THE DETERMINANTS OF THE CAPITAL ADEQUACY RATIO IN THE ALBANIAN BANKING SYSTEM DURING 2007 – 2014

The Albanian banking system has undergone to a radical transformation especially the last 23 years taking into account that in 1992 were operating only 3 state owned banks while in 2014 we have 16 private banks. In the same time is to notice that the Albanian banking system occupies almost 85% of the financial system showing the weak role of the capital markets. Aim of this paper is to analyze the main banking determinants of the capital adequacy ratio in the Albanian banking system after the global financial crises. In this study we use a regression model like the ordinary least squares analysis to test the relationship between the dependant and independent variables using quarterly data from the first trimester of 2007 until third trimester of 2014 with a total of 31 observations. As dependant variable we use the capital adequacy ratio (CAR) while as independent variables we use: return on assets (ROA), return on equity (ROE), the non performing loans (NPL) and bank size (Total Assets), equity multiplier (EM) and loan to deposit ratio (LTD). From the result we find out that profitability indicators such as ROA and ROE do not have any influence on CAR while NPL, LTD and EM have negative and significant impact on CAR in the Albanian banking system. The bank size has a positive impact on CAR meaning that large banks have higher CAR.