The Impact Of Bank Capital On Bank Performance: A Study Of Selected Banks (1993 – 2004)

ABSTRACT

This study is aimed at investigating the influence of bank credit on bank performance, covering the period, 1993 – 2004. While loans and advances were the proxies for bank credit, the profit after tax represented bank performance, for the period under investigation. Three Hypotheses were tested using the Regression Model as our Main tool of analysis. The first two hypotheses employed a simple regression model, while the hypotheses three, which tried to establish the joint impact of the two explanatory variable (credit and capital), employed the Multiple Regression Model. The major findings are that a significant relationship exists between Bank Credit and Bank Performance for all the individual banks. Also, there is a significant relationship between Capital and Bank Performance, still for the individual banks. However, in terms of their joint impact, none of the explanatory variables turned to be significant even at 5 percent level of significance. Based on these findings we made some recommendations which include that: Banks should make efforts to increase their capital base. Secondly, with credit contributing significantly to bank performance in some banks while remaining insignificant in others, it becomes crystal clear that there is need for every bank to properly evaluate every credit facility before its availment. We advice selective credit consideration based on proper analysis as an antidote to the non-performing loans, and in this way bank performance will be improved.