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This paper studies the capital regulation implementation by commercial banks. Specifically, the authors examine how commercial banks achieve the required capital regulation requirements in the context of the Basel regulation frameworks and whether this compliance promotes banks’ efficiency. The authors use partial adjustment models to analyse the banks’ quarterly financial statement releases in both preand post-regulation periods. On average, the empirical evidence shows that the commercial banks pursued credit growth at a higher priority than capital regulation requirements. Retained earnings and riskweighted assets are permutations to account for the bulk of both higher riskweighted capital ratio and capital-to-total-assets ratio, while the shares’ issuance played a lesser role. In the post-regulation period, the banks adjusted to the riskweighted capital target faster than in the pre-regulation period. Adjustment to the capital-on-total-assets ratio was slower. The authors find that the manner of the adjustment by these commercial banks to the capital target led to a loss in efficiency. The result implies the need to tighten the capital regulation implementation and improve risk-weighted assets management. Received: January, 2018 1st Revision: April, 2018 Accepted: June, 2018 DOI: 10.14254/20718330.2018/11-3/14 Journal of International Studies S ci en ti fi c P a pe rs © Foundation of International Studies, 2018 © CSR, 2018 Journal of International Studies Vol.11, No.3, 2018 162

How do banks implement the capital regulation requirement?