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Domestic and foreign banks profitability in Nepal: differences and their determinants / Samjhana Khatri
Title : Domestic and foreign banks profitability in Nepal: differences and their determinants Material Type: printed text Authors: Samjhana Khatri, Author Publication Date: 2017 Pagination: 102p. Size: GRP/Thesis Accompanying material: 8/B Languages : English Class number: 330 Abstract: Financial performance of a firm can be analyzed in terms of profitability, dividend growth, sales turnover, asset base, capital employed among others. The main aim of bank is to earn profit along with the customer satisfaction. Bank profitability is defined as the net after-tax income or net earnings of a bank. Profitability is believed to be influenced by both endogenous and exogenous factors. The endogenous factors are firm specific factors that result from the decisions and policies of management. Examples of such factors are efficiency, profitability, liquidity, and capital structure and asset quality ratios. The exogenous factors are industrial structural factors such as ownership, market concentration and stock market development and other macroeconomic factors such as interest rate, inflation, gross domestic product, etc.
There are differences in domestic and foreign banks in terms of profitability. Doğan (2013) revealed that asset quality, return on equities, total assets and management effectiveness of domestic banks are higher than foreign banks.Sabi (1996) found that foreign banks are more profitable than domestic banks and did not expose to a greater liquidity or credit risk.Chantapong (2005) concluded that foreign bank’s profitability is higher than the average profitability of the domestic banks.Awdeh (2005) explained that foreign banks are more profitable and are less affected by the macroeconomic factors of the host country than domestic banks.
The main objective of this study is to analyze the differences and determinants of profitability (ROA, ROE and NIM) in context of foreign and domestic commercial banks of Nepal. The study is based on the secondary data of 21 Nepalese commercial banks with 147 observations for the period 2008/09 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and annual Reports of selected commercial banks. The pooled cross-sectional data analysis has been undertaken from the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship betweencapital adequacy ratio, cash reserve requirement, liquidity ratio, credit to deposit ratio, credit risk, cost to income ratio, inflation, gross domestic product and profitability of Nepalese banks.
The result shows that NBBL have highest average ROA, ROE and ADBL has highest NIM among the selected commercial banks throughout the study period. Similarly average capital adequacy ratio is highest for SANBL (17.60), cash reserve requirement is highest for SUNBL (30.90), credit risk is highest for ADBL (12.96), credit to deposit ratio is highest for ADBL 105.95, liquidity ratio is highest for SCNBL (39.05), and cost to income ratio is highest for NBL (88.67).
The descriptive statistics of domestic banks shows that average return on assets, return on equity and net interest margin, capital adequacy ratio, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio, cost to income ratio, inflation, and gross domestic product is 1.51 percent, 10.20 percent, 3.28 percent, 12.39 percent, 15.79 percent, 3.50 percent, 81.98 percent, 25.96 percent, 43.94 percent, 8.77 percent, 4.40 percent. Similarly, descriptive statistics of foreign banks reveals that averagereturn on assets, return on equity and net interest margin, capital adequacy ratio, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio, cost to income ratio, inflation, and gross domestic product is 2.60 percent, 28.63 percent, 3.63 percent, 11.70 percent, 12.17 percent, 3.88 percent, 69.10 percent, 27.39 percent, 36.77 percent, 8.77 percent, 4.4 percent.
In case of domestic banks the study found that capital adequacy ratio and credit to deposit ratio is positively correlated to return on assets, return on equity, and net interest margin while liquidity ratio is negatively correlated to return on assets, return on equity, and net interest margin. Cash reserve requirement, credit risk and inflation is positively correlated to return on assets and net interest margin. However, cost to income ratio is negatively correlated to return on assets and return on equity. Similarly, gross domestic product is negatively correlated to return on assets and net interest margin. Likewise the study of foreign banks depicts that cash reserve requirement, liquidity ratio, credit to deposit ratio, credit risk, gross domestic product is positively correlated toreturn on assets, return on equity, and net interest margin. While, capital adequacy ratio, and cost to income ratio is negatively correlated to return on assets, return on equity, and net interest margin.
The regression analysis of domestic banks revealed that capital adequacy ratio and credit to deposit ratio has positive impact on return on assets, return on equity and net interest margin. However, liquidity ratio has negative impact on return on assets, return on equity, and net interest margin. The beta coefficient of cash reserve requirement, credit risk and inflation has positive impact on return on assets and return on equity of domestic banks. However the beta coefficient of cost to income ratio have negative impact on return on assets and net interest margin of domestic banks. Similarly, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio and GDP have positive impact on return on assets, return on equity, and net interest margin of foreign banks. However, capital adequacy ratio and cost to income ratio have negative impact on return on assets, return on equity, and net interest margin of foreign banks. Likewise, the beta coefficient of inflation has negative impact on return on assets and return on equity of foreign banks. Therefore, capital adequacy ratio, credit risk, credit to deposit ratio and cost to income ratio are the major factors affecting the profitability of domestic banks. However, capital adequacy ratio, credit risk and cost to income ratio are the major factors affecting the profitability of foreign banks.
Domestic and foreign banks profitability in Nepal: differences and their determinants [printed text] / Samjhana Khatri, Author . - 2017 . - 102p. ; GRP/Thesis + 8/B.
Languages : English
Class number: 330 Abstract: Financial performance of a firm can be analyzed in terms of profitability, dividend growth, sales turnover, asset base, capital employed among others. The main aim of bank is to earn profit along with the customer satisfaction. Bank profitability is defined as the net after-tax income or net earnings of a bank. Profitability is believed to be influenced by both endogenous and exogenous factors. The endogenous factors are firm specific factors that result from the decisions and policies of management. Examples of such factors are efficiency, profitability, liquidity, and capital structure and asset quality ratios. The exogenous factors are industrial structural factors such as ownership, market concentration and stock market development and other macroeconomic factors such as interest rate, inflation, gross domestic product, etc.
There are differences in domestic and foreign banks in terms of profitability. Doğan (2013) revealed that asset quality, return on equities, total assets and management effectiveness of domestic banks are higher than foreign banks.Sabi (1996) found that foreign banks are more profitable than domestic banks and did not expose to a greater liquidity or credit risk.Chantapong (2005) concluded that foreign bank’s profitability is higher than the average profitability of the domestic banks.Awdeh (2005) explained that foreign banks are more profitable and are less affected by the macroeconomic factors of the host country than domestic banks.
The main objective of this study is to analyze the differences and determinants of profitability (ROA, ROE and NIM) in context of foreign and domestic commercial banks of Nepal. The study is based on the secondary data of 21 Nepalese commercial banks with 147 observations for the period 2008/09 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and annual Reports of selected commercial banks. The pooled cross-sectional data analysis has been undertaken from the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship betweencapital adequacy ratio, cash reserve requirement, liquidity ratio, credit to deposit ratio, credit risk, cost to income ratio, inflation, gross domestic product and profitability of Nepalese banks.
The result shows that NBBL have highest average ROA, ROE and ADBL has highest NIM among the selected commercial banks throughout the study period. Similarly average capital adequacy ratio is highest for SANBL (17.60), cash reserve requirement is highest for SUNBL (30.90), credit risk is highest for ADBL (12.96), credit to deposit ratio is highest for ADBL 105.95, liquidity ratio is highest for SCNBL (39.05), and cost to income ratio is highest for NBL (88.67).
The descriptive statistics of domestic banks shows that average return on assets, return on equity and net interest margin, capital adequacy ratio, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio, cost to income ratio, inflation, and gross domestic product is 1.51 percent, 10.20 percent, 3.28 percent, 12.39 percent, 15.79 percent, 3.50 percent, 81.98 percent, 25.96 percent, 43.94 percent, 8.77 percent, 4.40 percent. Similarly, descriptive statistics of foreign banks reveals that averagereturn on assets, return on equity and net interest margin, capital adequacy ratio, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio, cost to income ratio, inflation, and gross domestic product is 2.60 percent, 28.63 percent, 3.63 percent, 11.70 percent, 12.17 percent, 3.88 percent, 69.10 percent, 27.39 percent, 36.77 percent, 8.77 percent, 4.4 percent.
In case of domestic banks the study found that capital adequacy ratio and credit to deposit ratio is positively correlated to return on assets, return on equity, and net interest margin while liquidity ratio is negatively correlated to return on assets, return on equity, and net interest margin. Cash reserve requirement, credit risk and inflation is positively correlated to return on assets and net interest margin. However, cost to income ratio is negatively correlated to return on assets and return on equity. Similarly, gross domestic product is negatively correlated to return on assets and net interest margin. Likewise the study of foreign banks depicts that cash reserve requirement, liquidity ratio, credit to deposit ratio, credit risk, gross domestic product is positively correlated toreturn on assets, return on equity, and net interest margin. While, capital adequacy ratio, and cost to income ratio is negatively correlated to return on assets, return on equity, and net interest margin.
The regression analysis of domestic banks revealed that capital adequacy ratio and credit to deposit ratio has positive impact on return on assets, return on equity and net interest margin. However, liquidity ratio has negative impact on return on assets, return on equity, and net interest margin. The beta coefficient of cash reserve requirement, credit risk and inflation has positive impact on return on assets and return on equity of domestic banks. However the beta coefficient of cost to income ratio have negative impact on return on assets and net interest margin of domestic banks. Similarly, cash reserve requirement, credit risk, credit to deposit ratio, liquidity ratio and GDP have positive impact on return on assets, return on equity, and net interest margin of foreign banks. However, capital adequacy ratio and cost to income ratio have negative impact on return on assets, return on equity, and net interest margin of foreign banks. Likewise, the beta coefficient of inflation has negative impact on return on assets and return on equity of foreign banks. Therefore, capital adequacy ratio, credit risk, credit to deposit ratio and cost to income ratio are the major factors affecting the profitability of domestic banks. However, capital adequacy ratio, credit risk and cost to income ratio are the major factors affecting the profitability of foreign banks.
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Barcode Call number Media type Location Section Status 285/D 330 KHA Thesis/Dissertation Uniglobe Library Social Sciences Available