BANK CAPITAL ADEQUACY AND FINANCIAL PERFORMANCE IN GHANA

Abstract

ABSTRACT The study is about the effect of capital adequacy on the financial performance of banks in Ghana. The study sought to examine the effect of capital adequacy on the financial performance of banks in Ghana.The study adopted a random effect model and the sample size used was 18 banks over the period 2008-2017. Secondary data collected in excel sheets from the target population was used for the study. The random-effect model was used to analyse the data and establish the relationship between the dependent and independent variables. The primary objective of the study is to examine the effects of capital adequacy on the financial performance of banks in Ghana. The specific objectives of the study include: To examine the effect of capital adequacy on the financial performance of banks in Ghana; To examine the effect of changes in minimum capital requirement on the financial performance of banks in Ghana; To examine the effect of capital adequacy of banks on the financial stability of banks in Ghana. The results revealed that the relationship between capital adequacy ratio and the financial performance of the banks using both returns on asset and return on equity was positive and significant. The findings also show that the relationship between bank size and return on assets is negative and significant. The study therefore concluded that capital adequacy significantly affects the financial performance of banks. The study in its recommendation stated that the management of banks should hold sufficient capital adequacy to boost depositor’s confidence so as to avoid bank runs.