Abstract – AOCRJ-V21P1

Determinants of Capital Adequacy Ratio in Banking Sector:
An Empirical Analysis from Pakistan

Ijaz Hussain Bokhari
Argosy university Chicago, USA
Syed Muhamad Ali
Audit Manager, PWC. USA
Khurram Sultan
Faculty of Business Administration, Cihan University Erbil, Kurdistan Region, Iraq

Abstract
This research study analyzes the determinants of capital adequacy ratio in banking sector of Pakistan. Empirical analyses were conducted by applying statistical tool such as weighted average least square on the penal data from banking sector of Pakistan. Analyses reveal that explanatory variables which used in study, explains why banks hold capital beyond the regulatory requirements. Analyses were conducted based on the study of Financial Statements of 12 sample banks from banking sector of Pakistan; bank-level annual data were used for the period 2005-2009. The results have revealed that average capital ratio (r = -0.09), capital ratio requirement (r = -0.13), and portfolio risk level (r = -0.07) shows weak correlation while share of deposits (r = -0.77) and return on equity (r = -0.32) are strongly but negatively correlated with Capital Adequacy Ratio. Results of model at first instance represent the coefficients of correlation (R) and coefficients of determination (R2) and the results shown the strong power of the co-relational degree among the descriptive variables of about 53.1 % (Multiple R = 0.531) and the independent variables in the selected model are explaining the behavior of the research model at approx. 28.25 (R-squared = 0.282).

Keywords: Capital Adequacy Ratio, Banking Institutions of Pakistan, Determinants of CAR

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