Bank-specific performance indicators, macroeconomic variables and capital adequacy of Nigerian banking industry

Abstract

This paper examined bank-specific performance indicators and macroeconomic factors affecting the short-term financing obligation of Nigerian banks from 2010 to 2019. The data for the study are sourced annually from the financial statements of the selected Deposit Money Banks and the Central Bank of Nigeria Statistical Bulletin. The panel unit root and co-integration tests are employed to ascertain the sustainability of the bank-specific performance indicators. The models for the industry were cast in a host of panel frameworks such that we estimated the static and dynamic panel models. The study observed that the capital adequacy ratio, which is the short-term financing obligation of Nigerian banks was elastic to bank profitability positively. In addition, interbank call rate, bank size, and oil price positively influence the capital adequacy ratio over time, whereas loan-to-deposit ratio, inflation and exchange rate exacerbate the capital adequacy ratio. Consequently, we canvass that Nigerian banks should reduce dividend payouts and increase retained profits as a buffer against exposed risks.

Keywords: {'name': 'Capital adequacy ratio, bank profitability index, bank failure, macroeconomic variables. '}

Authors & affiliations

Nenubari John Ikue
Affiliation not supplied

Joseph Denwi
Affiliation not supplied

John Sodipo
Affiliation not supplied

Linus Enegesi
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

Abba, G. O., Okwa, E., Soje, B., & Aikpitanyi, L. N. (2018). Determinants of capital adequacy ratio of deposit money banks in Nigeria. Journal of Accounting & Marketing, 7(2), 1-7. https://doi.org/10.4172/21689601.1000271.

Abdullah, M. N., Parvez, K., & Ayreen, S. (2014). Bank specific, industry specific and macroeconomic determinants of commercial bank profitability: A case of Bangladesh. World, 4(3), 82-96.

DOI: 10.51153/mf.v15i1.405

Abusharba, M. T., Triyuwono, I., Ismail, M., & Rahman, A. F. (2013). Determinants of capital adequacy ratio (CAR) in Indonesian Islamic commercial banks. Global review of accounting and finance, 4(1), 159-170.

DOI: 10.1080/23322039.2015.1006477

Adesina, J. B., Nwidobie, B. M., & Adesina, O. O. (2015). Capital structure and financial performance in Nigeria. International journal of business and social research, 5(2), 21-31.

Agbeja, O., Adelakun, O. J., & Olufemi, F. I. (2015). Capital adequacy ratio and bank profitability in Nigeria: A linear approach. International Journal of Novel Research in Marketing Management and Economics, 2(3), 91-99.

DOI: 10.5539/ijef.v8n12p132

Akani, H. W., & Lucky, A. L. (2015). Econometrics analysis of capital adequacy ratios and the impact on profitability of commercial banks in Nigeria. IOSR Journal of economics and finance, 6(6), 11-24. https://doi.org/10.9790/5933-06621124.

DOI: 10.22610/jebs.v7i1(J).565

DOI: 10.1080/13504851.2019.1676870

DOI: 10.1016/S0378-4266(96)00025-8

DOI: 10.2307/2297968

DOI: 10.6007/IJAREMS/v2-i4/50

Aspal, P. K., & Nazneen, A. (2014). An empirical analysis of capital adequacy in the Indian private sector banks. American Journal of Research Communication, 2(11), 28-42.

Baltagi, B. H. (2001). Econometric analysis of data panel. England: John Wiley & Sons Ltd.

DOI: 10.5539/ijef.v6n11p108

DOI: 10.1016/0378-4266(95)00002-X

DOI: 10.1016/S0304-4076(98)00009-8

DOI: 10.2307/2297111

DOI: 10.1080/01621459.1974.10482955

DOI: 10.1006/jfin.1999.0276

Central Bank of Nigeria (2020). Monetary, credit, foreign trade and exchange rate policy guidelines for fiscal years 2020/2021.

Central Bank of Nigeria (2021). Guidelines on regulatory capital. https://www.cbn.gov.ng/Out/2021/BSD/1. GUIDELINES... · PDF file

DOI: 10.13106/jafeb.2020.vol7.no6.039

Egba, L., (2020). Nigerian Banks expected to write off 12% of its loans in 2020. https://nairametrics.com/2020/06/29/nigerian-banks-expected-to-write-off-12-of-its-loans-in-2020/.

DOI: 10.5539/ijef.v11n12p15

DOI: 10.17016/FEDS.2007.20

Gwartney, J. A., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2015). Economics: Private and public choice (15th ed). Stamford, CT: Cengage Learning.

DOI: 10.6007/ijarbss.v1i2.36

Harley, T. W., Afolabi, T. S. and Adegbola, D. D. (2018). An empirical investigation of the determinants of capital adequacy of financial institutions in Nigeria. International Review of Social Sciences, 6(7), 376-386.

DOI: 10.21511/bbs.12(4).2017.01

He, L. T., Fayman, A., & Casey, K. M. (2014). Bank profitability: The impact of foreign currency fluctuations. Journal of Applied Business and Economics, 16(2); 98-104.

Hewaidy, A. M. and Alyousef, H. Y. (2018). Bank-specific and macroeconomic determinants of capital adequacy ratio: Evidence from Kuwaiti banks. European Journal of Economics, Finance and Administrative Sciences, 9(9), 5-20.

Ikpefan, O. A. (2012). Bank capitalization and performance in Nigerian banking industry (1986-2006): Empirical evidence. European Journal of Accounting Auditing and Finance Research, 1(4), 12-32.

DOI: 10.5897/AJBM09.258

DOI: 10.36096/brfb.v1i2.137

DOI: 10.20525/ijrbs.v9i4.770

Ikue, N. J., Medee, P. N., Denwi, J. O., & Sodipo, J. A. (2021). Macroeconomic Deficits and Public Debt Sustainability in Nigeria. Journal of Economics and Finance, 4(6), 39-48.

DOI: 10.1016/S0304-4076(03)00092-7

Isaac, L. (2015). Assessing the impact of exchange rate risk on banks. performance in Nigeria. Journal of Economics and Sustainable Development, 6(6), 1-13.

DOI: 10.5539/ijbm.v9n4p22

DOI: 10.1016/S0304-4076(98)00023-2

Kayode, O. F., Obamuyi, T. M., Owoputi, J. A., & Adeyefa, F. A. (2015). Credit risk and bank performance in Nigeria. IOSR Journal of Economics and Finance, 6(2), 21-28. DOI:10.9790/593306222128.

Khan, I., Jan, S. U., & Khan, M. (2015). Determinant of capital structure: An empirical study of cement sector of Pakistan. Asian Journal of Management Sciences & Education, 4(3), 50-60.

Levene, H. (1960). Robust tests for equality of variances in contribution to probability and Statistics, (Ed) 1. Olkin: Stanford University Press, Palo Alto.

DOI: 10.1016/S0304-4076(01)00098-7

Leviticus, A. D., Abel, H. H., Henry, Y. U. A., & Kanayo, A. P. (2020). Effect of selected macroeconomic variables on the profitability of deposit money banks in Nigeria: 2007-2018. Journal of Finance and Economics, 8(4), 152-160.

Medee, P. N. & N. Ikue-John, (2017). Determinants of foreign direct investment in ECOWAS region: A system GMM approach. African Journal of Applied and Theoretical Economics (AJATE) Special Edition., 295-309.

DOI: 10.15640/jfbm.v6n2a7

DOI: 10.1016/0304-405X(84)90023-0

DOI: 10.1016/j.ribaf.2014.09.004

Olalekan, A., & Adeyinka, S. (2013). Capital adequacy and banks’ profitability: an empirical evidence from Nigeria. American International Journal of Contemporary Research, 3(10), 87-93.

DOI: 10.5539/ijef.v8n12p132

Olukotun, G. A., James, O. O., & Olorunfemi, K. (2013). Bank Distress in Nigeria and the Nigeria Deposit Insurance Corporation Intervention. Global Journal of Management and Business Research Finance, 13(8); 50-60.

Olubusoye, O. E., Salisu, A. S., & Olufin, S. O. (2015). Apply Panel Data Analysis. Center for Econometric and Allied Research (CEAR), 1-135.

Osaretin, I. S., & Michael, C. I. (2015). The determinants of capital structure of listed firms in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(10), 96-111.

DOI: 10.1080/15228916.2017.1247329

DOI: 10.1086/259597

DOI: 10.1080/01621459.1999.10474156

DOI: 10.5089/9781451873672.001

DOI: 10.21098/bemp.v16i4.19

DOI: 10.29302/oeconomica.2013.15.2.23

DOI: 10.2139/ssrn.248314

Shingjergji, A., & Hyseni, M. (2015). The determinants of the capital adequacy ratio in the Albanian banking system during 2007-2014. International Journal of Economics, Commerce and Management, 3(1), 1-10.

Taiwo, O., & Adesola, O. A. (2013). Exchange rate volatility and bank performance in Nigeria. Asian Economic and Financial Review, 3(2), 178.

Takon, S. M., Eba, A. O., Akagha, B. O., Matthias, S. A., & Chukwuma, C. C. (2021). Capital adequacy and the performance of deposit money banks in Nigeria. International Journal of Economics and Financial Management, 6(1), 50-61.

Talumantak, R. (2021). Determinant of capital adequacy requirements: The role of bank-specific factors in banks listed on the Indonesia stock exchange. Enrichment: Journal of Management, 12(1), 44-51.

DOI: 10.1504/AAJFA.2020.10026179

Thomson, F. B., Hill, C. R., & Johnson, S. R. (1988). Advanced Econometric Methods. New York: Springer-Verlag New York inc.