Assessment of Banking Performance Using Capital Adequacy in Ethiopia

Dakito Alemu

doi:doi:10.11648/j.eco.20150406.12

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Assessment of Banking Performance Using Capital Adequacy in Ethiopia

Dakito Alemu

Published in Economics (Volume 4, Issue 6)

Received: 28 July 2015 Accepted: 12 August 2015 Published: 3 November 2015

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Abstract

The data used in this study were collected from financial reports of eight sample banks and National bank of Ethiopia (NBE) for the period of 2000-2013. The objectives of the study were to evaluate the financial performance of banking sector in the Ethiopia and also to see the relation between capital adequacy and bank’s performance. In order to address these, both descriptive and econometric analyses were employed so as to assess the financial performance of the sector and the relationship between capital adequacy and bank performance. The descriptive analyses were made using CAMEL approach and central tendency measures. The descriptive data analysis shows that, as compared to other banks NIB’s overall performance was good.In addition to the descriptive data analysis, the study also employed regression model, GLS, which is used to see whether capital adequacy which is measured by the amount of shareholders fund affect the bank performance which is measured by Return on asset (ROA). The finding shows that, shareholders’ fund is the main factor that determines the performance of banking industry hence, the null hypothesis is rejected. Therefore, there exists positive relationship between capital adequacy and bank performance at 5% significant level, which is in line with theory.

Published in	Economics (Volume 4, Issue 6)
DOI	10.11648/j.eco.20150406.12
Page(s)	106-111
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

CAMEL, CAR, LA, GLS, ROA

References

[1]	Basel Committee on Banking Supervision (BCBS). 2009. “Enhancements to the Basel II Framework.” Basel: Bank for International Settlements, July. http://www.bis.org/publ/bcbs157.htm
[2]	Basel Committee on Banking Supervision (BCBS). 2009. “Strengthening the resilience of the banking sector – consultative document.” Basel: Bank for International Settlements, December. http://www.bis.org/ publ/bcbs164.pdf
[3]	Basel Committee on Banking Supervision (BCBS). 2006. “International Convergence of Capital Measurement and Capital Standards.” Basel: Bank for International Settlements, June. http://www.bis.org/publ/bcbs128.htm
[4]	Gupta, P.K. (2008), A CAMEL Model Analysis of Private Sector Banks in India. Journal of Gyan Management, 2(1), 3-8.
[5]	Piyu Yue, 1992, in Federal Reserve Bank of St. Louis Review, January/February 1992 Vol.74 No.1, pp. 31-45.
[6]	Prasad K.V.N.G. and Ravinder, A CAMEL Model Analysis of Public and Private Sector Banks in India, Journal of Banking Financial Services and Insurance Research, 1(5) (2012).
[7]	Reddy (2012), Evaluating Performance of Regional Rural Banks: An Application of CAMEL Model. Journal of Arts, Science & Commerce, 2(4), 61-67.
[8]	SEEP Network Financial Services Working Group. 2009. “Update of Key Ratios to the SEEP Framework: Draft for Review – July 2, 2009.” Washington, D.C.: The SEEP Network. http://www.seepnetwork.org/Resources/SEEP%20Frame%20Update%20-Draft%20for%20Review%207-2-09%20v2.pdf
[9]	Vivid V. Tuna, 2013, Comparison Analysis Of Camel Ratio Between Bank Mandiri And Bank Negara Indonesia Period 2008-2012, Home Vol 1, No 4 (2013).
[10]	www.nbe.gov.et.

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Dakito Alemu. (2015). Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics, 4(6), 106-111. https://doi.org/10.11648/j.eco.20150406.12

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ACS Style

Dakito Alemu. Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics. 2015, 4(6), 106-111. doi: 10.11648/j.eco.20150406.12

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Dakito Alemu. Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics. 2015;4(6):106-111. doi: 10.11648/j.eco.20150406.12

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@article{10.11648/j.eco.20150406.12,
  author = {Dakito Alemu},
  title = {Assessment of Banking Performance Using Capital Adequacy in Ethiopia},
  journal = {Economics},
  volume = {4},
  number = {6},
  pages = {106-111},
  doi = {10.11648/j.eco.20150406.12},
  url = {https://doi.org/10.11648/j.eco.20150406.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150406.12},
  abstract = {The data used in this study were collected from financial reports of eight sample banks and National bank of Ethiopia (NBE) for the period of 2000-2013. The objectives of the study were to evaluate the financial performance of banking sector in the Ethiopia and also to see the relation between capital adequacy and bank’s performance. In order to address these, both descriptive and econometric analyses were employed so as to assess the financial performance of the sector and the relationship between capital adequacy and bank performance. The descriptive analyses were made using CAMEL approach and central tendency measures. The descriptive data analysis shows that, as compared to other banks NIB’s overall performance was good.In addition to the descriptive data analysis, the study also employed regression model, GLS, which is used to see whether capital adequacy which is measured by the amount of shareholders fund affect the bank performance which is measured by Return on asset (ROA). The finding shows that, shareholders’ fund is the main factor that determines the performance of banking industry hence, the null hypothesis is rejected. Therefore, there exists positive relationship between capital adequacy and bank performance at 5% significant level, which is in line with theory.},
 year = {2015}
}

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TY  - JOUR
T1  - Assessment of Banking Performance Using Capital Adequacy in Ethiopia
AU  - Dakito Alemu
Y1  - 2015/11/03
PY  - 2015
N1  - https://doi.org/10.11648/j.eco.20150406.12
DO  - 10.11648/j.eco.20150406.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 106
EP  - 111
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20150406.12
AB  - The data used in this study were collected from financial reports of eight sample banks and National bank of Ethiopia (NBE) for the period of 2000-2013. The objectives of the study were to evaluate the financial performance of banking sector in the Ethiopia and also to see the relation between capital adequacy and bank’s performance. In order to address these, both descriptive and econometric analyses were employed so as to assess the financial performance of the sector and the relationship between capital adequacy and bank performance. The descriptive analyses were made using CAMEL approach and central tendency measures. The descriptive data analysis shows that, as compared to other banks NIB’s overall performance was good.In addition to the descriptive data analysis, the study also employed regression model, GLS, which is used to see whether capital adequacy which is measured by the amount of shareholders fund affect the bank performance which is measured by Return on asset (ROA). The finding shows that, shareholders’ fund is the main factor that determines the performance of banking industry hence, the null hypothesis is rejected. Therefore, there exists positive relationship between capital adequacy and bank performance at 5% significant level, which is in line with theory.
VL  - 4
IS  - 6
ER  -

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Author Information

Dakito Alemu

Department of Commerce and Management Studies, College of Arts and Commerce Andhra University, Andhra, India; Department of Accounting and Finance, School of Commerce, Addis Ababa University, Addis Ababa, Ethiopia

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APA Style

Dakito Alemu. (2015). Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics, 4(6), 106-111. https://doi.org/10.11648/j.eco.20150406.12

Copy | Download

ACS Style

Dakito Alemu. Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics. 2015, 4(6), 106-111. doi: 10.11648/j.eco.20150406.12

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AMA Style

Dakito Alemu. Assessment of Banking Performance Using Capital Adequacy in Ethiopia. Economics. 2015;4(6):106-111. doi: 10.11648/j.eco.20150406.12

Copy | Download

@article{10.11648/j.eco.20150406.12,
  author = {Dakito Alemu},
  title = {Assessment of Banking Performance Using Capital Adequacy in Ethiopia},
  journal = {Economics},
  volume = {4},
  number = {6},
  pages = {106-111},
  doi = {10.11648/j.eco.20150406.12},
  url = {https://doi.org/10.11648/j.eco.20150406.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150406.12},
  abstract = {The data used in this study were collected from financial reports of eight sample banks and National bank of Ethiopia (NBE) for the period of 2000-2013. The objectives of the study were to evaluate the financial performance of banking sector in the Ethiopia and also to see the relation between capital adequacy and bank’s performance. In order to address these, both descriptive and econometric analyses were employed so as to assess the financial performance of the sector and the relationship between capital adequacy and bank performance. The descriptive analyses were made using CAMEL approach and central tendency measures. The descriptive data analysis shows that, as compared to other banks NIB’s overall performance was good.In addition to the descriptive data analysis, the study also employed regression model, GLS, which is used to see whether capital adequacy which is measured by the amount of shareholders fund affect the bank performance which is measured by Return on asset (ROA). The finding shows that, shareholders’ fund is the main factor that determines the performance of banking industry hence, the null hypothesis is rejected. Therefore, there exists positive relationship between capital adequacy and bank performance at 5% significant level, which is in line with theory.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Assessment of Banking Performance Using Capital Adequacy in Ethiopia
AU  - Dakito Alemu
Y1  - 2015/11/03
PY  - 2015
N1  - https://doi.org/10.11648/j.eco.20150406.12
DO  - 10.11648/j.eco.20150406.12
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 106
EP  - 111
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20150406.12
AB  - The data used in this study were collected from financial reports of eight sample banks and National bank of Ethiopia (NBE) for the period of 2000-2013. The objectives of the study were to evaluate the financial performance of banking sector in the Ethiopia and also to see the relation between capital adequacy and bank’s performance. In order to address these, both descriptive and econometric analyses were employed so as to assess the financial performance of the sector and the relationship between capital adequacy and bank performance. The descriptive analyses were made using CAMEL approach and central tendency measures. The descriptive data analysis shows that, as compared to other banks NIB’s overall performance was good.In addition to the descriptive data analysis, the study also employed regression model, GLS, which is used to see whether capital adequacy which is measured by the amount of shareholders fund affect the bank performance which is measured by Return on asset (ROA). The finding shows that, shareholders’ fund is the main factor that determines the performance of banking industry hence, the null hypothesis is rejected. Therefore, there exists positive relationship between capital adequacy and bank performance at 5% significant level, which is in line with theory.
VL  - 4
IS  - 6
ER  -

Copy | Download