Impact of Capital Adequacy on the Financial Performance of Deposit Money Banks (DMBs) in Nigeria

Abstract

The banking system serves as a power house and a bridge between savers and borrowers by allocating financial resources from surplus region to deficit region to harmonize economy activities. The objective of this study is aimed at examining the impact of capital adequacy on the financial performance of deposit money banks (DMBs) in Nigeria. The study will be significant to policy makers, potential investors and academic world. The population of this study is all deposit money banks listed in the Nigerian stock exchange (NSE) from 2006 to 2016 in Nigeria. The study used secondary data obtained from financial statements of deposit money banks. However, a purposive sampling technique is used to obtain a sample size of six (6)banks out of 15 DMBs. Panel unit root test, Correlation, Panel least square and regressions was employed in the analysis of data using EVIEW statistical software version 8. The finding of the study is that there is a strong positive significant impact of capital adequacy on the financial performance of deposit money banks in Nigeria. This implies that DMBs followed the minimum capital base policy which made them highly capitalized. This study recommends that deposit money banks (DMBs) in Nigeria must keep and maintain the required minimum capital base in order to meet international standard.