| Title : | The influence of exchange rate fluctuation on financial performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Rupesh Kumar Chaudhary, Author | | Publication Date: | 2018 | | Pagination: | 87p. | | Size: | Books | | Accompanying material: | 9/B | | Languages : | English | | Descriptors: | Interest rates
| | Class number: | 332.809 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result, the risk in banking sector is increasing day by day. The choice of exchange rate is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The effects of exchange rate fluctuation on financial performance of Nepalese commercial banks are studied extensively in different period of time. In regards to the influence of exchange rate fluctuation on financial performance of commercial banks, different results are found. Some of the studies state that, there is a country where exchange rate fluctuation affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of exchange rate fluctuation and bank profitability.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on exchange rate fluctuation and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of exchange rate fluctuation and some bank specific variables on performance of Nepalese banks.
The results in the prior studies on exchange rate fluctuation and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the exchange rate fluctuation and performance of Nepalese commercial banks. For this, the sample of 20 commercial banks with data of 6 years from 2010 to 2015 has been taken. Data has been collected from various secondary sources like annual reports of
viii
sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like return on assets (ROA), earnings per share (EPS) and net interest margin (NIM) of the banks have been used as the dependent variable. Exchange rate, interest rate, inflation rate, gross domestic product and external debt have been considered as independent variables.
The study recommends that the exposure to risk comes from other diverse areas; such as avoidance of risk, forecasting in exchange rates movement for profit, spot transaction, protection against exchange rates fluctuation and effective and efficient use of risk trading. Stringent control measures and administrative bottle necks of the Central Bank of Nepal are considered as the major factors hindering the achievement of sound exchange policies. Conclusively foreign exchange can be regarded as the life wire of a national economic growth and development and even the life blood of any economic development. The issues related to foreign exchange trading should always be taken into account in efforts to improve banks’ foreign exchange transactions and financial performance. It is important that the Government addresses the issue of weakening local currency since this triggers instability in the financial sector through negative impact on trade balance, higher external debt service and foreign reserves. |
The influence of exchange rate fluctuation on financial performance of Nepalese commercial banks [printed text] / Rupesh Kumar Chaudhary, Author . - 2018 . - 87p. ; Books + 9/B. Languages : English | Descriptors: | Interest rates
| | Class number: | 332.809 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result, the risk in banking sector is increasing day by day. The choice of exchange rate is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The effects of exchange rate fluctuation on financial performance of Nepalese commercial banks are studied extensively in different period of time. In regards to the influence of exchange rate fluctuation on financial performance of commercial banks, different results are found. Some of the studies state that, there is a country where exchange rate fluctuation affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of exchange rate fluctuation and bank profitability.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on exchange rate fluctuation and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of exchange rate fluctuation and some bank specific variables on performance of Nepalese banks.
The results in the prior studies on exchange rate fluctuation and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the exchange rate fluctuation and performance of Nepalese commercial banks. For this, the sample of 20 commercial banks with data of 6 years from 2010 to 2015 has been taken. Data has been collected from various secondary sources like annual reports of
viii
sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like return on assets (ROA), earnings per share (EPS) and net interest margin (NIM) of the banks have been used as the dependent variable. Exchange rate, interest rate, inflation rate, gross domestic product and external debt have been considered as independent variables.
The study recommends that the exposure to risk comes from other diverse areas; such as avoidance of risk, forecasting in exchange rates movement for profit, spot transaction, protection against exchange rates fluctuation and effective and efficient use of risk trading. Stringent control measures and administrative bottle necks of the Central Bank of Nepal are considered as the major factors hindering the achievement of sound exchange policies. Conclusively foreign exchange can be regarded as the life wire of a national economic growth and development and even the life blood of any economic development. The issues related to foreign exchange trading should always be taken into account in efforts to improve banks’ foreign exchange transactions and financial performance. It is important that the Government addresses the issue of weakening local currency since this triggers instability in the financial sector through negative impact on trade balance, higher external debt service and foreign reserves. |
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