Moderating Effect of Capital Adequacy on Financial Performance of Deposit Money Banks in Nigeria

Abstract

This study is aimed at investigating the moderating effect of capital adequacy on financial performance on Deposit Money Banks in Nigeria from 2012-2019. The listed DMBs are 15 as at 31st December, 2019, out of which 12 banks were selected based on the availability of data. Specifically, the study seeks to identify the effect of Liquidity, loan loss provision, Return on Asset and firm size on the capital adequacy of listed deposit money banks in Nigeria. The study adopts Correlational and expost facto Designs and data were analyzed with the aid of multiple regression technique using 96 firm-year panelled observations. Data were extracted from the audited annual reports and accounts of the selected banks. The study reveals that liquidity and loan loss provision are positive and have significant impact on the capital adequacy of listed deposit money banks at 1% and 1% level of significance respectively. The study also found out that return on asset and firm size have no significant impact on the capital adequacy of listed deposit money banks. The study concludes that liquidity and loan loss provision constitute the determinants of capital adequacy of listed deposit money banks. Therefore, it is recommended among others that these variables should be considered in determining the capital adequacy of deposit money banks in Nigeria.