Abstract:

Capital adequacy ratio (CAR) represents one of the most important indicators of a bank's guarantee and financial stability. Establishing strict rules for maintaining the minimum level of CAR serves as a guarantee valve for the regulatory authority and for the creditors of the banking institution. Besides the standards that exist for the adequacy of bank capital, this ratio varies from bank to bank according to the objectives set by the banking institution, but without affecting the minimum required by the regulatory authority. The main purpose of this paper consists in the identification and analysis of the factors that affect bank capital for the entire banking system in Albania, measured through the CAR report. In the study is used quarterly data for the period 2016 - 2022. The panel data is analyzed by using R-Studio software. The selection of variables in the model was carried out with OLS Stepwise Backward. Seven independent variables DEP, LOA, BS, ROA, LLR, LEV, RNI and dependent variable CAR were identified in the study. The results of the best statistically model show that loan loss reserve ratio and bank size are the factors that affect significantly negatively CAR, with coefficients of -0.42 and -0.12, respectively. The results of statistically significant two-variable models showed that DEP, LOA, LLR and LEV affect significantly negatively CAR, while BS affects it positively. While ROA and RNI variables do not show statistically significant relationships neither in the integral model nor in the two-variable models.

Keywords:

Banking Capital, Basel Standards, Bank Size, Regulatory Authority, Risk Weighted Assets.

How to Cite:

Lorena Bezo Balili and Matilda Shehu Tola. Determinants of Capital Adequacy Ratio. An Empirical Study on Albanian Banking Sector . [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a90/