Capital Adequacy In The Albanian Banking System; An Econometrical Analysis With A Focus On Credit Risk (original) (raw)
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Abstract This study aims at finding a relationship between the market efficiency and capital structure of Albanian financial institutions. The study establishes a model to measure the effect of explanatory variable chosen as ROA, total deposit to assets, total loans to assets and total loans to deposits on return on equity (bank efficiency). It is found that only return over asset has a positive and significant effect on bank profits, an increase in ROA brings an increase in bank efficiency. While other variable after some re-run regression function, most of them were insignificant. Keywords: Return on Assets, Return on Equity, Total Deposit to Assets, Loans to Total Deposits, Albanian banks.
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The banking system in Albania has made important challenges during last 23 years. Intermediation of banks have served to Albanian economic development through lending and payments system, while mobilizing the savings of households and other financial sources. There are some studies on the tendencies and performance of main financial indicators for the banking system. However, these studies realized from supervisory authority (the Bank of Albania) are giving more information on aggregate level. Our study problem, in this article, is an approach on the development and performance of some banks in Albanian banking system. Our objective is to show how some important ratios of the banking system have evolved in time, the differences among the banks and in general their efficiency and performance. Data we are using are main financial indicators of 2009-2012 from six month series. The main ratios are: ROA (Return on Assets): X1 ROE (Return on Equity-net return after taxes): X2 Loans / Deposits: X3 Equity / Risk Weighted Assets: X4 Expenses / Revenues (expenses for one ALL1 revenue
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Albanian financial systems is dominated and identified by banks because its assets account for more than 95 percent of it. At the same time, it has to be mentioned that its role is very important to the stability and soundness economic system. This is the reason that has brought Albanian banking system in the focus of different researches relied on theoretical and empirical literature. Among others they aim to explain the relationship between risk and capital and also the dynamic of bank efficiency of the Albanian banking system. The topic of bank efficiency has been studied either for the whole banking system or for individual banks that are part of it. The relation between risk and capital is found to be positive and simultaneous, while researches on the analyses of cost efficiency show the presence of inefficient banks in Albania but the relationship between ROA or size of the bank with the cost efficiency is not clear. While analyzing the relationship between capital and risk it is very important to take in consideration bank efficiency. The level of bank efficiency is very important to and determines both capital and risk. On the other side, the capital regulation and risk-taking behavior influenced by it has its impact on efficiency. Their impact might give upward or downward movement on efficiency. Relied on theoretical and empirical literature of the interrelationship between risk-taking, capital and efficiency, this paper states hypothesis and introduces a model to test them in case of Albanian banking system.