Open AccessThe determinants of banks’ capital adequacy ratio: Evidence from Western Balkan countries
Author(s) -
Flamur Keqa
Publication year - 2021
Publication title -
journal of governance and regulation
Language(s) - English
Resource type - Journals
eISSN - 2306-6784
pISSN - 2220-9352
DOI - 10.22495/jgrv10i2siart15
Subject(s) - capital adequacy ratio , panel data , market liquidity , leverage (statistics) , profitability index , capital structure , economics , return on assets , monetary economics , risk adjusted return on capital , fixed effects model , econometrics , financial system , business , finance , financial capital , statistics , capital formation , mathematics , human capital , profit (economics) , debt , microeconomics , economic growth
This research aims to evaluate the impacts of liquidity, profitability, size, loans and capital structure on banks’ capital adequacy ratio (CAR) in the Western Balkan region using annual data from 103 commercial banks operated in Western Balkan countries for the period between 2010 and 2018. Panel data fixed effect method is employed. The data comprises of a total 51 observations for panel least squares. The empirical findings obtained panel data regression show that profitability proxies by the return on asset (ROA) have the largest impact on CAR among other financial ratios. In addition, liquidity and size have statistically significant positive effects in determining capital adequacy ratio for the banks in the region, unlike leverage ratio. However, the leverage ratio has a negative impact on the capital adequacy ratio. The policy implications of this study suggest that in order to accomplish requirements for capital adequacy expectations are to have good indicators in regard to performance, liquidity and size.