Prudential Regulation and Capital Adequacy Ratio of Banking System in Nigeria: A Comparative Study
Vol.6 Issue 2
This study examined the effects of macro-prudential regulation on banking system capital adequacy in Nigeria. The objective was to ascertain the relationship between macro-prudential regulation and banking system capital adequacy in Nigeria. Time series data were collected from Central Bank of Nigeria statistical bulletin and factbook. In order to achieve the objective, the study specified three models with secondary data covering the period of 1986 – 2018 and utilized ordinary least squares regression analysis, descriptive statistics and granger causality in order to further ascertain the directional relationship among the variables. Capital adequacy was proxy dependent variable while interest rate, inflation rate, cash reserve ratio, lending rate and exchange rate were proxy for independent variables. The result reveals that the independent variables have mixed relationship with capital adequacy. The study concludes that the heterogeneity that exists among the macro-prudential variables as it relates to Nigeria calls for financial re-engineering in order to explore the potential growth virtues embedded in the banking sector. We therefore recommend that in order to achieve banking system soundness, macro-prudential policy has to be precisely determined with clearly defined mandates among responsible institutions. Responsibilities for macro-prudential policy differ among countries. Regardless of the type of institutional model, central banks should have a significant role to play in macro-prudential policy.
