The impact of capital adequacy on the Financial performance of commercial banks Quoted at the Nairobi stock exchange
Abstract
This research project analyses the impact of capital adequacy on the financial
performance of commercial banks quoted at the Nairobi Stock Exchange. Capital
provides buffer against losses and thus it ensures safety and soundness of the financial
institutions. It is necessary to ensure that the banks have sufficient capital. Capital
regulations are therefore put in place to ensure that the banks meet the minimum capital
requirements expected of them.
Many authors have postulated that capital adequacy has a great impact on the
performance of financial institutions. This study provides evidence that supports the
central bank’s move to gradually raise the banks capital levels by 2012 and to tightly
monitor their operations while at the same time remaining profitable. It therefore shows
what impact capital adequacy has on the profitability of the banks.
The study relied on secondary data and thus annual reports of the commercial banks were
used to provide the much needed information in the study. Ratios and percentages were
used to analyze the data collected and regression analysis was used to give insight into
the relationship between the variables involved.
The main finding in the study is that capital adequacy contributes positively to the
profitability of commercial banks and therefore it is paramount for banks to have a sound
capital base in order to remain competitive and maintain the confidence of its customers.
Publisher
University of Nairobi School of Business