The influential factors of capital adequacy ratio of commercial banks in Malaysia / Siti Intan Sharfinat Zawawi

This paper investigates the influential factors of capital adequacy ratio of commercial bank in Malaysia. The objectives of this study are to investigate the relationship between capital adequacy ratios with the influential factors and to identify the most significant factor which influences capital adequacy ratio of commercial banks in Malaysia. A research framework and hypothesis are developed and tested using linear regression analysis. This study uses panel data methods which involves the dependent variable, capital adequacy ratio (CAR) while the banks size, loan asset ratio (LAR), equity ratio (EQR), return on asset (ROA), return on equity (ROE) and deposit asset ratio (DAR) are the independent variables. The data of the variables are collected by applying yearly data for ten (10) years from 2006 to 2015 for twenty (20) commercial banks in Malaysia. The results of this paper determines that capital adequacy ratio (CAR) has positively affect bank size (BS), which means that the commercial banks in Malaysia has high supervisory control on their capital adequacy ratio. Besides, there is also positive relationship between deposit asset ratio (DAR), equity ratio (EQR) and return on asset (ROA) with capital adequacy ratio. This concludes that increasing in deposits from customers and profitability of the banks will positively affect the banks capital adequacy ratio. However, the loan asset ratio (LAR) and bank size (EQR) has adversely affect the capital adequacy ratio which is if there is an increase in the loan asset ratio and total assets will decrease the level of capital adequacy required by the banks.