Determinants Of Capital Adequacy Of Commercial Banks In Ethiopia

This thesis aimed to see the determinant factors for capital adequacy using 14 selected banksrnoperating in Ethiopia from 2011 to 2015. The paper conducted different estimation to see thernrelationship between the dependent variable, Capital Adequacy Ratio (CAR) and independentrnVariables which include Bank size (SIZE), DAR (Deposit to Asset Ratio), Loan to Asset Ratiorn(LAR), Loan to Deposit (LTD), Return on Asset (ROA), Return on Equity (ROE), Loan LossrnProvision (LPR), and macroeconomic variables (gross domestic product and inflation).ThernOLS regression result show that DAR, ROE, LPR and ROA are significant at one % ofrnsignificant level; Size is significant at 5% of significant level whereas LAR is significant at 10rn% of significant level. The variables SIZE, DAR, LAR and ROE affect CAR negativelyrnwhereas ROA and LPR affects positively. Hence, it is recommended that to be sure thatrnbanks have adequate adequacy reserve, commercial banks and National Bank of Ethiopiarnshould give attention to the risk associated with banks size, caring of banks loan and deposit,rninitiating to increase their return on their asset and to manage their equity return

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