The Effect of Capital Adequacy on the Profitability of Deposit Money Banks in Nigeria

Abstract

The study examines the effect of capital adequacy on the profitability of Nigerian deposit money banks for the period of 2010 – 2023. The objective of this study is to examine how capital adequacy has helped deposit money banks achieve an efficient performance. This study adopts an ex-post facto research design, and the sample size is all deposit money banks in Nigeria. The data used are mainly secondary data collected from the Central bank of Nigeria statistical bulletin and audited annual publications financial statements of all the deposit money banks listed on the Nigerian Stock Exchange. The study employed ordinary least square multiple regression (OLS), descriptive statistical analysis, in addition to E-view electronic packages. According to empirical results at 5% level of significance, findings shows that Capital Adequacy ratio has a positive and insignificant effect on the profitability of deposit money Bank in Nigeria,Loan to deposit ratio has a positive and insignificant effect on the profitability of deposit money Bank in Nigeria,Debt to equity ratio has a negative and insignificant effect on the profitability of deposit money Bank in Nigeria and Liquid Asset ratio has a positive and insignificant effect on the profitability of deposit money Bank in Nigeria. The study recommends that the regulatory authorities and Banks should continue to enforce capital adequacy requirements, focus on credit quality and risk management, optimize capital structure and manage liquidity effectively.These recommendations aim to promote financial stability, resilience, and profitability in the banking sector.