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Determinants of net interest margin of Nepalese commercial banks / Rojeena Bariya
Title : Determinants of net interest margin of Nepalese commercial banks Material Type: printed text Authors: Rojeena Bariya, Author Publication Date: 2016 Pagination: 99p. Size: GRP/Thesis Accompanying material: 7/B Languages : English Descriptors: Interest Class number: 330 Abstract: Banks are the financial institution and financial intermediary that accepts deposit from depositors and mobilize those funds into lending activities to different party of economy. This process of accepting deposits and lending takes place at a cost in the form of interest to the depositors as well as to the borrower. Banks provide lower interest rate on depositors and charge higher interest rate to borrower which creates spread called net interest margin of banks (Tarus et al., 2013). The primary function of taking deposit and providing loan always run with motive to earn profit in the term of net interest margin. One of the best and most widely used indicator of the cost and efficiency of financial intermediation is a banks’ net interest margin (Dumicic and Ridzak,2013). The effect of banks interest margins and spread, simply the intermediation cost, on economic growth is documented in the literature (Jayaatne and Strahan, 1996).
The analysis of the evolution and determinants of net interest margin is extremely important, since a small change in the margin has a huge impact on the profitability and performance of bank as well as on the economy. The analysis of net interest margins is an attempt to measure the cost of financial intermediation; that is, the difference between the gross cost paid by a borrower to a bank and the net return received by a depositor (Brock and Suarez, 2000). This study focus on dependent variable net interest margin which consist of two proxies, Net interest income to total assets and net interest income to total earning assets.
This study examines the determinants of net interest margin of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of capital adequacy, bank size, total deposit, credit risk, liquidity risk, inflation and gross domestic product growth rate on bank net interest margin. The study has selected 19 Nepalese commercial banks. The research is based on secondary data and the data were collected from Bank and Financial Statistics, Supervision Report published by Nepal Rastra Bank( NRB) and annual reports of concern sample banks. For macro economic variables data have been collected from Quarterly Economic Bulletin pulished by Nepal Rastra Bank.
The study results show that Agricultural development bank has the highest average net interest margin. Similarly, average credit is largest for Prime commercial bank limited and Agricultural development bank has highest capital adequacy ratio. There is positive relationship of capital adequacy ratio and bank size with net interest margin in term of both proxy net interest income to total assets and net interest income to average earning assets. It indicates higher the capital adequacy ratio, higher would be net interest margin. It also indicates increase in bank size increases net interest margin. Similarly, net interest margin both proxy are positively related to total deposit and credit risk. This means larger the total deposit of bank, larger would be net interest margin and higher the credit risk, higher would be net interest margin. However, liquidity risk has positive relationship with net interest income to total assets, while negative relationship with net interest income to average earning assets. Regarding macroeconomic variables inflation and gross domestic product growth rate have negative relationship with both proxy of net interest margin. It reveals higher the inflation and gross domestic product growth rate, lower would be net interest margin.
Determinants of net interest margin of Nepalese commercial banks [printed text] / Rojeena Bariya, Author . - 2016 . - 99p. ; GRP/Thesis + 7/B.
Languages : English
Descriptors: Interest Class number: 330 Abstract: Banks are the financial institution and financial intermediary that accepts deposit from depositors and mobilize those funds into lending activities to different party of economy. This process of accepting deposits and lending takes place at a cost in the form of interest to the depositors as well as to the borrower. Banks provide lower interest rate on depositors and charge higher interest rate to borrower which creates spread called net interest margin of banks (Tarus et al., 2013). The primary function of taking deposit and providing loan always run with motive to earn profit in the term of net interest margin. One of the best and most widely used indicator of the cost and efficiency of financial intermediation is a banks’ net interest margin (Dumicic and Ridzak,2013). The effect of banks interest margins and spread, simply the intermediation cost, on economic growth is documented in the literature (Jayaatne and Strahan, 1996).
The analysis of the evolution and determinants of net interest margin is extremely important, since a small change in the margin has a huge impact on the profitability and performance of bank as well as on the economy. The analysis of net interest margins is an attempt to measure the cost of financial intermediation; that is, the difference between the gross cost paid by a borrower to a bank and the net return received by a depositor (Brock and Suarez, 2000). This study focus on dependent variable net interest margin which consist of two proxies, Net interest income to total assets and net interest income to total earning assets.
This study examines the determinants of net interest margin of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of capital adequacy, bank size, total deposit, credit risk, liquidity risk, inflation and gross domestic product growth rate on bank net interest margin. The study has selected 19 Nepalese commercial banks. The research is based on secondary data and the data were collected from Bank and Financial Statistics, Supervision Report published by Nepal Rastra Bank( NRB) and annual reports of concern sample banks. For macro economic variables data have been collected from Quarterly Economic Bulletin pulished by Nepal Rastra Bank.
The study results show that Agricultural development bank has the highest average net interest margin. Similarly, average credit is largest for Prime commercial bank limited and Agricultural development bank has highest capital adequacy ratio. There is positive relationship of capital adequacy ratio and bank size with net interest margin in term of both proxy net interest income to total assets and net interest income to average earning assets. It indicates higher the capital adequacy ratio, higher would be net interest margin. It also indicates increase in bank size increases net interest margin. Similarly, net interest margin both proxy are positively related to total deposit and credit risk. This means larger the total deposit of bank, larger would be net interest margin and higher the credit risk, higher would be net interest margin. However, liquidity risk has positive relationship with net interest income to total assets, while negative relationship with net interest income to average earning assets. Regarding macroeconomic variables inflation and gross domestic product growth rate have negative relationship with both proxy of net interest margin. It reveals higher the inflation and gross domestic product growth rate, lower would be net interest margin.
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Barcode Call number Media type Location Section Status 194/D 330 BAR Books Uniglobe Library Social Sciences Available