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http://dx.doi.org/10.17703/JCCT.2021.7.1.511

The Effect of Capital Adequacy Requirements on the Profitability of Korean Banks  

Jung, Heonyong (Dept. of Business Administration, Namseoul Univ)
Publication Information
The Journal of the Convergence on Culture Technology / v.7, no.1, 2021 , pp. 511-517 More about this Journal
Abstract
In this paper, we analyzed the impact of capital adequacy requirements on the profitability of Korean banks using DOLS model. As a result of the analysis, the impact of BIS capital ratios on commercial and regional banks was different. Demand for capital adequacy has a greater and more significant negative impact on regional banks than on commercial banks. It was shown that bank characteristic variables rather than macroeconomic variables have a more significant effect on bank profitability. In addition, a rise in the BIS capital ratio reduces the profitability of commercial and regional banks, and the higher the ratio of loan-loss provisions, the stronger the relationship. In the case of commercial banks, it is estimated that the demand for capital adequacy did not have a significant impact as they are relatively large and faithful in capital compared to regional banks. However, in the case of regional banks, safer assets need to be selected to meet the BIS capital ratio, and the increasing propotion of these safe assets seems to have a relatively greater negative impact on profitability. Consequency, the financial authorities should consider this results and implement the bank's capital regulation policy.
Keywords
Capital Adequacy Requirements; ROA; BIS Capital Adequacy Ratio; Commercial Bank; Regional Bank; DOLS;
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