Capital Adequacy and the Value of Banks in Nigeria: A Post-Consolidation Review

Abstract

This paper examines capital adequacy and the value of banks in Nigeria, using secondary data for the period spanning 2006 and 2016. Total Assets (explained variable), Capital, Provision for Bad Debts, and Provision for Loans/Lease Losses (explanatory variables) of deposit money banks (DMBs) were used as variables in the study. Data were analysed using Ordinary Least Square (OLS) regression technique. Unit Root tests (Augmented Dickey-Fuller and Phillips-Perron) were conducted to test the stationary levels of the variables. OLS results showed that capital has a positive and statistically significant relationship with DMBs total assets; loans/lease losses provision and provision for bad debts exhibited negative and statistically non-significant relationships with total assets. These positions were in line with a priori expectations of the study. The researchers recommend that banks should take risks that are commensurate with their level of capital in order to remain sound and stable for every stakeholder.