CAPITAL ADEQUACY AND PROFITABILITY OF QUOTED DEPOSIT MONEY BANKS IN NIGERIA
Abstract
This study investigates the impact of capital adequacy on the profitability of deposit money banks in Nigeria over a five-year period (2019–2023). The research focuses on three key indicators: capital to total asset ratio, total cost of revenue to revenue ratio, and loan to total asset ratio, examining their individual and collective effects on profitability, measured by return on assets (ROA). With increasing attention on financial stability in the Nigerian banking sector, the study aims to provide insight into how capital structure and operational efficiency influence bank performance. A correlational research design was employed to determine the strength and direction of the relationship between capital adequacy and profitability. The population comprised fifteen (15) deposit money banks listed on the Nigerian Exchange Group as of December 31, 2023. Ten (10) banks were purposively selected based on the availability of consistent financial reports from 2019 to 2023. Secondary data were sourced from annual reports, the Central Bank of Nigeria (CBN), Nigerian Exchange Group (NGX), and relevant scholarly publications. The findings revealed that capital to total asset ratio has a significant positive impact on profitability, while a high total cost of revenue to revenue ratio and inefficient loan-to-asset allocation negatively affect return on assets. Based on these findings, the study recommends that Nigerian deposit money banks strengthen their capital base to boost resilience and profitability, prioritize cost management strategies to reduce operational expenses, and enhance oversight and risk assessment in credit allocation to prevent non-performing loans from undermining financial performance. Policymakers and regulators are advised to review capital adequacy frameworks regularly to align with evolving financial realities. This study contributes to the discourse on capital regulation and performance in emerging economies and offers practical implications for sustainable banking practices.
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