Capital Adequacy and Profitability of Nigerian Banks

Abstract

This paper examined the effect of bank capital on profitability of Nigerian deposit money bank and it was carried out using data from GTBank, First Bank, FCMB, Access Bank, Zenith Bank and Unity Bank. The research design used is quantitative research design. Five years quantitative data were sampled from the financial reports of the banks from the year 2011 to 2015. A panel data regression utilizing the fixed effect, random effect and hausman technique was conducted. The summary of the finding reveals that there is a negative but not significant relationship between banks capital base and the profitability of the banks at 1 percent significant level. But there is a significant positive relationship between total assets of banks and value of loans and advances and bank profitability. A percentage change in banks total assets brings about 0.83 percentage change in banks profit. Also evidence from the study shows a significant contributory effect of loans and advance towards profit maximization at 5 percent significant level. This implies that loan and advances when well managed will help to boost the net income of the banks and thus could be considered a significant determinant of the profit of the banks. it is recommended that deposit money banks should maintain adequate level of capital funds and also enlarge their portfolio of loans and advances as it is in their best interest.