Determinants of Capital Adequacy of Commercial Banks in Ethiopia
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Date
2017-02
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Addis Ababa University
Abstract
This thesis aimed to see the determinant factors for capital adequacy using 14 selected banks
operating in Ethiopia from 2011 to 2015. The paper conducted different estimation to see the
relationship between the dependent variable, Capital Adequacy Ratio (CAR) and independent
Variables which include Bank size (SIZE), DAR (Deposit to Asset Ratio), Loan to Asset Ratio
(LAR), Loan to Deposit (LTD), Return on Asset (ROA), Return on Equity (ROE), Loan Loss
Provision (LPR), and macroeconomic variables (gross domestic product and inflation).The
OLS regression result show that DAR, ROE, LPR and ROA are significant at one % of
significant level; Size is significant at 5% of significant level whereas LAR is significant at 10
% of significant level. The variables SIZE, DAR, LAR and ROE affect CAR negatively
whereas ROA and LPR affects positively. Hence, it is recommended that to be sure that
banks have adequate adequacy reserve, commercial banks and National Bank of Ethiopia
should give attention to the risk associated with banks size, caring of banks loan and deposit,
initiating to increase their return on their asset and to manage their equity return
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Commercial banks in Ethiopia