| Title : | Impact of liquidity management on bank profitability in Nepalese commercial banks | | Material Type: | printed text | | Authors: | Yooba Raj Gautam, Author | | Publication Date: | 2017 | | Pagination: | 100p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Liquidity (Economics)
Liquidity on profitability
| | Class number: | 332.632 | | Abstract: | Business success depends heavily on the ability of financial managers to effectively manage the components of working capital (Filbeck and Krueger, 2005). Profitability and liquidity are used for long term in each business for strong work and promotion in the business both liquidity and profitability are parallel to one another. The importance of liquidity management as it affects corporate profitability in today’s business cannot be over emphasized. Thus, liquidity is lifeblood of a banking system (Cucinelli, 2013). Biety (2003) and Anyanwu (1993) asserted that the objective of liquidity management is to gear banks towards a financial position that enables them meet their financial obligations. Profitability may be regarded as a relative term measurable in terms of profit and its relation with other elements that can directly influence the profit. In order to find the profitability level of firms, profitability ratios are used.
The determinants of profitability and theories thereof used in this review are those frequently described in conventional banking studies and literature. Return on assets and return on equity 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. To achieve the goal of owners’ wealth maximization, banks should manage their assets, liabilities, and capital efficiently. In doing this, better policy should set out the bank’s philosophy and specific procedures and means of monitoring the lending activity.
The major purpose of this study is to examine the relationship between liquidity management and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA and ROE) and independent variables (capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio), to examine the relationship between capital ratio and bank performance, to identify the effect of deposit to assets ratio and current ratio on bank performance, to examine the relationship between liquidity ratio and bank performance and to examine the relationship between quick ratio and investment ratio on profitability of the bank.
This study based on the secondary source of data which were gather for a sample of 20 commercial banks of Nepal within the time period from 2009/10 to 2014/15, leading to the total of 120 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 reward practice factor like capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio with ROA (return on assets) and ROE (return on equity). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result revealed that the capital ratio, deposit to assets ratio and current ratio are positively correlated with ROA. It indicates that higher the capital ratio, deposit to assets ratio and current ratio, higher would be the ROA. Study reveals that liquidity ratio, quick ratio and investment ratio are positively correlated with ROA which reveals that increase in liquidity ratio, quick ratio and investment ratio leads to increase in ROA. The result also shows that capital ratio, deposit to assets ratio and current ratio positively correlated to ROE. Study reveals that liquidity ratio, quick ratio and investment ratio are positively correlated to ROE. The beta coefficient is positive for capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio and bank performance.
The study concludes that quick ratio and liquidity ratio has negative and significant relationship with bank profitability indicating higher the quick ratio and liquidity ratio, lower would be the return on assets and return on equity. Similarly, deposit to assets ratio has negative and significant relationship with the return on assets whereas it has positive and significant impacts on the return on equity for Nepalese commercial. The study also concludes that capital ratio has significant positive impact with both return on assets and return on equity of Nepalese commercial banks indicating higher the capital ratio, higher will be the return on assets and return on equity. Similarly, the study also concludes that current ration and investment ratio has significant positive impact on the return on assets and return on equity indicating that higher the current ratio and investment ratio, higher would be the return on assets and return on equity.
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Impact of liquidity management on bank profitability in Nepalese commercial banks [printed text] / Yooba Raj Gautam, Author . - 2017 . - 100p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Liquidity (Economics)
Liquidity on profitability
| | Class number: | 332.632 | | Abstract: | Business success depends heavily on the ability of financial managers to effectively manage the components of working capital (Filbeck and Krueger, 2005). Profitability and liquidity are used for long term in each business for strong work and promotion in the business both liquidity and profitability are parallel to one another. The importance of liquidity management as it affects corporate profitability in today’s business cannot be over emphasized. Thus, liquidity is lifeblood of a banking system (Cucinelli, 2013). Biety (2003) and Anyanwu (1993) asserted that the objective of liquidity management is to gear banks towards a financial position that enables them meet their financial obligations. Profitability may be regarded as a relative term measurable in terms of profit and its relation with other elements that can directly influence the profit. In order to find the profitability level of firms, profitability ratios are used.
The determinants of profitability and theories thereof used in this review are those frequently described in conventional banking studies and literature. Return on assets and return on equity 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. To achieve the goal of owners’ wealth maximization, banks should manage their assets, liabilities, and capital efficiently. In doing this, better policy should set out the bank’s philosophy and specific procedures and means of monitoring the lending activity.
The major purpose of this study is to examine the relationship between liquidity management and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA and ROE) and independent variables (capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio), to examine the relationship between capital ratio and bank performance, to identify the effect of deposit to assets ratio and current ratio on bank performance, to examine the relationship between liquidity ratio and bank performance and to examine the relationship between quick ratio and investment ratio on profitability of the bank.
This study based on the secondary source of data which were gather for a sample of 20 commercial banks of Nepal within the time period from 2009/10 to 2014/15, leading to the total of 120 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 reward practice factor like capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio with ROA (return on assets) and ROE (return on equity). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result revealed that the capital ratio, deposit to assets ratio and current ratio are positively correlated with ROA. It indicates that higher the capital ratio, deposit to assets ratio and current ratio, higher would be the ROA. Study reveals that liquidity ratio, quick ratio and investment ratio are positively correlated with ROA which reveals that increase in liquidity ratio, quick ratio and investment ratio leads to increase in ROA. The result also shows that capital ratio, deposit to assets ratio and current ratio positively correlated to ROE. Study reveals that liquidity ratio, quick ratio and investment ratio are positively correlated to ROE. The beta coefficient is positive for capital ratio, deposit to assets ratio, current ratio, liquidity ratio, quick ratio and investment ratio and bank performance.
The study concludes that quick ratio and liquidity ratio has negative and significant relationship with bank profitability indicating higher the quick ratio and liquidity ratio, lower would be the return on assets and return on equity. Similarly, deposit to assets ratio has negative and significant relationship with the return on assets whereas it has positive and significant impacts on the return on equity for Nepalese commercial. The study also concludes that capital ratio has significant positive impact with both return on assets and return on equity of Nepalese commercial banks indicating higher the capital ratio, higher will be the return on assets and return on equity. Similarly, the study also concludes that current ration and investment ratio has significant positive impact on the return on assets and return on equity indicating that higher the current ratio and investment ratio, higher would be the return on assets and return on equity.
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