The Influential Factors on Capital Adequacy Ratio in Iranian Banks

Abstract

One of essential requirements for banks and financial institutions is adequate and sufficient capital and every banks and financial organizations must keep balance between capital and available risk in its assets in order to guarantee its stability. Thus it has become one of the most important criteria for depository institutions. This study focuses on influential factors (precisely seven financial factors) over capital adequacy in Iranian private banks for the period 2006–2012. The results obtained indicate negative relationship between bank size and capital adequacy ratio of banks and positive relationship between Loan Asset Ratio (LAR), Return on Equity (ROE), and Return on Asset (ROA), Equity Ratio (EQR), and capital adequacy ratio. RAR and DAR do not have any impact on capital adequacy ratio.