CHAPTER FOUR

DATA PRESENTATION, ANALYSIS OF DATA,

AND DISCUSSION OF RESULTS
4.0 Introduction
This chapter of the study presents the data, analyses the data, presents the results, and provides

discussion for the results obtained. The results from the data are analysed and discussed to

understand the impact of capital adequacy on bank performance in Nigeria.

4.1 Descriptive Analysis

Table 1: Descriptive Statistics
Variables Mean Min Max Std. Dev. Kurtosis
ROA .015 -.242 .107 .031 44.251
ROE .086 -3.943 1.094 .398 89.537
NIM .039 -.497 .537 .093 22.422
RCP 19.997 -16 44 8.291 8.537
TCP 229.605 -69.483 1048.708 219.368 4.379
NPL 80,632,600 0 1.340e+09 1.897e+08 27.16
LTA .149 .023 .314 .07 2.369
LST .153 .024 .324 .071 2.382
IFR 11.992 8.062 16.524 2.555 2.169
EXR 220.829 148.88 358.811 76.35 1.604
FDP 18.768 15.068 22.755 1.784 3.808
GEX 5977.892 3452.991 10164.561 2084.091 2.585
Source: Author’s Compilation

Table 1 presents the descriptive statistics for the datasets. The mean values show that the banks

investigated had 0.086 returns on equity, 0.039 net income margin, and 0.015 returns on assets.

However, the standard deviation values for these statistics reveal that performance of individual

banks deviate from these mean values. The minimum values show that there were poorly

performing banks during the years, as there was a bank with -0.242 returns on assets, while

another had -3.943 returns on equity, and another had -0.497 net income margin. Kurtosis values

for ROA, ROE and NIM are 44.251, 89.537, and 22.422 respectively. These values are greater

than 3.0, and thus suggests that there are outliers in ROA, ROE and NIM performances among

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the banks examined. This indicates that only a few banks had high ROA, ROE, and NIM

performances during the years. Therefore, bank performances were low for many of the banks

during the years.

On the other hand, RCP (capital adequacy ratio) averaged 19.99 while Tier 1 capital averaged

229.6 billion Naira; which indicates that banks investigated are highly capitalized on the average.

However, standard deviation values for RCP (8.291) and TCP (219.368) are high; and thus,

indicates that reveal that bank capitalization of individual banks examined deviate from these

mean values. The Kurtosis values for RCP (8.537) and TCP (4.379) are higher than 3.0, which

indicates that there were outlier values in RCP and TCP data. In other words, a very few banks

examined had high capital adequacy. This is further reflected in the minimum values, where

there was a bank with low capital adequacy ratio of -16.0, while there was also a bank with low

Tier 1 capital of -69.483 billion Naira. This indicates that some of the Nigerian banks

investigated during the years (2009-2020) were exposed to capital risks.

Also, the average values for LTA and LST are 0.149 and 0.153 respectively. This indicates that

for most of the banks, they have a small fraction of highly liquid assets, which can easily expose

them to liquidity risks. The Kurtosis values for LTA (2.369) and LST (2.382) are lower than 3.0,

which implies that most of the banks examined are susceptible to liquidity risks.

Exchange rate (EXR) and inflation rate (IFR) have mean values of 11.99% and 220.82 Naira (for

1USD) respectively. These values are considerably high considering the negative impacts on

bank performance. Inflation can erode depositors’ confidence, while high exchange rate poses a

risk to increased costs in bank operations for banks that rely on imported capital for their banking

operations. The Kurtosis values for EXR (1.604) and IFR (2.169) are lower than 3.0, which

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suggests that the risks associated with high exchange rate and inflation rate on bank performance

have been pronounced throughout the years (2009-2020).

4.3 Trend Analysis

This study examined trend in average banks performance with respect to their average capital

adequacy between 2009 and 2020. The results are presented in figure 1 below. The diagram

shows that there was sharp increase in ROA, ROE and NIM performance of the banks between

2009 and 2010, which was followed by decline in these indicators in 2012. However, this was

momentary as performance in these indicators improved in the following years. Though, there

were some mild variations in performance of these indicators between 2014 and 2020, however

there was persistent improvement as their values increased towards the end of 2020.

Figure 1: Trend in Capital Adequacy and Performance Among Nigerian Banks

Source: Author’s Representation using Data from Annual Reports from Banks

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4.4 Regression Analysis

This section presents the general method of moments (GMM) regression results for the three

bank performance models (ROA, ROE and NIM). Using the GMM regression method was

necessary so as to avoid any problem of unobserved heterogeneity across the datasets used. The

GMM estimator is an instrumental regression method introduced by Karl Pearson in 1894 as a

method of moments for estimating unknown population parameters, but has been modified by

Arellano and Bover (1995) and Blundell and Bond (1998) to provide reliable empirical results

while overcoming any problems of endogeneity in a regression model. It is an instrumental

regression method which uses instruments to provide non-biased parameter estimates. The

choice of instruments in this study is conducted using the Sargan statistic. The Sargan statistic

has insignificant p-values, which indicates that the instruments used in the GMM regression are

all valid. Also, the Arellano-Bond test for autoregression (AR) was conducted. The AR2 p-

values are also not significant, which shows that there is absence of autocorrelation in the GMM

estimates.

Table 4.2 ROA

Variables Coefficient’s
LROA -0.509****
(0.0475)
RCP -0.0000864
(0.000674)
TCP 0.0000477*
(0.0000262)
NPL -1.81e-11
(1.39e-11)
LTA 11.44***
(4.196)
LST -11.09***
(4.060)
IFR -0.00468***
(0.00180)
EXR 0.000414****
(0.000110)
FDP 0.00181
(0.00675)

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 GEX -0.00000125
(0.00000477)
Years -0.0137**
(0.00664)
L.ROE -
-
L.NIM -
-
_cons 27.59*
(13.42)
N 110

Prob > chi2 0.000

AR2 (p-value) 0.674
Sargan Test (p-value) 0.693
*
p < 0.10, ** p < 0.05, *** p < 0.01, **** p < 0.001
Source: Author’s Compilation
Based on the parameter estimates, it was revealed that capital adequacy ratio (RCP) has a

varying impact on bank performances. The result also showed that Tier 1 capital (TCP) has

significant positive impact on ROA performance of the banks, this suggest that increasing

capitalization improves bank performance. The result also revealed that increase in liquid to total

asset (LTA) ratio has significant positive impact on ROA, while an increase in liquid to short

term (LST) ratio indicates that LST has a weak negative association with ROA, Inflation rate has

negative significant impact on ROA, whereas the banks profit from increase in exchange rate

improves ROA. Financial deepening does not exert significant impact on bank performance.

Table 4.3 ROE

Variables Coefficients
LROA

RCP 0.0414****
(0.0105)
TCP -0.000122
(0.000176)
NPL 1.69e-10
(1.97e-10)
LTA -44.05
(91.25)
LST 42.69
(88.59)
IFR 0.0723

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 (0.0482)
EXR -0.0145****
(0.00260)
FDP 0.138
(0.219)
GEX -0.0000501
(0.0000725)
Years 0.390****
(0.114)
L.ROE 0.00102
(0.0531)
L.NIM

_cons -786.7****
(231.0)
N 110

Prob > chi2 0.000

AR2 (p-value) 0.602
Sargan Test (p-value) 0.854
*
p < 0.10, ** p < 0.05, *** p < 0.01, **** p < 0.001
Source: Author’s Compilation

Refer to Table 4.3 (Summary of Regression Result – GGM Model) for discussions on the impact

of capital adequacy on the performance of DMBs. Capital adequacy ratio (RCP) exhibits varying

impacts on the financial performance of listed deposit money banks in Nigeria during the period

under review. It significantly lowers NIM, but raises ROE of the quoted banks. The result

revealed that the banks profit from increase in exchange rate as a significant and positive impacts

on ROE of the listed deposit money banks.

Table 4.4 NIM

Variables Coefficients
LROA -
-
RCP -0.00778*
(0.00411)
TCP 0.000216*
(0.000130)
NPL -9.37e-11***
(3.57e-11)
LTA 58.84**
(23.84)
LST -56.71**

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 (23.40)
IFR -0.0401***
(0.0125)
EXR 0.00592****
(0.00166)
FDP 0.0138
(0.0180)
GEX 0.0000444***
(0.0000170)
Years -0.200****
(0.0431)
L.ROE

L.NIM -0.535****
(0.0974)
_cons 401.8****
(86.55)
N 110

Prob > chi2 0.000

AR2 (p-value) 0.438
Sargan Test (p-value) 0.751
*
p < 0.10, ** p < 0.05, *** p < 0.01, **** p < 0.001
Source: Author’s Compilation
Result from the table above indicated that capital adequacy ratio (RCP) exhibits varying impacts

on bank performances. While it significantly lowers NIM performance of the banks. On the other

hand, Tier 1 capital (TCP) has significant positive impact on NIM performance of the banks.

These results suggest that increasing capitalization improves bank performance. The results also

show that non-performing loans (NPL) exerts significant negative impact on NIM. This further

shows that an increase in the non-performing loan ratio will affect financial performance

negatively. It further means that any percentage increase in the ratio of non-performing loan

against gross loan will reduce the bank performance of the banks. Thus, non-performing loans

pose as threat to bank performance. On the other hand, increase in liquid to total asset (LTA)

ratio has significant positive impact on NIM performance of the banks, whereas increase in

liquid to short term (LST) ratio significantly lowers NIM performance of the banks. Inflation rate

has negative significant impact on NIM performance of the banks, whereas the banks profit from

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increase in exchange rate as it improves NIM indicators. Financial deepening does not exert

significant impact on bank performance, while increase in government expenditure significantly

improves NIM performance of the banks.

4.5 Discussion of Results

The results from this study show that bank performance in Nigeria is improved upon when there

is capital adequacy. The results from this study agree with many empirical studies in the

literature. For instance, Ikpefan (2012) showed that there is a positive relationship bank

capitalization and bank performance in Nigeria between 1980 and 2006. Konboye and Nteegah

(2016) also showed that that capitalization significantly impacts positively on profitability of

banks in Nigeria between 2001 and 2013. Also, Michael, Etukafia, Akpabio and Etuk (2018)

found that capitalization statistically impacts positively on bank performance in Nigeria during

periods 2006-2016. Yet, it is worthwhile to mention that the capitalization indicators used in this

study did not significantly impact on all bank performance examined in this study. This agrees

with the findings by Muritala, Ijaiya, Adekunle and Abidoye (2017) bank capitalization did not

significantly impact on performance of Nigerian banks between 2006 and 2014. This suggests

that the bank capitalization as proposed by the Basel Accord as well as other bank capitalization

policies by the CBN need to be improved upon so as to ensure that bank capitalization serves as

a reliable coverage and protection for banks in Nigeria.

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Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel
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Ikpefan, O. A. (2012). Bank capitalization and performance in Nigerian banking industry (1986-
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Konboye, L.E.J., & Nteegah, A. (2016). Banking sector capitalization and deposit money banks’
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