Capital Adequacy and Return on Equity of Deposit Money Banks Quoted In Nigeria

Financial performance in an organization demonstrates the proficient use of resources and the capacity to generate profit. This can be done through banks maintaining high return on capital and quality assets for better performance. In Nigeria, in spite of the fact that banks are highly regulated and that return on equity requirements have been in place since 1988, many banks have failed due to insufficiency of capital and mismanagement of funds. It is thus imperative to ascertain the effect of return on equity in the financial performance of quoted deposit money banks (DMBs) in Nigeria even when cognizance is taken of both critical microeconomic factors and macroeconomic variables. This study adopted an ex-post facto research design. The target population for this research comprised 14 quoted deposit money banks in Nigeria which were in operation within the period of ten years that ranged from 2009 and 2018 from which secondary data was collected. The study employed ordinary least square regression analysis. The findings of this research revealed the result showed that capital adequacy without control variables has a positive effect on financial performance using return on equity indicating that an additional increase in capital adequacy would cause return on equity to also increase by 0.165. However, it is significant since p< 0.05. The rho value showed that 3.9 % of variations in return on equity were caused by differences in the individual specific effects while the remaining 96.1 % are variables not in the model. The f statistics value of 5.669 is highly significant at the 5% significance level which showed that the overall model is statistically significant. The study concluded that capital adequacy is a key factor affecting the financial performance using return on equity of the Nigeria deposit money banks and is essential in measuring financial performance of financial institutions. The study, therefore, recommended that the central bank of Nigeria should effectively regulate the capital and the resources owned by the deposit money banks (DMBs) in Nigeria