Bank-Specific Variables and Banks’ Financial Soundness: Empirical Evidence from Nigeria

Salami Abdulai Agbaje (), Uthman Ahmad Bukola and Sanni Mubaraq
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Salami Abdulai Agbaje: Department of Accounting, Al-Hikmah University Ilorin, Nigeria. Postal Add: P.M.B. 1601, Ilorin, Kwara State, Nigeria; Phone: +2348064386468
Uthman Ahmad Bukola: Ahmad Bukola Uthman is at Department of Accounting, Al-Hikmah University, Ilorin, Nigeria.
Sanni Mubaraq: Mubaraq Sanni is at Department of Accounting and Finance, Kwara State University, Malete, Ilorin, Nigeria.

Zagreb International Review of Economics and Business, 2021, vol. 24, issue 1, 37-66

Abstract: This study examines the explanatory power of capital adequacy, asset quality, management soundness, earnings quality, liquidity and sensitivity to market risk (CAMELS) framework as well as a number of other variables on the financial soundness (measured by regulatory capital adequacy ratios) of banks in Nigeria. The findings, using ordinary least squared (OLS) regression subsequent to the establishment of no panel effects among the sampled banks, reveal the significant explanatory potentials of these bank-specific variables though some give a reversal of their prior expectations. Apart from reawakening the investors’ and depositors’ interest, the findings further have policy implications on the regulation and operation of these financial institutions. The study breaks new grounds in the measurement of capital adequacy using gross revenue ratio and leverage ratio, asset quality using income statement impairment charges for loan losses, and in the inclusion of the sensitivity to market risk most especially in the Nigerian context.

Keywords: CAMELS Framework; Capital Adequacy Ratio; Charter Value Theory; Deposit Money Bank; Nigeria (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:zirebs:v:24:y:2021:i:1:p:37-66:n:1003

DOI: 10.2478/zireb-2021-0003

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