BANK RISKS AND CAPITAL ADEQUACY RELATIONSHIP: A STUDY OF DEPOSIT MONEY BANKS IN NIGERIA
1 Department of Accounting, Faculty of Administration, Ahmadu Bello University, Zaria
2 Department of Accounting Faculty of Management Sciences Kogi State University, Anyigba
* Corresponding author: samailathompson@yahoo.com
2 Department of Accounting Faculty of Management Sciences Kogi State University, Anyigba
* Corresponding author: samailathompson@yahoo.com
Abstract
Capital adequacy is a benchmark for measuring the safety of financial
institutions against the risks attached to their operations and continuity
as a going concern. This study is an attempt to examine the relationship
between capital adequacy and bank risks. The proxy of the bank risksis
made of risk-weighted asset ratio, deposit ratio and inflation rate for the
purpose of this study. Twelve banks were sampled from the population of
twenty-two deposit money banks in Nigeria. Secondary data were
collected from the financial statements of these banks for the period,
2007 to 2011. The multiple regression analysis technique was used to
analyze the data. The study found that there is a significant but negative
relationship between bank risks and capital adequacy of the sampled
banks. This implies that when risk level rises, capital adequacy falls. In
line with this finding, it is recommended that banks should adopt a risk-
based approach in the management of capital, rather than the current
practice of focusing on the paid-up capital, reserves and retained
earnings.
institutions against the risks attached to their operations and continuity
as a going concern. This study is an attempt to examine the relationship
between capital adequacy and bank risks. The proxy of the bank risksis
made of risk-weighted asset ratio, deposit ratio and inflation rate for the
purpose of this study. Twelve banks were sampled from the population of
twenty-two deposit money banks in Nigeria. Secondary data were
collected from the financial statements of these banks for the period,
2007 to 2011. The multiple regression analysis technique was used to
analyze the data. The study found that there is a significant but negative
relationship between bank risks and capital adequacy of the sampled
banks. This implies that when risk level rises, capital adequacy falls. In
line with this finding, it is recommended that banks should adopt a risk-
based approach in the management of capital, rather than the current
practice of focusing on the paid-up capital, reserves and retained
earnings.
Keywords
Bank risks
capital adequacy
deposit asset ratio
inflation rate
risk weighted assets ratio.
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How to Cite
Thompson, S., & Adah, A. (2014). BANK RISKS AND CAPITAL ADEQUACY RELATIONSHIP: A STUDY OF DEPOSIT MONEY BANKS IN NIGERIA. Nigerian Journal of Accounting Research, 10(1), 225-234.
S. Thompson, and A. Adah, "BANK RISKS AND CAPITAL ADEQUACY RELATIONSHIP: A STUDY OF DEPOSIT MONEY BANKS IN NIGERIA," Nigerian Journal of Accounting Research, vol. 10, no. 1, pp. 225-234, June 2014.
