ISSN: 2222-6990
Open access
This study investigates the impact of banks characteristics, financial structure and
macroeconomic indicators on banks Capital base in the Nigerian banking industry. The study
does not account for ratio analysis in the computation of capital adequacy but rather it
examines the determinant of Capital adequacy in Nigeria during the period 1980 – 2008 within
an error correction framework. Co-integration technique revealed that economic indicators such
as rate of inflation, real exchange rate, demand deposits, money supply, political instability,
return on investment are most robust predictors of the determinants of capital adequacy in
Nigeria. After the global credit crunch capital adequacy, being critical for banks, led the study to
examine the relationship between bank capital base and macroeconomics variables. This implies
that political stability may reduce financial distress and bankruptcy why Foreign investment will
affect Banks capital in most developing economy in the period of financial crisis . However, the
study also establishes that there is a negative relationship between inflation and banks capital
base as inflation erode banks capital in most developing economy. This simply means that
Nigerian government should regulate investment policy why banks regulators should strive to
keep inflation rate at a minimum level, if possible below 5% for them to be more efficient so as
to be globally competitive.
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