A descriptive study on the statistical evidence of trade offs involving the ratios for capital adequacy, asset quality, and liquidity among the 24 rural banks in Nueva Ecija for the periods 1999 to 2003

• Main Authors: Chua, Aileen, Cuala, Sheryl Lou, Mascarianas, Catherine, Veneracion, Charisse
• Format: text
• Language: English
• Published: Animo Repository 2004
• Subjects: Banks and banking > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18294
• Institution: De La Salle University

This paper is about the statistical evidence of trade-offs involving the ratios for capital adequacy, asset quality, and liquidity among the 24 rural banks in Nueva Ecija for the periods 1999 to 2003. The objectives of this research is to determine whether there exists a statistical evidence of trade-off among the rural banks in Nueva Ecija involving the ratios for capital adequacy and asset quality, capital adequacy and liquidity, asset quality and liquidity. The researchers utilized ten (10) ratios. The ratios that were used are the following: (1) capital adequacy ratios- capital to risk assets, capital to total deposits, capital to total assets, and capital to total loans (2) asset quality ratios-ROPOA to total assets, and quick assets to total assets (3) liquidity ratios- quick assets to total deposits, quick assets to total deposits and borrowings, core deposits to total assets and total loans to total deposits. The three (3) null hypotheses that were tested by the researchers are the following: (1) there is no statistical evidence of trade-off for the ratios involving capital adequacy and asset quality, (2) there is no svtatistical evidence of trade-off for the ratios involving capital adequacy and liquidity, and (3) there is no statistical evidence of trade-off for the ratios involving asset quality and liquidity. The researchers used probability sampling particularly random sampling. There are 25 rural banks in Nueva Ecija as of 2003 as listed in Bangko Sentral ng Pilipinas, out this population the ideal sample is 23 rural banks, but the researchers were able to meet a sample of 24 rural banks in order to address the requirement of the chi-square test. Other than the chi-square test, the researchers also utilized the fisher exact probability test in order to further validate the results that were produced using the chi-square test. The tests revealed that there exists a statistical evidence of trade-off between capital to risk assets and core deposits to total assets ratio, capital to total deposits to total assets ratio, capital to total assets and core deposits to total assets ratio, capital to total loans and core deposits to total assets, capital risk assets and total loans to total deposits, capital to total deposits and total loans to total deposits, capital to total assets and total loans to total deposits vratio, ROPOA to total assets and core deposits to total assets ratio. The seven (7) vratios are all capital adequacy to liquidity ratios and the last ratio from asset quality and liquidity. The researchers recommend developments for the study by considering other provinces and conducting a comparative study in order to compare the trade-off movements in other rural banks from other provinces. Other researchers could also consider other financial institutions, businesses, and companies as their sample. For the rural banks in Nueva Ecija, it is recommended that they monitor their core deposits, careful assessment of borrowers so as to reduce ROPOA and for them to have capital adequacy and liquidity at the same time.