Proceedings of the 5th Economic & Finance Conference, Miami

DETERMINANTS OF CAPITAL ADEQUACY RATIO (CAR) IN NEPALESE COOPERATIVE SOCIETIES

GYANENDRA PRASAD PAUDEL, SUVASH KHANAL

Abstract:

Due to a poor capital standard some depository institutions (DIs) failed recently. Therefore,stakeholders such as regulators, managers, researchers, etc. are concerned to fix a precise level of long-term sources of fund in their capital structure. DIs are highly levered firm because major portion of their capital structure consists of debt collected from deposits. Thus, capital adequacy ratio is a significant measure to evaluate efficiency and stability which affects the likelihood of insolvency for those institutions. Nepalese banks are applying Basel framework in order to maintaining a precise level capital standard. But, Nepalese cooperatives such as saving and credit cooperatives, multipurpose cooperatives, etc. are not regulated by the central bank, and thus, are not subjected to follow the Basel. In this regard, we evaluated the determinants of the capital adequacy ratio of Nepalese cooperative societies through descriptive, correlation, and regression analysis using an unbalance panel data of 126 co-operatives from 2009 to 2013. The core determinants of capital adequacy ratio for the Nepalese cooperatives are credit to deposit ratio, net interest margin and types of cooperative in positive direction, whereas assets utilization ratio, size and return on equity in negative direction. Though, the big sized cooperatives have poor strategic capital, the resulted mean and standard deviation suggest cooperatives’ capital adequacy ratio is higher but inconsistent than commercial banks.

Keywords: Capital Adequacy Ratio; Nepalese Cooperative Societies; Financial Ratios; Microfinance Governance and Regulation.

DOI: 10.20472/EFC.2016.005.021

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