Determinant of Capital Adequacy Ratio: Evidence from Commercial Banks in Vietnam

The Capital Adequacy Ratio (CAR) is an important measure indicating the level of safety in business operation activities. The paper is conducted to investigate the factors affecting banks’ CAR in Vietnam during the period from 2008–2021. By using the sample data of 21 commercial banks with Bayesian mixed-effect regression, the results confirm that both bank-characteristic, macroeconomic factors affect bank’s capital adequacy ratio. The variables that have a strong positive impact on capital adequacy ratio include the ratio of equity to total assets, deposits ratio, liquidity ratio, CPI. The variables of bank size, profitability indicator, COVID-19 pandemic have strong negative impact. The ratio of loan to total assets, loan growth rate, CPI have a weak impact on CAR From the results, the paper suggests some recommendations to increase this ratio in the future time.