Credit Risks and their Impact on Banks Capital Adequacy: An Empirical study

Abstract

This research aims mainly at identifying the concept, forms, and source of credit risks, and how to measure these risks, also at identifying the concept of capital adequacy and its importance to the banks, the study also aims at studying  the relation between credit risk and capital adequacy.  The importance of this research stems from the importance of credit risk because it has an impact on the bank's operations and its indicators of activity. Moreover,  the adequacy of bank capital is of paramount importance, as achieving a good capital adequacy ratio is one of the first concerns of banking departments. This research attempts to answer the following questions:

1. What is the importance of both credit risk and the adequacy of banking capital and their role in stabilizing the banking environment?

2. Is there an impact of credit risk on the adequacy of bank capital?

We have applied the study on a sample that consists of four  private Syrian banks to evaluate the impact of the independent variable, credit risk, on the dependent variable, capital adequacy.  An analysis of the results of the statistics shows that there is a significant statistical impact between the rate of credit risk and the rate of bank capital adequacy among the banks of the sample. Moreover,  the study shows that credit risk affects capital adequacy, and the changes in capital adequacy due to credit risk and interpretation ratio can be explained by 0.87. The research recommends developing suitable policies and strategies in order to avoid financial crises resulting from credit risk, especially the risk of capital adequacy decline.