achieving sustainable performance. The insignificant positive effect of liquidity ratio on CA shows that the non performing loans of MDBs have no substantial impact on capital adequacy. These results imply that the high proportion of nonperforming loans in Nigeria has adversely affected the capital adequacy of DMBs in Nigeria. The study recommends that Nigerian bank should adhere strictly to regulatory authorities and employ a more logical risk management mechanism.