| Title : | Modeling bank asset quality and profitability in Nepalese commercial banks: a comparative study of publications, joint venture banks and private banks | | Material Type: | printed text | | Authors: | Anjana Joshi, Author | | Publication Date: | 2016 | | Pagination: | 120p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Bank assets
Developing countries
| | Class number: | 332.101 | | Abstract: | Das and Gosh (2006) defined non-performing loan as non-repayment of interest and installment of principal amount. The study identified the management of non-performing loan as an essential ingredient for a well-functioning financial system. Management often pays significant time, energy and resources in managing the assets, predominantly the loan portfolio. In the worst scenario, a high level of NPLs in the banking system poses a systemic risk, inviting a panic run on deposits and sharply limiting financial intermediation, and subsequently, investment and growth (Weissburg et al., 2007).
The quest for examining the factors responsible for interbank differences in profitability has led to a number of studies that have been carried in different countries. Moreover, for establishing a model of bank profitability the studies have split the determinants into two categories. The first category includes factors that are internal to the organization and under the control of banks’ management. However, the second category includes factors that are external to the organization and beyond the control of banks’ management (Staikouras and Wood, 2004).
Higher GDP growth rate represents prosperity for the country in terms of its ability to produce goods and services. Therefore, higher GDP growth rate is the major goal of every nation. Interest rate spread is defined by market structure characteristics of the banking sector and the policy environment (Ngugi, 2001). Demirguc-Kunt and Huzinga (1999) found positive and significant impact of interest rate on bank profitability.Bank size has been linked with profitability in number of previous studies. Hashem (2016)concluded that there is positive relationship between profitability and banks’ size. Indeed, larger banks are able to enjoy economies of scale which results in higher profitability.
The major objective of the study is to establish a model to identity the determinants of assets quality and profitability of the Nepalese commercial banks. The study is based on secondary data of 22 commercial banks with 176 observations for the period of 2007/08 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 in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with establishing a model to identify the determinants of assets quality and profitability of Nepalese commercial banks.
The results shows that NB has the highest average NPLand NMB has the highest average EPS among the selected commercial banks throughout the study period. Similarly, the average capital adequacy ratio is highest for NMB (22.12 percent), average collateralized loans is highest for ADBL (Rs. 50.87 billion), average investment is highest for RBBL (Rs. 22.78 billion), average spread rate is highest for NBL (6.94 percent), average bank operating efficiency is highest for NSBI (10.17 percent) and total assets is highest for RBBL (Rs. 108.99 billion).
The descriptive statistics for public banks shows that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 54.02 per share, 7.56 percent, 5.97 percent, -1.92 percent, Rs 29.30 billion, 9.79 percent, 4.58 percent, 6.69 percent, 19.61 percent, Rs 84.84 billion and Rs. 14.82 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 63.05 per share, 2.78 percent, 4.42 percent, 11.50 percent, 28.54 percent, 9.78 percent, 4.57 percent, 7.11 percent, 19.61 percent, Rs. 50.50 billion and Rs. 11.57 billion respectively. The results from private banks reveals that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 19.60 per share, 1.89 percent, 4.04 percent, 13.12 percent, Rs, 19.52 billion, 9.79 percent, 4.58 percent, 2.29 percent, 19.61 percent, Rs. 29.10 billion and Rs. 3.17 billion.
In case of public banks, that capital adequacy ratio, collateralized loans, inflation, bank size and investment are negatively related to non-performing loans whereas GDP growth rate and money supply are positively related to non-performing loans. Similarly, the study of joint venture banks reveals that GDP growth rate and money supply are positively related to earnings per share and non-performing loans whereas capital adequacy ratio, collateralize loans, bank operating efficiency and investment are negatively related to earnings per share and non-performing loans. Likewise, the study of private banks reveals that spread rate and GDP growth rate are positively related to earnings per share and non-performing loans whereas capital adequacy ratio is negatively related to earnings per share and non-performing loans.
The regression results show that the spread rate has positive and significant impact on earnings per share of public, private and joint venture banks indicating higher the spread rate, higher would be the earnings per share and converse is also true. Similarly, GDP growth rate has positive and significant impact on non-performing loans for public banks. Thus, higher the GDP growth rate, higher would be the non-performing loans. The study also reveals that bank operating efficiency and bank size has positive and significant impact on earnings per share of all three categories of Nepalese commercial banks indicating that larger banks are able to generate higher earnings per share. However, the study also found that collateralized loans has significant negative impact on non-performing loans of Nepalese commercial banks indicating higher the collateralized loans, lower would be the non-performing loans.
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Modeling bank asset quality and profitability in Nepalese commercial banks: a comparative study of publications, joint venture banks and private banks [printed text] / Anjana Joshi, Author . - 2016 . - 120p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Bank assets
Developing countries
| | Class number: | 332.101 | | Abstract: | Das and Gosh (2006) defined non-performing loan as non-repayment of interest and installment of principal amount. The study identified the management of non-performing loan as an essential ingredient for a well-functioning financial system. Management often pays significant time, energy and resources in managing the assets, predominantly the loan portfolio. In the worst scenario, a high level of NPLs in the banking system poses a systemic risk, inviting a panic run on deposits and sharply limiting financial intermediation, and subsequently, investment and growth (Weissburg et al., 2007).
The quest for examining the factors responsible for interbank differences in profitability has led to a number of studies that have been carried in different countries. Moreover, for establishing a model of bank profitability the studies have split the determinants into two categories. The first category includes factors that are internal to the organization and under the control of banks’ management. However, the second category includes factors that are external to the organization and beyond the control of banks’ management (Staikouras and Wood, 2004).
Higher GDP growth rate represents prosperity for the country in terms of its ability to produce goods and services. Therefore, higher GDP growth rate is the major goal of every nation. Interest rate spread is defined by market structure characteristics of the banking sector and the policy environment (Ngugi, 2001). Demirguc-Kunt and Huzinga (1999) found positive and significant impact of interest rate on bank profitability.Bank size has been linked with profitability in number of previous studies. Hashem (2016)concluded that there is positive relationship between profitability and banks’ size. Indeed, larger banks are able to enjoy economies of scale which results in higher profitability.
The major objective of the study is to establish a model to identity the determinants of assets quality and profitability of the Nepalese commercial banks. The study is based on secondary data of 22 commercial banks with 176 observations for the period of 2007/08 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 in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with establishing a model to identify the determinants of assets quality and profitability of Nepalese commercial banks.
The results shows that NB has the highest average NPLand NMB has the highest average EPS among the selected commercial banks throughout the study period. Similarly, the average capital adequacy ratio is highest for NMB (22.12 percent), average collateralized loans is highest for ADBL (Rs. 50.87 billion), average investment is highest for RBBL (Rs. 22.78 billion), average spread rate is highest for NBL (6.94 percent), average bank operating efficiency is highest for NSBI (10.17 percent) and total assets is highest for RBBL (Rs. 108.99 billion).
The descriptive statistics for public banks shows that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 54.02 per share, 7.56 percent, 5.97 percent, -1.92 percent, Rs 29.30 billion, 9.79 percent, 4.58 percent, 6.69 percent, 19.61 percent, Rs 84.84 billion and Rs. 14.82 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 63.05 per share, 2.78 percent, 4.42 percent, 11.50 percent, 28.54 percent, 9.78 percent, 4.57 percent, 7.11 percent, 19.61 percent, Rs. 50.50 billion and Rs. 11.57 billion respectively. The results from private banks reveals that the average earnings per share, non-performing loans, spread rate, capital adequacy ratio, collateralized loans, inflation, GDP growth rate, bank operating efficiency, broad money supply, firm size and investment is Rs. 19.60 per share, 1.89 percent, 4.04 percent, 13.12 percent, Rs, 19.52 billion, 9.79 percent, 4.58 percent, 2.29 percent, 19.61 percent, Rs. 29.10 billion and Rs. 3.17 billion.
In case of public banks, that capital adequacy ratio, collateralized loans, inflation, bank size and investment are negatively related to non-performing loans whereas GDP growth rate and money supply are positively related to non-performing loans. Similarly, the study of joint venture banks reveals that GDP growth rate and money supply are positively related to earnings per share and non-performing loans whereas capital adequacy ratio, collateralize loans, bank operating efficiency and investment are negatively related to earnings per share and non-performing loans. Likewise, the study of private banks reveals that spread rate and GDP growth rate are positively related to earnings per share and non-performing loans whereas capital adequacy ratio is negatively related to earnings per share and non-performing loans.
The regression results show that the spread rate has positive and significant impact on earnings per share of public, private and joint venture banks indicating higher the spread rate, higher would be the earnings per share and converse is also true. Similarly, GDP growth rate has positive and significant impact on non-performing loans for public banks. Thus, higher the GDP growth rate, higher would be the non-performing loans. The study also reveals that bank operating efficiency and bank size has positive and significant impact on earnings per share of all three categories of Nepalese commercial banks indicating that larger banks are able to generate higher earnings per share. However, the study also found that collateralized loans has significant negative impact on non-performing loans of Nepalese commercial banks indicating higher the collateralized loans, lower would be the non-performing loans.
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