Impact of monetary policy on financial performance of Nepalese commercial banks / Kavita Joshi 

Public ISBD Title : Impact of monetary policy on financial performance of Nepalese commercial banks Material Type: printed text Authors: Kavita Joshi, Author Publication Date: 2015 Pagination: 75p. Size: GRP/Thesis Accompanying material: 5/B General note: Including bibilography Languages : English Descriptors: Bank reserves Banks Banks and banking Monetary policy Keywords: 'monetary policy  bank performance  banks  bank and banking  return on equity  return on assets' Class number: 332.460 Abstract: Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the bank. There are two major control mechanisms of monetary policy used by central banks at any point in time and this control mechanism are usually referred to as tools/instruments of monetary policy and they have effects on the proximate targets. Monetary instruments can be direct or indirect. The direct instruments include aggregate credit ceilings, deposit ceiling, exchange control, restriction on the placement of public deposit, special deposits and stabilization securities while indirect instruments include open market operation, cash reserve requirement, liquidity ratio, minimum discount rate and selective credit policies. Monetary policy has vital roles in the short-run i.e. it is used for counter-cyclical output stabilization, while in the long run; it is used to achieve the macro-economic goals of full employment, price stability, rapid economic growth and balance of payments equilibrium. The changes in the monetary policy channel give an idea to regulate and strengthen the banking industry. The instruments of monetary policy used by the central bank depend on the level of development of the economy, especially its financial sector. The financial system of Nepal is dominated by the commercial banks. Therefore, it is important to make such studies that can propose clear picture of monetary policy practice in Nepalese banking sectors. The major objective of the study is to examine the “Impact of Monetary Policy on Financial Performance of Nepalese Commercial Banks” by analyzing the quantitative tools and instruments of monetary policy. A sound and well-functioning banking sector can positively contribute to promote performance and leads to provide sustained economic growth. Hence, this study is focused on the impact of quantitative tools of Monetary Policy on financial performance of Nepalese commercial banks. This study used cash reserve ratio, bank discount rate, investment on Treasury bills as independent variable and exchange rate and money supply as macroeconomic variables. The measures of profitability that have been used in the study are the return on equity, return on assets and net interest margin. This study uses two research designs namely, descriptive research design and causal comparative research design. Descriptive research design is used to analyze the tools and mechanism and practices of monetary policy along with bank performance indicators like ROA, ROE, NIM and other variables and causal comparative research design is used to analyze cause and effect relationship between quantitative instruments of monetary policy and bank performance. The study covers twenty four commercial banks out of all the commercial banks in Nepal from 2008 to 2013. This research used stratified sampling technique as it takes the bank in three strata namely public bank, joint venture bank and private bank and convenient sampling. To accomplish the objectives of the study, this study has utilized both primary and secondary sources of data. The secondary source of data has employed to understand the impact of monetary policy and profitability of Nepalese commercial banks. The primary source of data has been used to examine the opinion of respondents with respect to the practice of tools of monetary policy among Nepalese commercial banks. The study used different tools and techniques to analyze the secondary and primary data. Monetary policy is the key tool for the overall functionary of the banks. The major conclusion of the study is that the indirect tools of monetary policy has significant impact on financial performance of commercial banks. Thecash reserve ratio, bank rate and exchange rate and has positive and significant impact on return on assets. The ROE is demonstrated to be negative for cash reserve ratio and lag of CRR and positivefor bank rate, investment on t-bill, exchange rate and broad money supply with.The NIM has been observed to be positve for investment on t-bill and exchange rate and is statistically significant for exchange rate and negative for CRR, BR and M2. The investment on t-bill has positive and significant impact on net interest margin.There is huge effect of these tools of monetary policy on commercial bank's performance as majority of the respondents of the study feels that there is effect of tools of monetary policy on their bank's performance. Nepalese financial sector is soundly familiar with the three tools of monetary policy: Open market Operation, discount lending and reserve requirement.And it also concludes thatcommercial banks of Nepal perceive cash reserve ratio as an effective tool of monetary policy having impact on financial performance to a considerable extent. It is also concluded that the broad money supply has effect on commercial banks loan and advance growth rather exchange rate. This study also concludes that in context of Nepal, return on assets, return on equity and net interest margin are reliable tools to measure the financial performance. Impact of monetary policy on financial performance of Nepalese commercial banks [printed text] / Kavita Joshi, Author . - 2015 . - 75p. ; GRP/Thesis + 5/B. Including bibilography Languages : English Descriptors: Bank reserves Banks Banks and banking Monetary policy Keywords: 'monetary policy  bank performance  banks  bank and banking  return on equity  return on assets' Class number: 332.460 Abstract: Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the bank. There are two major control mechanisms of monetary policy used by central banks at any point in time and this control mechanism are usually referred to as tools/instruments of monetary policy and they have effects on the proximate targets. Monetary instruments can be direct or indirect. The direct instruments include aggregate credit ceilings, deposit ceiling, exchange control, restriction on the placement of public deposit, special deposits and stabilization securities while indirect instruments include open market operation, cash reserve requirement, liquidity ratio, minimum discount rate and selective credit policies. Monetary policy has vital roles in the short-run i.e. it is used for counter-cyclical output stabilization, while in the long run; it is used to achieve the macro-economic goals of full employment, price stability, rapid economic growth and balance of payments equilibrium. The changes in the monetary policy channel give an idea to regulate and strengthen the banking industry. The instruments of monetary policy used by the central bank depend on the level of development of the economy, especially its financial sector. The financial system of Nepal is dominated by the commercial banks. Therefore, it is important to make such studies that can propose clear picture of monetary policy practice in Nepalese banking sectors. The major objective of the study is to examine the “Impact of Monetary Policy on Financial Performance of Nepalese Commercial Banks” by analyzing the quantitative tools and instruments of monetary policy. A sound and well-functioning banking sector can positively contribute to promote performance and leads to provide sustained economic growth. Hence, this study is focused on the impact of quantitative tools of Monetary Policy on financial performance of Nepalese commercial banks. This study used cash reserve ratio, bank discount rate, investment on Treasury bills as independent variable and exchange rate and money supply as macroeconomic variables. The measures of profitability that have been used in the study are the return on equity, return on assets and net interest margin. This study uses two research designs namely, descriptive research design and causal comparative research design. Descriptive research design is used to analyze the tools and mechanism and practices of monetary policy along with bank performance indicators like ROA, ROE, NIM and other variables and causal comparative research design is used to analyze cause and effect relationship between quantitative instruments of monetary policy and bank performance. The study covers twenty four commercial banks out of all the commercial banks in Nepal from 2008 to 2013. This research used stratified sampling technique as it takes the bank in three strata namely public bank, joint venture bank and private bank and convenient sampling. To accomplish the objectives of the study, this study has utilized both primary and secondary sources of data. The secondary source of data has employed to understand the impact of monetary policy and profitability of Nepalese commercial banks. The primary source of data has been used to examine the opinion of respondents with respect to the practice of tools of monetary policy among Nepalese commercial banks. The study used different tools and techniques to analyze the secondary and primary data. Monetary policy is the key tool for the overall functionary of the banks. The major conclusion of the study is that the indirect tools of monetary policy has significant impact on financial performance of commercial banks. Thecash reserve ratio, bank rate and exchange rate and has positive and significant impact on return on assets. The ROE is demonstrated to be negative for cash reserve ratio and lag of CRR and positivefor bank rate, investment on t-bill, exchange rate and broad money supply with.The NIM has been observed to be positve for investment on t-bill and exchange rate and is statistically significant for exchange rate and negative for CRR, BR and M2. The investment on t-bill has positive and significant impact on net interest margin.There is huge effect of these tools of monetary policy on commercial bank's performance as majority of the respondents of the study feels that there is effect of tools of monetary policy on their bank's performance. Nepalese financial sector is soundly familiar with the three tools of monetary policy: Open market Operation, discount lending and reserve requirement.And it also concludes thatcommercial banks of Nepal perceive cash reserve ratio as an effective tool of monetary policy having impact on financial performance to a considerable extent. It is also concluded that the broad money supply has effect on commercial banks loan and advance growth rather exchange rate. This study also concludes that in context of Nepal, return on assets, return on equity and net interest margin are reliable tools to measure the financial performance.

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Loan loss provisioning and relationship banking in Nepalese commercial banks / Roshan Sedhain 

Public ISBD Title : Loan loss provisioning and relationship banking in Nepalese commercial banks Material Type: printed text Authors: Roshan Sedhain, Author Publication Date: 2016 Pagination: 104p. Size: GRP/Thesis Accompanying material: 8/B Languages : English Descriptors: Bank reserves Loan loss provision Class number: 332.1095 Abstract: The banking system is disposed to credit risk accompanying with the problem loans and complications in loan recoveries particularly during monetary and economic volatility. However, the instability of the financial institutions is suppressed by the loan loss provisions and stronger capital adequacy ratio. The loan loss provision is an instrument created in the banking system to evade the financial instability resulted from high non-performing loan ratio. In practice, the level of provisioning had a factually pro-cyclical bias, as it is basically linked to concurrent problem assets, so that provisions mainly rise during a financial depression, when credit risk has already materialized (Borio and Lowe, 2001; Naceur & Kandil, 2013; Bikker and Hu, 2002; Laeven and Majnoni, 2003). In banking business, loan loss provision has a significant role to protect bank from unprecedented risks and failures. A loan loss provision is a charge to profit and loss statements, and it creates a reserve on the balance sheet. It can be viewed as a cushioning mechanism, which ensures commercial banks to avoid lose from the entire outstanding loan balance. Loan loss provisions are widely used by commercial bank managers when managing risk exposure in their lending activities. Loan loss provisions are expected when anticipated losses occur as a result of lending and financing activities (Anandarajan et al. 2007). The major objective of this study is to examine the determinants of loan loss provisions of commercial banks in Nepal. The specific objectives are i) to determine the structure and pattern of capital adequacy ratio, non-performing loan, leverage ratio, loan loss provision and credit interest to credit facilities. ii) To find out the relation of capital adequacy ratio, bad loan secured loan and firm size with loan loss provision of Nepalese commercial banks. iii) To investigate the impact of loan to assets, earning before loan loss provision and tax, real GDP growth and inflation to loan loss provision of Nepalese commercial banks. iv) To identify the most important variable affecting loan loss provision of Nepalese commercial banks. This study is based on descriptive and causal comparative research designs to deal with the various issues raised. The descriptive research design has been adopted for fact-finding and operation searching for adequate information of firm characteristics in Nepalese banks. Beside, an effort has also been made to describe the nature of panel data of the commercials banks by using descriptive statistics with respect to bank specific variables and macro-economic variables such as bad loans, capital adequacy ratios, loan to assets ratio, secured loan, earnings before tax and provision, GDP growth rate and inflation. The study examines the effect of bad loan, secured loan, ratio of loan to assets, capital adequacy ratio, earning before loan loss provision and tax, GDP growth and inflation with loan loss provision and ratio of non-performing loan to total loan. This study has utilized secondary source of data. The main sources of data include Annual Reports of banks, Banking and Financial Statistics published by Nepal Rastra Bank. In addition to these, Annual Supervision Reports published by NRB have also been used to obtain the information regarding the bad loans, capital adequacy ratios, loan to assets ratio, earnings before tax and provision, secured loan and macro-economic variable like GDP growth rate and inflation. The average loan loss provision is highest for ADBL and lowest for LBL. The average non-performing loan to total loan is highest for NBB and lowest for EBL. The average bad loan is highest for RBBL and lowest for SCB. The average capital adequacy ratio is highest for NMB and lowest for RBBL. The average secured loan is highest for ADBL and lowest for LBL. The average firm size is highest for RBBL and lowest for LBL. The average earning before tax and provision is highest for SCB and lowest for NBL. The average loan to assets ratio is highest for PBL and lowest for RBBL. The GDP is highest in 2008 whereas, inflation rate is highest in 2009. The descriptive statistics for the variables used in this study. Clearly, the average loan loss provision loan loss provision of Rs. 786.95 Million. The average non-performing loan to total loans is noticed to be to 2.1 percent. The average bad loan of selected banks during the study period is noticed to be Rs. 728.88. The average capital adequacy ratio of selected banks is 10.63 percent. Firm size has the average of Rs. 42536.73 Million. The average secured loan is observed to be 24670.95.Earnings before tax and has an average of 2.39 percent. Similarly, the average loan to assets ratio of selected banks during the study period is noticed to be 60.88 percent. Likewise, the average inflation rate during the study period is 9.78 percent. The study observed a positive relation of ratio of total loan to total assets, capital adequacy ratio, earnings before interest tax and LLP, inflation and bad loan with loan loss provision. Whereas, GDP, secured loan and firm size have a negative relationship with loan loss provision. Furthermore, capital adequacy ratio, ratio of total loan to total assets, secured loan firm size and inflation rate are negatively correlated to non-performing loan to total loans. The regression results found negative and significant relationship between firm size and loan loss provision. On the other hand, the beta coefficient of bad loan, capital adequacy ratio, ratio of loan to assets, inflation and earning before loan loss provision are positive with loan loss provision. Similarly, positive beta coefficients of capital adequacy ratio indicate that higher the capital adequacy ratio, higher would be the loan loss provision. On the other hand, the regression shows that a beta coefficient is positive for bad loan with the ratio of non-performing loan to total loan. Whereas, the beta coefficients of ratio of loan to assets, firm size, and GDP growth are negative with ratio of non-performing loan to total loan. The beta coefficient of firm size is significant at 1 percent level of significant. Therefore, the study concluded that bank specific variables are the major affecting factors on loan loss provision and the ratio of non-performing loan to total loan. Moreover, this study reveals bad loan as the most dominant factors for loan loss provision in Nepalese commercial banks. Loan loss provisioning and relationship banking in Nepalese commercial banks [printed text] / Roshan Sedhain, Author . - 2016 . - 104p. ; GRP/Thesis + 8/B. Languages : English Descriptors: Bank reserves Loan loss provision Class number: 332.1095 Abstract: The banking system is disposed to credit risk accompanying with the problem loans and complications in loan recoveries particularly during monetary and economic volatility. However, the instability of the financial institutions is suppressed by the loan loss provisions and stronger capital adequacy ratio. The loan loss provision is an instrument created in the banking system to evade the financial instability resulted from high non-performing loan ratio. In practice, the level of provisioning had a factually pro-cyclical bias, as it is basically linked to concurrent problem assets, so that provisions mainly rise during a financial depression, when credit risk has already materialized (Borio and Lowe, 2001; Naceur & Kandil, 2013; Bikker and Hu, 2002; Laeven and Majnoni, 2003). In banking business, loan loss provision has a significant role to protect bank from unprecedented risks and failures. A loan loss provision is a charge to profit and loss statements, and it creates a reserve on the balance sheet. It can be viewed as a cushioning mechanism, which ensures commercial banks to avoid lose from the entire outstanding loan balance. Loan loss provisions are widely used by commercial bank managers when managing risk exposure in their lending activities. Loan loss provisions are expected when anticipated losses occur as a result of lending and financing activities (Anandarajan et al. 2007). The major objective of this study is to examine the determinants of loan loss provisions of commercial banks in Nepal. The specific objectives are i) to determine the structure and pattern of capital adequacy ratio, non-performing loan, leverage ratio, loan loss provision and credit interest to credit facilities. ii) To find out the relation of capital adequacy ratio, bad loan secured loan and firm size with loan loss provision of Nepalese commercial banks. iii) To investigate the impact of loan to assets, earning before loan loss provision and tax, real GDP growth and inflation to loan loss provision of Nepalese commercial banks. iv) To identify the most important variable affecting loan loss provision of Nepalese commercial banks. This study is based on descriptive and causal comparative research designs to deal with the various issues raised. The descriptive research design has been adopted for fact-finding and operation searching for adequate information of firm characteristics in Nepalese banks. Beside, an effort has also been made to describe the nature of panel data of the commercials banks by using descriptive statistics with respect to bank specific variables and macro-economic variables such as bad loans, capital adequacy ratios, loan to assets ratio, secured loan, earnings before tax and provision, GDP growth rate and inflation. The study examines the effect of bad loan, secured loan, ratio of loan to assets, capital adequacy ratio, earning before loan loss provision and tax, GDP growth and inflation with loan loss provision and ratio of non-performing loan to total loan. This study has utilized secondary source of data. The main sources of data include Annual Reports of banks, Banking and Financial Statistics published by Nepal Rastra Bank. In addition to these, Annual Supervision Reports published by NRB have also been used to obtain the information regarding the bad loans, capital adequacy ratios, loan to assets ratio, earnings before tax and provision, secured loan and macro-economic variable like GDP growth rate and inflation. The average loan loss provision is highest for ADBL and lowest for LBL. The average non-performing loan to total loan is highest for NBB and lowest for EBL. The average bad loan is highest for RBBL and lowest for SCB. The average capital adequacy ratio is highest for NMB and lowest for RBBL. The average secured loan is highest for ADBL and lowest for LBL. The average firm size is highest for RBBL and lowest for LBL. The average earning before tax and provision is highest for SCB and lowest for NBL. The average loan to assets ratio is highest for PBL and lowest for RBBL. The GDP is highest in 2008 whereas, inflation rate is highest in 2009. The descriptive statistics for the variables used in this study. Clearly, the average loan loss provision loan loss provision of Rs. 786.95 Million. The average non-performing loan to total loans is noticed to be to 2.1 percent. The average bad loan of selected banks during the study period is noticed to be Rs. 728.88. The average capital adequacy ratio of selected banks is 10.63 percent. Firm size has the average of Rs. 42536.73 Million. The average secured loan is observed to be 24670.95.Earnings before tax and has an average of 2.39 percent. Similarly, the average loan to assets ratio of selected banks during the study period is noticed to be 60.88 percent. Likewise, the average inflation rate during the study period is 9.78 percent. The study observed a positive relation of ratio of total loan to total assets, capital adequacy ratio, earnings before interest tax and LLP, inflation and bad loan with loan loss provision. Whereas, GDP, secured loan and firm size have a negative relationship with loan loss provision. Furthermore, capital adequacy ratio, ratio of total loan to total assets, secured loan firm size and inflation rate are negatively correlated to non-performing loan to total loans. The regression results found negative and significant relationship between firm size and loan loss provision. On the other hand, the beta coefficient of bad loan, capital adequacy ratio, ratio of loan to assets, inflation and earning before loan loss provision are positive with loan loss provision. Similarly, positive beta coefficients of capital adequacy ratio indicate that higher the capital adequacy ratio, higher would be the loan loss provision. On the other hand, the regression shows that a beta coefficient is positive for bad loan with the ratio of non-performing loan to total loan. Whereas, the beta coefficients of ratio of loan to assets, firm size, and GDP growth are negative with ratio of non-performing loan to total loan. The beta coefficient of firm size is significant at 1 percent level of significant. Therefore, the study concluded that bank specific variables are the major affecting factors on loan loss provision and the ratio of non-performing loan to total loan. Moreover, this study reveals bad loan as the most dominant factors for loan loss provision in Nepalese commercial banks.

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