“EVALUATION OF CAPITAL ADEQUACY IN NIGERIA COMMERCIAL BANKS: A CASE STUDY OF SOME SELECTED BANKS”

ABSTRACT
This project evaluates the level of capital adequacy of three Nigeria commercial banks
including the Union Bank of Nigeria Plc, First Bank of Nigeria Plc and Oceanic Bank
International Plc from year 2003 to 2007. It delves into the theoretical framework of
capital adequacy by reviewing development in the international capital standards (the
Basel I and Basel II accords) for banks, their controversies and prospects in line with
effective banking supervision. This work employs the tier I risk-base, total risk-base,
leverage capital models, correlation coefficient and regression techniques to reveal
that the three evaluated banks are well capitalized and at the same time exhibited
dwindling quality of earnings with increase in capital positions in general for the
studied periods.

Consequently, we recommend a certain percentage of different
capital ratios the individual bank should strive to maintain to remain well capitalized
and achieve an optimum return on assets invested; that the banks should establish
assets management committee to ensure proper investment of their capital in
right mix of Risk Assets; that the banks should endeavour to recover most of
their problem loans & collaterals to boost the value of its assets; that the
regulatory authorities such as CBN and NDIC should adopt a risk-focused
and rule-based regulatory framework in setting and reviewing the minimum
capital base for banks; that the regulatory authorities should adopt a zero
tolerance in data and financial misreporting by banks to them; the banks
should adopt a risk focused approach in raising their capital base ( through
public issues, merger or acquisition) to reflect the intended or scope and
character of their business; and that their should cross fertilization of
information and close collaboration among the regulators of the financial
system ( eg CBN, NDIC, EFFCC, Ministry of France, the National Assembly
and others) to ensure sound legislation and monitoring of the banking
system in Nigeria.

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