Capital Adequacy and Financial Performance of Deposit Taking Saving and Credit Cooperative Societies in Kenya

Abstract

The study sought to evaluate the relationship between capital adequacy and financial performance of deposit taking saving and credit cooperative societies in Kenya. A sample of 103 DTSs was randomly drawn and data derived from their financial statements for the year ended 31^st December 2014. The study used three proxy ratios to measure financial performance; return on assets (ROA), return on equity (ROE) and net interest margin (NIM). Capital adequacy was measured using two ratios; core capital to total assets and core capital to total deposits. The results revealed that there exists positive significant relationship between financial performance and capital adequacy ratios. This indicates as the amount of capital held increases, financial performance is enhanced. It is therefore recommended that the regulator continues to enforce capital adequacy regulations. This will not only improve their stability but also enhance their financial performance.