Capital Adequacy and Profitability Indicators: An Empirical Study on Palestinian Banks

Abstract

This study aims to test the relationship between the capital adequacy and profitability indicators of Palestinian banks. The study sample consists of six Palestinian local banks, listed on the Palestine Stock Exchange and operating between 2010 and 2019. A simple linear regression model is used to determine the relationship between the measure of capital adequacy and measures of bank profitability. The results show that, in general, there is a negative relationship between capital adequacy and return on equity and that the capital adequacy ratio for banks operating in Palestine is high and exceeds the minimum specified according to Basel III standards (10.5%), which is a very good indicator of the strength of the banking system in Palestine.