Evaluation of Capital Adequacy Ratio of Commercial Bank in Malaysia Based on Basel II Accord

• Main Author: Nor Faezah, Mohamed Darus
• Format: Thesis
• Language: English; English
• Published: 2007
• Subjects: HG Finance
• Online Access: http://etd.uum.edu.my/8/2/nor_faezah.pdf; http://etd.uum.edu.my/8/3/nor_faezah.pdf; http://etd.uum.edu.my/8/

This study investigates the evaluation of capital adequacy ratio of commercial banks in Malaysia based on Base1 I1 Accord. Capital adequacy ratio is represented by seven independent variables namely: market risk, operational risk, credit risk, loans, loan loss provision, size and gross domestic product (GDP). The objective this study is to identify the problem of not complying with Basel I1 Accord, to find out the level of Capital Adequacy Ratio of commercial bank and lastly to identify of component risk consist of credit risk, market risk and operational risk in commercial banks. A research framework and a hypothesis are developed. The hypothesis of this study is tested using linear regression analysis. This analysis is used to investigate the evaluation of capital adequacy ratio in commercial banks base Base1 I1 Accord. From seven independent variables in this study, two independent variable are not statistically significant; thy are credit risk and gross domestic product. The other five variables are statistically significant. They are market risk, operational risk, LOANS, loan loss provision and LNTA. In conclusion, this study offered insights to understanding the evaluation of capital adequacy ratio incommercial banks base Basel I1 Accord for the first time in Malaysia. The main determinants of capital adequacy ratio in Malaysia have been examined empirically. Hopefully this contribution will interest for future in-depth study considering that capital adequacy ratio is one of the most important in commercial banks.