Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach

Adolphus Joseph Toby; Jibaniya Katon Danjuma

doi:doi:10.11648/j.ijfbr.20210704.12

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Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach

Adolphus Joseph Toby, Jibaniya Katon Danjuma

Published in International Journal of Finance and Banking Research (Volume 7, Issue 4)

Received: 21 June 2021 Accepted: 24 August 2021 Published: 10 September 2021

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Abstract

This paper investigates the impact of capital adequacy regulation on financial distress resolution in the Nigerian banking industry within the ARDL framework using aggregate time series data. Financial distress resolution is measured by ratio of distressed banks, while capital adequacy regulation is measured by credit to risk weighted assets ratio, capital to total assets ratio and assets to capital ratio. The sample comprises annual time series data covering the period from 1986 to 2018, while the data are obtained from three reliable sources: namely, Central Bank of Nigeria (CBN) statistical bulletin, Nigeria Deposit Insurance Corporation (NDIC) quarterly and Nigeria Stock Exchange (NSE) fact sheet. The plausible ARDL specification is determined using the Schwarz information criterion, which selects a model with two lagged values of ratio of distressed banks as additional explanatory variables. We find that financial distress resolution exhibits persistence behavior and depends on its two lagged values, but with a positive and sizable net own effect. However, the relationship between financial distressed resolution and capital adequacy regulation measures has no lagged effect. Also, both the individual and joint impacts of the three capital adequacy regulation ratios are not statistically significant. Based on these findings, we conclude that capital adequacy regulation is not an important determinant of financial distress resolution in Nigeria, and that the regime of risk-based capital regulation may produce further moral hazards behavior in the Nigerian banking sector.

Published in	International Journal of Finance and Banking Research (Volume 7, Issue 4)
DOI	10.11648/j.ijfbr.20210704.12
Page(s)	95-100
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

Financial Distress Resolution, Capital Adequacy Regulation, ARDL

References

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Adolphus Joseph Toby, Jibaniya Katon Danjuma. (2021). Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. International Journal of Finance and Banking Research, 7(4), 95-100. https://doi.org/10.11648/j.ijfbr.20210704.12

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Adolphus Joseph Toby; Jibaniya Katon Danjuma. Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. Int. J. Finance Bank. Res. 2021, 7(4), 95-100. doi: 10.11648/j.ijfbr.20210704.12

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AMA Style

Adolphus Joseph Toby, Jibaniya Katon Danjuma. Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. Int J Finance Bank Res. 2021;7(4):95-100. doi: 10.11648/j.ijfbr.20210704.12

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@article{10.11648/j.ijfbr.20210704.12,
  author = {Adolphus Joseph Toby and Jibaniya Katon Danjuma},
  title = {Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {4},
  pages = {95-100},
  doi = {10.11648/j.ijfbr.20210704.12},
  url = {https://doi.org/10.11648/j.ijfbr.20210704.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210704.12},
  abstract = {This paper investigates the impact of capital adequacy regulation on financial distress resolution in the Nigerian banking industry within the ARDL framework using aggregate time series data. Financial distress resolution is measured by ratio of distressed banks, while capital adequacy regulation is measured by credit to risk weighted assets ratio, capital to total assets ratio and assets to capital ratio. The sample comprises annual time series data covering the period from 1986 to 2018, while the data are obtained from three reliable sources: namely, Central Bank of Nigeria (CBN) statistical bulletin, Nigeria Deposit Insurance Corporation (NDIC) quarterly and Nigeria Stock Exchange (NSE) fact sheet. The plausible ARDL specification is determined using the Schwarz information criterion, which selects a model with two lagged values of ratio of distressed banks as additional explanatory variables. We find that financial distress resolution exhibits persistence behavior and depends on its two lagged values, but with a positive and sizable net own effect. However, the relationship between financial distressed resolution and capital adequacy regulation measures has no lagged effect. Also, both the individual and joint impacts of the three capital adequacy regulation ratios are not statistically significant. Based on these findings, we conclude that capital adequacy regulation is not an important determinant of financial distress resolution in Nigeria, and that the regime of risk-based capital regulation may produce further moral hazards behavior in the Nigerian banking sector.},
 year = {2021}
}

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TY  - JOUR
T1  - Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach
AU  - Adolphus Joseph Toby
AU  - Jibaniya Katon Danjuma
Y1  - 2021/09/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210704.12
DO  - 10.11648/j.ijfbr.20210704.12
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 95
EP  - 100
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210704.12
AB  - This paper investigates the impact of capital adequacy regulation on financial distress resolution in the Nigerian banking industry within the ARDL framework using aggregate time series data. Financial distress resolution is measured by ratio of distressed banks, while capital adequacy regulation is measured by credit to risk weighted assets ratio, capital to total assets ratio and assets to capital ratio. The sample comprises annual time series data covering the period from 1986 to 2018, while the data are obtained from three reliable sources: namely, Central Bank of Nigeria (CBN) statistical bulletin, Nigeria Deposit Insurance Corporation (NDIC) quarterly and Nigeria Stock Exchange (NSE) fact sheet. The plausible ARDL specification is determined using the Schwarz information criterion, which selects a model with two lagged values of ratio of distressed banks as additional explanatory variables. We find that financial distress resolution exhibits persistence behavior and depends on its two lagged values, but with a positive and sizable net own effect. However, the relationship between financial distressed resolution and capital adequacy regulation measures has no lagged effect. Also, both the individual and joint impacts of the three capital adequacy regulation ratios are not statistically significant. Based on these findings, we conclude that capital adequacy regulation is not an important determinant of financial distress resolution in Nigeria, and that the regime of risk-based capital regulation may produce further moral hazards behavior in the Nigerian banking sector.
VL  - 7
IS  - 4
ER  -

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Author Information

Adolphus Joseph Toby

Department of Banking and Finance, Rivers State University, Port Harcourt, Nigeria
Jibaniya Katon Danjuma

Department of Banking and Finance, Rivers State University, Port Harcourt, Nigeria

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APA Style

Adolphus Joseph Toby, Jibaniya Katon Danjuma. (2021). Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. International Journal of Finance and Banking Research, 7(4), 95-100. https://doi.org/10.11648/j.ijfbr.20210704.12

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ACS Style

Adolphus Joseph Toby; Jibaniya Katon Danjuma. Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. Int. J. Finance Bank. Res. 2021, 7(4), 95-100. doi: 10.11648/j.ijfbr.20210704.12

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AMA Style

Adolphus Joseph Toby, Jibaniya Katon Danjuma. Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach. Int J Finance Bank Res. 2021;7(4):95-100. doi: 10.11648/j.ijfbr.20210704.12

Copy | Download

@article{10.11648/j.ijfbr.20210704.12,
  author = {Adolphus Joseph Toby and Jibaniya Katon Danjuma},
  title = {Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {4},
  pages = {95-100},
  doi = {10.11648/j.ijfbr.20210704.12},
  url = {https://doi.org/10.11648/j.ijfbr.20210704.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210704.12},
  abstract = {This paper investigates the impact of capital adequacy regulation on financial distress resolution in the Nigerian banking industry within the ARDL framework using aggregate time series data. Financial distress resolution is measured by ratio of distressed banks, while capital adequacy regulation is measured by credit to risk weighted assets ratio, capital to total assets ratio and assets to capital ratio. The sample comprises annual time series data covering the period from 1986 to 2018, while the data are obtained from three reliable sources: namely, Central Bank of Nigeria (CBN) statistical bulletin, Nigeria Deposit Insurance Corporation (NDIC) quarterly and Nigeria Stock Exchange (NSE) fact sheet. The plausible ARDL specification is determined using the Schwarz information criterion, which selects a model with two lagged values of ratio of distressed banks as additional explanatory variables. We find that financial distress resolution exhibits persistence behavior and depends on its two lagged values, but with a positive and sizable net own effect. However, the relationship between financial distressed resolution and capital adequacy regulation measures has no lagged effect. Also, both the individual and joint impacts of the three capital adequacy regulation ratios are not statistically significant. Based on these findings, we conclude that capital adequacy regulation is not an important determinant of financial distress resolution in Nigeria, and that the regime of risk-based capital regulation may produce further moral hazards behavior in the Nigerian banking sector.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Capital Adequacy Regulation and Financial Distress Resolution in the Nigerian Banking Industry: An ARDL Approach
AU  - Adolphus Joseph Toby
AU  - Jibaniya Katon Danjuma
Y1  - 2021/09/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210704.12
DO  - 10.11648/j.ijfbr.20210704.12
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 95
EP  - 100
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210704.12
AB  - This paper investigates the impact of capital adequacy regulation on financial distress resolution in the Nigerian banking industry within the ARDL framework using aggregate time series data. Financial distress resolution is measured by ratio of distressed banks, while capital adequacy regulation is measured by credit to risk weighted assets ratio, capital to total assets ratio and assets to capital ratio. The sample comprises annual time series data covering the period from 1986 to 2018, while the data are obtained from three reliable sources: namely, Central Bank of Nigeria (CBN) statistical bulletin, Nigeria Deposit Insurance Corporation (NDIC) quarterly and Nigeria Stock Exchange (NSE) fact sheet. The plausible ARDL specification is determined using the Schwarz information criterion, which selects a model with two lagged values of ratio of distressed banks as additional explanatory variables. We find that financial distress resolution exhibits persistence behavior and depends on its two lagged values, but with a positive and sizable net own effect. However, the relationship between financial distressed resolution and capital adequacy regulation measures has no lagged effect. Also, both the individual and joint impacts of the three capital adequacy regulation ratios are not statistically significant. Based on these findings, we conclude that capital adequacy regulation is not an important determinant of financial distress resolution in Nigeria, and that the regime of risk-based capital regulation may produce further moral hazards behavior in the Nigerian banking sector.
VL  - 7
IS  - 4
ER  -

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