Analysis of the relationship between capital adequacy index, profitability, liquidity, and internal public debt

Abstract

The capital adequacy index, profitability index, and liquidity index are among the most important financial safety indicators that serve as an early warning of any risks or shocks that the financial and banking sector is exposed to. The banking sector is one of the most important sources of internal public debt that governments resort to to cover the deficit in their budget, that is, in the event that the state’s revenues are not sufficient to cover expenses, so governments resort to the process of borrowing from the banking sectors, so this study aims to know the impact of the capital adequacy index and Profitability and liquidity on the internal public debt. Results were obtained using the Eviews9 program based on several statistical tests. A sample of (17) banks was used for the period under study (2005-2020) and data for the study sample were collected from the annual financial reports issued in addition to statistical bulletins The annual report of the Central Bank of Iraq, and results were obtained that there is an impact of the capital adequacy, profitability and liquidity index On the internal public debt, as well as the results of the statistical analysis, showed that this indicator of capital adequacy and profitability has a strong correlation with the internal public debt, while the liquidity indicator has a weak correlation with the internal public debt. Financial and soundness because the banking sector is the main source of internal lending operations in addition to reducing dependence on oil revenues because it is exposed to many shocks and dependence On sources of income because it is a rich source to meet the needs of the state