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Impact of bank specific and macroeconomic factors on bank profitability:a case of Nepalese commercial banks / Anup Paudel
Title : Impact of bank specific and macroeconomic factors on bank profitability:a case of Nepalese commercial banks Material Type: printed text Authors: Anup Paudel, Author Publication Date: 2016 Size: GRP/Thesis Accompanying material: 6/B Languages : English Descriptors: Macroeconomics Class number: 332.632 Abstract: The existence, growth and survival of a business organization mostly depend upon the profit which an organization is able to earn. The profitability of the organization will definitely contribute to the economic development of the nation by way of providing additional employment and tax revenue to government exchequer. Moreover, it will contribute the income of the investors by having a higher dividend and thereby improve the standard of living of the people Ayanda et al (2013). Alexiou (2009) suggested that for any consistent or systematic size the profitability relationship is relatively weak. The determinants of profitability and theories thereof used in this review are those frequently described in conventional banking studies and literature. Return on assets, return on equity and net interest margin is a major part of banks’ profit; this is basically why the financial intermediaries try to offer lowest returns to savers and lend funds to borrowers at the highest possible interest rates
The major purpose of this study is to examine the relationship between credit risk and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA, ROE and net interest margin) and independent variables (credit risk, liquidity, capital adequacy ratio, and deposit and bank size), to examine the relationship between credit risk and bank performance, to identify the effect of capital adequacy ratio, liquidity and deposit on bank performance, to examine the relationship between bank size and bank performance and to examine the relationship between macro-economic factors such as GDP growth, inflation and interest rate on profitability of the bank.
This study based on the secondary source of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations The secondary data have been obtained from Banking and Financial Statistics and Bank Supervision report published by Nepal Rastra Bank and annual report of selected banks. The research design adopted in this study is descriptive and causal comparative types as it deals with relationship of bank specific and macroeconomic factor like credit risk, liquidity, capital adequacy ratio, deposit, bank size, GDP, inflation and interest rate with ROA (return on assets), ROE (return on equity) and NIM (net interest margin). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result revealed that the liquidity, capital adequacy ratio, deposit, GDP and interest rate are positively correlated with ROA. It indicates that higher the liquidity, capital adequacy ratio, deposit, GDP and interest rate, higher would be the ROA. Study reveals that credit risk, bank size and inflation are negatively correlated with ROA which reveals that increase in credit risk, bank size and inflation leads to decrease in net interest margin. The result also shows that liquidity, capital adequacy ratio, deposit, GDP and interest rate positively correlated to ROE. Study reveals that credit risk, bank size and inflation are negatively correlated to ROE. The result also shows that liquidity, deposit, bank size, GDP and interest rate positively correlated to NIM. Study reveals that credit risk, capital adequacy ratio and inflation are negatively correlated to NIM. The beta coefficient is positive for liquidity, capital adequacy ratio, deposit, GDP and interest rate and bank performance whereas the beta coefficient is negative for credit risk, bank size and inflation and bank performance. The beta coefficient is significant for capital adequacy ratio, credit risk, liquidity ratio and interest rate at 5 percent level of significance.
The major conclusion of this study is that bank performance of Nepalese commercial banks is affected by bank specific and macroeconomic factors and its management. Liquidity, capital adequacy ratio, deposits, GDP and interest rate is factor which has significant positive effect on return on assets and return on equity of Nepalese commercial banks. It indicates higher the liquidity, capital adequacy ratio, deposits, GDP and interest rate, higher would be the return on assets and return on equity. However, credit risk, bank size and inflation have significant negative effect on return on assets and return on equity. It indicates that higher the credit risk, bank size and inflation, lower would be the return on assets and return on equity. The study also concludes that liquidity, deposit, bank size, GDP and interest rate have significant positive effect on net interest margin of Nepalese commercial banks. Higher the liquidity, deposit, bank size, GDP and interest rate, higher would be net interest margin of banks. However, credit risk, capital adequacy ratio and inflation have significant negative effect on net interest margin.
Impact of bank specific and macroeconomic factors on bank profitability:a case of Nepalese commercial banks [printed text] / Anup Paudel, Author . - 2016 . - ; GRP/Thesis + 6/B.
Languages : English
Descriptors: Macroeconomics Class number: 332.632 Abstract: The existence, growth and survival of a business organization mostly depend upon the profit which an organization is able to earn. The profitability of the organization will definitely contribute to the economic development of the nation by way of providing additional employment and tax revenue to government exchequer. Moreover, it will contribute the income of the investors by having a higher dividend and thereby improve the standard of living of the people Ayanda et al (2013). Alexiou (2009) suggested that for any consistent or systematic size the profitability relationship is relatively weak. The determinants of profitability and theories thereof used in this review are those frequently described in conventional banking studies and literature. Return on assets, return on equity and net interest margin is a major part of banks’ profit; this is basically why the financial intermediaries try to offer lowest returns to savers and lend funds to borrowers at the highest possible interest rates
The major purpose of this study is to examine the relationship between credit risk and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA, ROE and net interest margin) and independent variables (credit risk, liquidity, capital adequacy ratio, and deposit and bank size), to examine the relationship between credit risk and bank performance, to identify the effect of capital adequacy ratio, liquidity and deposit on bank performance, to examine the relationship between bank size and bank performance and to examine the relationship between macro-economic factors such as GDP growth, inflation and interest rate on profitability of the bank.
This study based on the secondary source of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations The secondary data have been obtained from Banking and Financial Statistics and Bank Supervision report published by Nepal Rastra Bank and annual report of selected banks. The research design adopted in this study is descriptive and causal comparative types as it deals with relationship of bank specific and macroeconomic factor like credit risk, liquidity, capital adequacy ratio, deposit, bank size, GDP, inflation and interest rate with ROA (return on assets), ROE (return on equity) and NIM (net interest margin). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result revealed that the liquidity, capital adequacy ratio, deposit, GDP and interest rate are positively correlated with ROA. It indicates that higher the liquidity, capital adequacy ratio, deposit, GDP and interest rate, higher would be the ROA. Study reveals that credit risk, bank size and inflation are negatively correlated with ROA which reveals that increase in credit risk, bank size and inflation leads to decrease in net interest margin. The result also shows that liquidity, capital adequacy ratio, deposit, GDP and interest rate positively correlated to ROE. Study reveals that credit risk, bank size and inflation are negatively correlated to ROE. The result also shows that liquidity, deposit, bank size, GDP and interest rate positively correlated to NIM. Study reveals that credit risk, capital adequacy ratio and inflation are negatively correlated to NIM. The beta coefficient is positive for liquidity, capital adequacy ratio, deposit, GDP and interest rate and bank performance whereas the beta coefficient is negative for credit risk, bank size and inflation and bank performance. The beta coefficient is significant for capital adequacy ratio, credit risk, liquidity ratio and interest rate at 5 percent level of significance.
The major conclusion of this study is that bank performance of Nepalese commercial banks is affected by bank specific and macroeconomic factors and its management. Liquidity, capital adequacy ratio, deposits, GDP and interest rate is factor which has significant positive effect on return on assets and return on equity of Nepalese commercial banks. It indicates higher the liquidity, capital adequacy ratio, deposits, GDP and interest rate, higher would be the return on assets and return on equity. However, credit risk, bank size and inflation have significant negative effect on return on assets and return on equity. It indicates that higher the credit risk, bank size and inflation, lower would be the return on assets and return on equity. The study also concludes that liquidity, deposit, bank size, GDP and interest rate have significant positive effect on net interest margin of Nepalese commercial banks. Higher the liquidity, deposit, bank size, GDP and interest rate, higher would be net interest margin of banks. However, credit risk, capital adequacy ratio and inflation have significant negative effect on net interest margin.
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Barcode Call number Media type Location Section Status 335/D 332.632 PAU Thesis/Dissertation Uniglobe Library Social Sciences Available