THE IMPACT OF CAPITAL ADEQUACY RATIO ON BANKS’ PROFITABILITY IN THE REPUBLIC OF NORTH MACEDONIA

Tatjana Spaseska, Ilija Hristoski and Dragica Odzaklieska
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Tatjana Spaseska: UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA
Ilija Hristoski: UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA
Dragica Odzaklieska: UNIVERSITY ST KLIMENT OHRIDSKI - BITOLA, NORTH MACEDONIA

Annals - Economy Series, 2022, vol. 1, 15-37

Abstract: The safety and solvency of the banking institutions are related to the banks’ capital. The banks’ capital is regulated by international regulation and it is under the supervision of the central bank. Namely, Basel Accords determines the minimum of the capital adequacy ratios. The banks’ capital adequacy ratio influences the working success of banking institutions and, at the same time, the kind of risks the banks can take over. This way, the capital adequacy ratio indirectly influences the banks’ financial results. Hence, the main objective of the research in this paper is to analyze the impact of the capital adequacy ratio on the banks’ profitability in North Macedonia. The empirical study is based on the utilization of the Auto-Regressive Distributed Lag (ARDL) method for time series analysis via EViews v10. The results of the study have shown that there is a positive, yet statistically insignificant relationship between the Capital Adequacy Ratio (CAR) and the Return on Average Assets (ROAA) of the Macedonian banks, both in the short- and long-run. However, the impact of Deposit-to-Asset Ratio (DAR) on ROAA is both positive and statistically significant both in the short- and long-run.

Keywords: banks; Capital Adequacy Ratio (CAR); profitability; Return on Average Assets (ROAA); banking risks; North Macedonia (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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