Banks Profitability, Ultimate Lending Behavior, Dividend Payout Ratios and Share Price Movement: Does BASEL II Matter? (original) (raw)

The Basel Accords are some of the most influential and misinterpreted covenants in modern global finance. The debates on whether Basel capital regulations influence various banks' behaviors continue to attract research interest among academics and policymakers. In assessing the influence of Basel II on banks' profitability in Nigeria, empirical results indicated that Basel II requirements did not impact banks' profitability negatively; however, some banks' net incomes did become more sensitive to capitalization requirements during the period. Exploring influence of Basel II on ultimate lending and dividend payout behaviors, results revealed that while loans to customers increased significantly, the introduction of the Basel Accord was followed by decrease in dividend payout ratios for some banks. Nigerian Banks' reactions to hitting regulatory constraints on their capital ratios are likely to vary according to the bank's financial situation and stage of business cycle; finally, empirical analysis shows that Basel II capital requirements did influence banks' share price behavior negatively for relatively less well-capitalized banks. Overall, the research finds that the determinants of various banks' behaviors, and its implication, depend on the sustainability metric employed. The results are significant because it lends support to the view that Basel capital regulation in different countries is modified to meet other prudential objectives relative to its intended objective to reduce excessive risk-taking in banks.