Determinants Of Capital Adequacy Of Selected Commercial Banks In Ethiopia

Abstract

The study aims to identify the most important factors that determine the Capital Adequacy of selected Commercial Banks of Ethiopia. The study period covered the year 2012-2024 on which fifteen commercial banks are selected based on availability of thirteen years data using purposive sampling technique. The study employed explanatory research design and used secondary data which was gathered from audited annual reports of the National Bank of Ethiopia and each commercial bank under study. Panel data regression was used in this study and examined the significant effect of bank specific variables (return on asset, leverage, bank size, bank age, liquidity and loan loss provision) and macroeconomic factors (GDP, inflation rate, exchange rate and unemployment rate) and the dependent variable which is capital adequacy (CA). The method of data analysis was panel regression model (random effect model) to analyze the data by STATA 14 econometric software. The study found that return on asset, leverage, bank size, loan loss provision, liquidity, exchange rate, Bank age and inflation rate have significant impact on capital adequacy whereas loan loss provision, GDP and unemployment rate have insignificant impact on capital adequacy of commercial banks in Ethiopia.