Exploring Influencing Factors on Capital Adequacy in Commercial Banks

Abstract

This study estimates the effect of macroeconomic and control factors on the capital adequacy ratio of commercial banks in Vietnam. Using the feasible generalized least squares method (FGLS), the following factors are statistically significant in affecting the capital adequacy ratio: national governance quality, economic growth, COVID-19, bank size, liquidity, and leverage. This study also highlights the role of compliance in maintaining capital adequacy during a global crisis, such as the COVID-19 outbreak, because commercial banks need more capital to absorb shocks in the financial instability period caused by the pandemic. Besides, the author emphasizes that in developing countries, especially Vietnam, the government needs to ensure national governance quality, such as political stability and regulatory quality, to increase additional capital buffers to protect them from losses or bankruptcies. Furthermore, the author conducts robustness tests to enhance the reliability and impartiality of the research findings. Doi: 10.28991/ESJ-2024-08-02-010 Full Text: PDF