Open AccessDeterminants of Capital Adequacy Ratio of Banks in Botswana
Author(s) -
Hassan Kablay,
Victor Gumbo
Publication year - 2021
Publication title -
journal of mathematics research
Language(s) - English
Resource type - Journals
eISSN - 1916-9809
pISSN - 1916-9795
DOI - 10.5539/jmr.v13n6p38
Subject(s) - capital adequacy ratio , financial ratio , return on equity , variables , econometrics , mathematics , regression analysis , linear regression , equity ratio , equity (law) , equity capital , business , economics , statistics , actuarial science , monetary economics , financial system , finance , profitability index , profit (economics) , initial public offering , political science , law , microeconomics
Capital Adequacy Ratio (CAR) plays a very important role in the financial success of banks and acts as a buffer to prevent and absorb any unexpected losses. This study examines explanatory variables that influence CAR for nine banks in Botswana. Multiple linear regression was used for analysis, with CAR as the dependent variable and thirteen financial ratios as the independent variables. The study period is 2015-2019. Based on the data for this period, it was established that out of the thirteen financial ratios utilised, only four were found to have significant impact on the CAR of the nine banks under study, which are: Asset to Equity Ratio (A E), Return on Equity (ROE), Non-Performing Loans Ratio (NPL RATIO) and the Cost-to-Income Ratio (C I). The A E Ratio was found to be the most influential driver of the CAR and the NPL Ratio was found to be the least influential driver of the CAR for the banks under study.