The Effect of Economic Policy Uncertainty on the Capital Adequacy Ratio Adjustment of the Asian Banks

Due to many factors, the CAR is frequently and continuously adjusted in the business.This research examines the factors that affect the CAR target and its adjustment speed.We apply the partial adjustment model to analyze the data of 9 Asia countries' banks from 2010 to 2019.Our key finding is that credit growth shows less influence and is statistically significant on the CAR target than the new variable created by the interaction between credit growth and the economic policy instability index.The adjustment has occurred through this new factor rather than adjustments to the risk sensitivity of the banks' assets or the growth of undivided profit.In addition, the Asian banks improved their CAR by increasing the main components of their core capital.