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International Journal of Management and Business Development

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An Empirical Framework for Assessing the Relationship Between Capital Adequacy Ratios and Profit-Sharing Practices in Nigerian Islamic Banking Institutions: Evidence from Jaiz Bank and TAJ Bank (2023–2025)

DOI https://doi.org/10.55640/ijmbd-v03i08-01
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Nguyen Van An 1 , Tran Thi Mai 1 ,
4 Entrepreneurship & SME Development, Faculty of Business Administration, Hanoi University of Economics, Hanoi, Vietnam
4 Marketing Strategy & Consumer Behavior, Ho Chi Minh City University of Economics and Finance, Vietnam

Abstract

The evolution of Islamic banking in emerging economies has intensified scholarly and regulatory interest in understanding the interplay between capital adequacy and profit-sharing mechanisms. This study develops an empirical framework to assess the relationship between Capital Adequacy Ratios (CAR) and profit-sharing practices in Nigerian Islamic banking institutions, focusing on Jaiz Bank and TAJ Bank over the period 2023–2025. The research integrates regulatory capital theory, Islamic financial intermediation principles, and risk-sharing behavior to evaluate how capital buffers influence profit distribution structures.

Drawing on prior literature emphasizing risk exposure, capital regulation, and profit smoothing mechanisms in Islamic banks (Abedifar, Molyneux, & Tarazi, 2013), the study positions CAR as both a stability indicator and a behavioral determinant of profit-sharing intensity. The framework incorporates Basel III regulatory alignment, macro-financial stability conditions, and Islamic profit-and-loss sharing (PLS) sensitivity.

Methodologically, the paper proposes a structured econometric and conceptual model linking CAR, return on investment accounts, and profit equalization reserves. The findings suggest that higher capital adequacy levels reduce risk-sharing volatility while simultaneously influencing banks’ willingness to engage in equity-like financing structures. The study contributes to Islamic banking literature by offering a Nigeria-specific empirical framework aligned with global regulatory reforms and Islamic financial stability standards.

Keywords

Capital Adequacy Ratio, Islamic Banking, Profit-Sharing, Jaiz Bank, TAJ Bank

References

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