Quarterly Studies in Banking Management and Islamic Banking

Financial ratios affecting regulatory capital adequacy index: A case study of private commercial banks in Iran

Document Type : Original Article

Author

Niloofar sadat Hoseini

Sepah Bank

https://doi.org/10.22034/jifb.2024.473466.1583
Abstract
Emphasizing the implementation of capital requirements using regulatory laws to prevent crises in the banking system and to reduce bank risks is one of the most important goals of central banks in maintaining banking health. Banks can improve their performance in order to increase their market share and profitability by relying on banking health assessment and central bank regulatory indicators. Accordingly, this study evaluates the effect of financial performance ratios of seventeen private commercial Iranian banks on the regulatory capital adequacy index during the years 2015-2022 through a two-stage dynamic panel data model. The findings of the model indicate that increasing the return on assets of banks and the ratio of earning assets positively and significantly increases capital adequacy. On the contrary, increasing non-current receivables leads to a decrease in capital adequacy. Other variables such as deposit interest, bank size, and return on equity do not have a significant effect on capital adequacy in this model.

Keywords

Capital adequacy
Regulatory requirements
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