Title:
Effects of Macroeconomic Variables, Banks' Specific Factors, and Institutional Quality on Capital Adequacy Ratio in Deposit Money Banks in Nigeria

Authors:
Egbule Chukwuka, Nigeria

Abstract:

The capital adequacy ratio (CAR) is a vital indicator of banks' financial soundness and resilience, as it ensures they hold sufficient capital to absorb potential losses, protect depositors’ funds, comply with regulatory requirements, and maintain public confidence in the banking sector. Despite its importance, Nigerian banks face difficulties meeting CAR benchmarks, resulting in increased vulnerability, capital shortfalls, and underperformance. Previous studies suggest that robust macroeconomic conditions, bank-specific characteristics, and strong institutional frameworks can positively influence CAR levels. This study investigated macroeconomic variables, banks’ specific factors, institutional quality, and capital adequacy of deposit money banks with national authorization in Nigeria for 16 years (2008–2023), employing panel data regression analysis based on audited financial statements. The credibility of the data was premised on the statutory audit processes and validation by regulatory authorities. The results revealed that macroeconomic variables, banks’ specific factors, and institutional quality significantly influence CAR. Consequently, the study recommends enhancing macroeconomic stability, strengthening managerial capacity, and reinforcing institutional structures to improve capital adequacy and overall bank performance.

DOI: https://doi.org/10.51505/IJEBMR.2025.9505