The determinants of bank capital ratios in a developing economy

Rubi Ahmad, M. Ariff, Michael J. Skully

Research output: Contribution to journalArticleResearchpeer-review

30 Citations (Scopus)

Abstract

This paper reports new findings on the determinants of bank capital ratios. The results are from an unbalanced panel data set spanning eight years around the period of the 1997-1998 Asian financial crisis. Test results suggest a strong positive link between regulatory capital and bank management's risk-taking behaviour. The risk-based capital standards of the regulators did not have an influence on how regulatory capital is adjusted by low-capitalized banks, perhaps due to the well-documented banking fragility during the test period. Finally, bank capital decisions seem not to be driven by bank profitability, which finding is inconsistent with developed country literature that has for long stressed the importance of banks' earnings as driving capital ratios. Although the study focuses only on one developing economy, these findings may help to identify the correlates of bank capital ratios in both developed and developing economies since this topic has received scant attention of researchers. These findings are somewhat consistent with how banks engaging in risky lending across the world could have brought on the 2007-2008 banking liquidity and capital erosion crisis.

Original languageEnglish
Pages (from-to)255-272
Number of pages18
JournalAsia-Pacific Financial Markets
Volume15
Issue number3-4
DOIs
Publication statusPublished - Dec 2008

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Bank capital
Capital ratios
Developing economies
Banking
Regulatory capital
Correlates
Asian financial crisis
Risk-taking behavior
Lending
Erosion
Capital standards
Fragility
Unbalanced panel data
Bank management
Capital management
Liquidity
Risk-based capital
Developed countries
Bank profitability

Cite this

Ahmad, Rubi ; Ariff, M. ; Skully, Michael J. / The determinants of bank capital ratios in a developing economy. In: Asia-Pacific Financial Markets. 2008 ; Vol. 15, No. 3-4. pp. 255-272.
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The determinants of bank capital ratios in a developing economy. / Ahmad, Rubi; Ariff, M.; Skully, Michael J.

In: Asia-Pacific Financial Markets, Vol. 15, No. 3-4, 12.2008, p. 255-272.

Research output: Contribution to journalArticleResearchpeer-review

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