Factors Affecting Capital Adequacy of Commercial Banks: The Case of Private Commercial Banks in Ethiopia
No Thumbnail Available
Date
2025-09
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The purpose of the study was to identify the significant factors that determine capital adequacy of Ethiopian commercial banks from 2013 to 2024 using multiple linear regression analysis and correlation coefficient. The target population of all private commercial banks operating in Ethiopia which were established and registered between 2013 and 2024. Data was collected from sixteen private commercial banks from Secondary data. The study revealed a statistically significant positive relationship between the level of capital adequacy of commercial banks and independent variables - bank size and management efficiency. This means that the level of capital adequacy of commercial banks had a statistically significant negative relationship with the variables namely - GDP, exchange rate, nonperforming loans, and return on equity which were not mentioned here, specifically outside the abovementioned mentioned variables. The capital adequacy of commercial banks in Ethiopia has a negative relationship with inflation, but is not statistically significant. The size of a bank and Management Efficiency had a positive and statistically significant relationship with commercial banks in Ethiopia. There was a statistically insignificant positive relationship between liquidity of commercial banks and capital adequacy. The results of the study showed that the independent variables explained some variance, but more importantly the difference that changed the dependent variable, as demonstrated by the ratio of dependent variables with independent variables were expressed to be roughly 70.1% cap. The study recommended NBE should implement Basel III for the purpose of classifying the minimum capital adequacy ratio as having a capital Tier component.
Description
Keywords
Capital Adequacy, GDP, Inflation, Exchange rate, bank size, Non-Performing Loan, Return on Equity, Liquidity and Management Efficiency