CAPITAL ADEQUACY AND BANKS' PROFITABILITY: AN EMPIRICAL EVIDENCE FROM NIGERIA

This paper sets out to examine the effect of capital adequacy on profitability of deposit- taking banks in Nigeria. It seeks to assess the effect of capital adequacy of both foreign and domestic banks in Nigeria and their profitability. The paper present primary data collected by questionnaires involving a sample of 518 distributed to staff of banks with a response rate of 76%. Also published financial statement of banks were used from 2006 - 2010. The findings for the primary data analysis revealed a non-significant relationship but the secondary data analysis showed a positive and significant relationship between capital adequacy and profitability of bank. This implies that for deposit- taking banks in Nigeria, capital adequacy plays a key role in the determination of profitability. It was discovered that capitalization and profitability are indicators of bank risk management efficiency and cushion against losses not covered by current earnings.