Capital adequacy, management and performance in the Nigerian commercial bank (1986 - 2006)

Abstract

This study investigates the impact of bank capital adequacy ratios, management and performance in the Nigerian commercial bank (1986 -2006). The objectives of this paper are: to determine to what extent bank capital adequacy ratios impact on bank performance and also to investigate the extent to which operation expenses has impacted on the return on capital. The study captured their performance indicators and employed cross sectional and time series of bank data obtained from Central Bank of Nigeria (CBN) and Annual Report and Financial statements of the sampled banks. The formulated models were estimated using ordinary least square regression method. The overall capital adequacy ratios of the study shows that Shareholders Fund/Total Assets (SHF/TA) which measures capital adequacy of banks (risk of default) have negative impact on ROA. The efficiency of management measured by operating expenses indice is negatively related to return on capital. The implication of this study, among others, is that adequate shareholders fund can serve as a veritable stimulant in strengthening the performance of Nigerian commercial banks and also heighten the confidence of customers especially in this era of global economic meltdown that has taken its toll in the Nigerian financial system.

Risk Management and Financial Performance of Listed Deposit Money Banks in Nigeria

“…This indicates that a unit increase in capital adequacy ratio will bring about 0.08 unit decrease in ROA. This outcome agrees with the findings of Ikpefan (2013) in Nigeria whose study on the impact of capital adequacy ratios of Nigerian commercial banks from 1986 to 2006 using panel data regression model revealed a negative impact of capital adequacy, measured by shareholders fund over total assets, on return on assets. This result however conflicts with the findings of Ezike and Oke (2013) in Nigeria, Mathuva (2009) in Kenya which gave a positive relationship between CAR and ROA.…”

Evaluating Performance of Commercial Banks in Pakistan: An Application of Camel Model

“…In other words, Capital adequacy has a significant impact on the bank's performance. Our Results are consistent with the studies of Pastory et al, Frederick, Guisse, Ikpefan, Barnor and Odonkor [74][75][76][77][78]. The Coefficient correlation value shows a negative relationship between Total Deposit to Total Equity ratio and the Bank's performance.…”

“…The general capital adequacy proportions of the study demonstrate that Shareholders Fund/Total Assets (SHF/TA) which measures the capital adequacy of banks (danger of default) have significant negative effects on ROA [77].…”

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

“…Secondly, the results from the effect of deposits and loans showed that poor capitalized banks operated with low net worth relative to asset. Ikpefan (2013), "Capital inadequacy has affected the financial health of banks. He explained that an analysis of bank capitalization revealed that as at the end of 1992, almost all banks (120) operating in Nigeria required additional capital totaling N0.6billion to support their volume of trading.…”

“…Also that loans should be adequately secured to reduce the incidence of non-performing loans to dampen the negative effects of risk management and, thus, enhance capital adequacy of the banks. Ikpefan (2013) investigated the impact of bank capital adequacy ratios, management and performance in the Nigerian commercial bank (1986 -2006). The study captured their performance indicators and employed cross sectional and time series of bank data obtained from Central Bank of Nigeria (CBN) and Annual Report and Financial Statements of the sampled banks.…”