Professional Documents
Culture Documents
INTRODUCTION
adequacy although there are some basis for measuring this one
base of the bank because a bank with more than the minimum
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adequate than a bank with just N25billion. Capital adequacy
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down its business without loss to the depositors, counterparties
and all these can only be done if the bank has adequate capital.
melt down only bank with adequate capital will survive the
harshness not only survive but stay afloat and at the same time
survival in Nigeria.
3
in the bank which in turn impose a big problem on Nigeria
more capital a bank has, the more losses it can sustain without
capital”.
4
absorb of all this risks and problem and ineffectiveness of bank
time
5
v. If capital adequacies affect the operational activities of a
bank?
of this study.
a bank?
1.5 HYPOHESIS
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H0: There is no relationship between capital adequacy,
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new capital base was not clear to them. Also banks with
the subject. Also relevant data will be source from past and
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information from the CBN and not all banks are willing to
Also this study will cover from the year 2001 to 2010.
outlined.
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CHAPTER TWO
2.0 INTRODUCTION
balance sheet risks. Top of the risk are credit and market risk,
financial markets.
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Capital adequacy is a measure of banks financial
abroad.
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absorbing losses. As these losses were related to the risks
arising from fraud forgeries, theft etc, and loan capital that
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Ebhodaghe J.U (1997), stated that, capital plays a
soundness.
others. Any bank that does not enjoy capital adequacy cannot
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operation of bank will improve significantly once it enjoys capital
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growth, create employment and contribute to a stronger
economy.
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competitive entry by acquiring the necessary infrastructure to
operate.
world players.
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able to attract new capital from the market or existing
it more difficult and expensive for the bank to raise new capital.
commercial banks.
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Regulators try to ensure that banks and other financial
keep them out of difficulty. This not only protects depositors, but
also the wider economy because of the failure of a big bank has
existed for a long time, but the two most important are those
seminal work, the 1988 capital accord, which set the minimum
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details of risk-based capital framework. The document outlines
weights -0%, 10%, 20%, 50% and 100%. The Basle committee
types of capital, tier one and tier two. The first is primarily share
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reflect underlying risk. The first minimum capital requirement
rating based approach could from the basis for setting capital
consistent with its overall risk profile and strategy and as such
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Capital adequacy can be use to access it impact on bank
described as follows;
losses.
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example of is loan assets which depends on the realizable
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earning would inspire the confidence of depositors, investors,
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of banks. CAMELS rating is always accurate if a bank has been
a specific manner.
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1974 is a committee that represents Central Banks and
capital is the ordinary share capital of the bank. Tier two capital
losses after tier one capital has been lost by the bank.
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The Basle capital accord also defines a third type capital,
against losses caused by market risk. If tier one and tier two
does not have any requirements for than holding of tier three
financial system.
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In order to ensure better assets and inability management
bank management.
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weights for assets of the on-balance sheet activities and those
CAPITAL ADEQUACY)
which are risk. The risks are divided into two major part credit
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risk or credit exposure and market risk. The credit risk is a risk
a secondary function.
bank.
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i. Capital adequacy enable bank to acquire the physical, the
existing services.
current earnings.
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to the public that the bank will be or is in a position to give
expansion.
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vii. Technology advancement:- This is another important
this trend sit that they will not be sent off the market.
rate.
2.3 REMEDIES
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level of capital like wise the other remaining component of
the higher the capital adequacy ratios a bank has, the greater
assure to survive while bank with lower CAR should strive hard
in order to survive and reduce both credit risk and market risk to
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during 1953- 1959 due mainly to liquidity of banks. Banks, then,
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serious banking regulation in Nigeria. With the CBN in
programme in 2004.
of the banking system, stop the boom and burst cycle that
only could serve the Nigeria economy, but also the regional
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capable of playing in international financial system. However,
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paid-up capital from N2billion(USD$0.0166billion) in January
NIGERIA
authorities.
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Supervision of banks in Nigeria is vested in the Central
Bank of Nigeria (CBN). The CBN Act No. 24 of 1991 and the
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insured institutions as well as promoting safe and sound
bank failure.
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Act No.22 of 1988 and Companies and Allied Matters
Act(CAMA) No. 1 of 1990. All these acts are set out to ensure
banks
CHAPTER THREE
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RESEARCH METHODOLOGY
3.0 INTRODUCTION
The methodology employed in gathering data for this
subject. Also, relevant data was sourced from past and relevant
journals.
41
The Model is specified thus:
Y = α0 + α1X1 + α2X2 + … + u
Where:
Y = dependent
That is;
Where:
MC = Market Capitalization
NP = Net Profit
APRIORI EXPECTATION
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Here, the theoretical relationship between the dependent
NET ASSET
Mathematically,
ðmc > 0
ðNETAS
ðmc >0
ðEPS
43
The Ordinary Least Square method (OLS) will be used in
study.
44
effects so our result might overestimate the effect of
these changes.
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CHAPTER FOUR
4.1 INTRODUCTION
used were presented together with the estimated results for the
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2008 225.00 48726.00 254683.1
2009 294.00 64277.00 468588.4
2010 175.00 83381.00 1074884
Source: Statistical Bulletin (2010)
MC = Market Capitalization
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(0.168) (6.397) (-1.104)
R-square (R2)
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independent variables. The value of 0.897 in Table 4.2 above
F-statistic (f-test)
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relationship between Earning per share and Market
EPS of a bank. While the Net Asset is not affected by the bank
capital. The constant explained that despite the fair that all
87.1%.
EPS of a bank. While the Net Asset is not affected by the bank
capital. The constant explained that despite the fair that all
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added to those variables, it will show a positive relationship of
87.1%.
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CHAPTER FIVE
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banks and regulatory authority must ensure they review the
capital base of bank from time to time also banks must also
5.2 CONCLUSION
considered.
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and survival which means capital adequacy have effect on
banks performance.
that the higher the capital adequacy ratio the greater the
5.3 RECOMMENDATION
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The following practical suggestion comes out from the
management of capital.
worth highly integrity and banks must also ensure that they
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accordingly to any foul suspected by any of their team as
appropriate.
review from time to time to ensure that the two objective does
cyclical effect.
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57
REFERENCES
Practices.
29, 2003
58
Cooke P. (2003) Int. Convergence of Capital Adequacy
1746.
15 805-824
59
Hall, M. J. B. (2004): The Basle Committee Proposal for a New
September 753-83
60
Kahane, Y. (2001): “Capital Ade. & the Regulate of Fin.
218
61
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