Measuring the Impact of Capital Adequacy on Profitability Indicators in Iraqi Banks for the Period 2015–2024

Abstract

This research aims to measure the impact of capital adequacy on profitability indicators in Iraqi banks for the period 2015–2024. Capital adequacy ratio (CAR) is the independent variable, while return on assets (ROA) and return on equity (ROE) are the dependent variables. The research's significance stems from the vital role of capital adequacy in enhancing banking soundness, protecting depositors' funds, and achieving financial stability. Furthermore, it supports banks' ability to withstand credit, operational, and market risks. The research utilized quarterly data from the Central Bank of Iraq's statistical bulletin and employed the Autoregressive Distributed Lag (ARDL) methodology. The results showed no long-term equilibrium relationship between capital adequacy and return on assets, while a positive short-term relationship was observed between them. While the study proved the existence of a balanced relationship between capital adequacy and return on equity in the long and short term, with a mechanism to correct the direction of the balance in the long term, the study concluded that capital adequacy represents an important factor in supporting the profitability of Iraqi banks, especially in the short term, but its impact does not appear in a stable way in all profitability indicators in the long term, which confirms that banking profitability is not determined by capital adequacy alone, but is also affected by the quality of assets, the adequacy of management, financing policies, the size of credit, and the level of risks to which banks in Iraq are exposed.