An Evaluation of the Barriers to Capital Adequacy in the Deposit Money Banks in Nigeria

Capital base of banks which is normally dictated by the government in Nigeria ensures that banks maintain adequate capital to boost efficiency in the system by adhering strictly to the prescription.Reserve Bank of New Zealand (2004) sees capital adequacy ratio (CAR) as a measure of the bank's capital expressed as a percentage of its total risk weighted assets.This ratio was set by the appropriate authority, usually the apex bank of any country, to guarantee that banks can withstand losses before becoming troubled.This protects banks' depositors from the possibilities of bankruptcy, which is the latter effect of insolvency.Bank insolvency usually sends a bad signal to the financial market and this may lead to loss of confidence in the financial system.Therefore banks must have adequate capital to be stable and contribute positively to the nation's economic growth.According to Chinonye, Kelikume and Umoren (2007), capital is crucial issue in the context of financial strength of banks as such that the definitive strength of a bank lies in its capital funds, given its importance as a tool for meeting liabilities in a financial crisis.Abba,Okwa, Soje and Aikpitanyi (2018) conclude that capital adequacy ratio (CAR) is largely determined by banks risk-portfolio, deposit level, profitability and asset quality and that CAR of Nigerian banks is well above the regulatory minimum.Whereas Williams, (2011) submitted that economic indicators such as rate of inflation, real exchange rate, demand deposits, money supply, political instability, return on investment are most robust predictors of the determinants of capital adequacy in Nigeria.This calls for further empirical study to evaluate the determinant factors for adequacy of capital in deposits money banks.For a bank to operate profitably and gain the confidence and assurance of stakeholders, it must have a strong capital base as evidence of its stability in the business and a tool for functioning profitably so that shareholders' funds can increase over the Abstract: The study examined the barriers to capital adequacy of Deposit Money Banks (DMBs)and the role of Regulatory authority in Nigeria.The population for the study is the entire DMBs in Nigeria.Purposive sampling was used to select the 15listed banks on the Nigerian stock exchange while the Staff of the banks randomly selected.The number of banks covered was occasioned by the availability of data for the period under study and Three hundred copies of a questionnaire were administered randomly on the selected staff of the 15 deposit money banks sampled out of which two hundred and fifty were returned and used for the study.Frequency count and percentage were used to analyse the data collected for the study.Findings revealed that risk of finance management is the most pressing barrier to adequacy of capital of DMBs followed by growth barriers, adverse operating results, and large portfolio of non-performing loans, regulatory constraints, additional capital, and poor management team.Thus, it was recommended that Monetary Authorities should be given continued autonomy so that the full effect of the reform strategic policy will manifest for the benefit of better banking performance in the banking sub-sector.