| Title : | Bank risk, solvency and profitability in the Nepalese commercial Banks | | Material Type: | printed text | | Authors: | Pokharel Ghanashyam, Author | | Publication Date: | 2017 | | Pagination: | 102p. | | Languages : | English | | Descriptors: | Bank risk
| | Class number: | 332.632 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001).Solvency and bank risk management is a process that enables shareholders of the bank to maximize their profit without exceeding an acceptable risk. (JasienÄ—,2012). Risk management is the identification, assessment and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events (Njogo, 2012).Risk management has always been a focal point for finance managers in banking industry (Dima&Orzea, 2014).Solvency refers to the capacity of the business to meet its short-term and long-term obligations. Short-term obligations include creditors, bank loans and bills payable and long-term obligations consists of debentures, long-term loans and long term credits(Ramana et al., 2015).A sound and profitable banking system is better able to improve financial system stability and economic growth as it makes the economy more endurable to negative and external shocks (Athanasoglou et al., 2006).
Altunbas et al. (2007) found a negative relationship between inefficiency and bank risk-taking behavior. Soteriou and Zenios (1997) found that there is negative relationship between profitability and efficiency.Non-performing loan (NPL) could ruin bank's profitability both through a loss of interest income and write off the principle loan amount. Kithinji (2010) and Gul et al. (2011)found positive relationship of total loan to total deposit (TLTD) with return on assets (ROA). Funso (2012) revealed that there exist a positive association between total loan to total deposit (TLTD) and return on assets (ROA). However, Gizaw (2015) found negative relationship between loan to total deposit and return on equity (ROE).
The major objective of the study is to assess the relationship between bank risk, solvency and financial performance of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 20 observations for the period of 2009/10 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 the relationship between risk management and financial performance of Nepalese commercial banks.
The result shows that NBBL has highest average ROA, NBL has the highest average ROE and LBL has the highest average NIM among the selected commercial banks throughout the study period.Similarly the average NPLR is highest for NBBL (5.96 times) among the selected commercial banks. The average of NPLR has decreased over the study period. Likewise, the average OER is highest for MBL (163.31 times) and it is decreased over the study period of selective commercial banks. The average LDR is highest for LBL (88.40 times) and it has decreased over the study period. Debt to total assets and debt to total equity is highest for NSBI and average of both DTA and DTE has increased over the study period.
The descriptive analysis shows that mean of selected commercial banks are ROA, ROE and NIM, non-performing loan ratio and operating efficiency ratio, loan to deposit ratio, debt to total equity and debt to total assets, firm size and GDP are 1.61 percent, 16.39 percent, 3.26 percent, 1.88 times and 72.37 times, 77.95times, 9.41 times, 0.88 times, 24.12 and 4.31 percent respectively.
The regression results revealed that beta coefficient of operating efficiency ratio is negative and significant with return on assets, Return on equity and net interest margin.The results also revealed that beta coefficient of debt to total equity and firm size are positive and significant with return on assets, Return on equity and net interest margin, where beta coefficients are significant at 1 percent level of significance.
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Bank risk, solvency and profitability in the Nepalese commercial Banks [printed text] / Pokharel Ghanashyam, Author . - 2017 . - 102p. Languages : English | Descriptors: | Bank risk
| | Class number: | 332.632 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001).Solvency and bank risk management is a process that enables shareholders of the bank to maximize their profit without exceeding an acceptable risk. (JasienÄ—,2012). Risk management is the identification, assessment and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events (Njogo, 2012).Risk management has always been a focal point for finance managers in banking industry (Dima&Orzea, 2014).Solvency refers to the capacity of the business to meet its short-term and long-term obligations. Short-term obligations include creditors, bank loans and bills payable and long-term obligations consists of debentures, long-term loans and long term credits(Ramana et al., 2015).A sound and profitable banking system is better able to improve financial system stability and economic growth as it makes the economy more endurable to negative and external shocks (Athanasoglou et al., 2006).
Altunbas et al. (2007) found a negative relationship between inefficiency and bank risk-taking behavior. Soteriou and Zenios (1997) found that there is negative relationship between profitability and efficiency.Non-performing loan (NPL) could ruin bank's profitability both through a loss of interest income and write off the principle loan amount. Kithinji (2010) and Gul et al. (2011)found positive relationship of total loan to total deposit (TLTD) with return on assets (ROA). Funso (2012) revealed that there exist a positive association between total loan to total deposit (TLTD) and return on assets (ROA). However, Gizaw (2015) found negative relationship between loan to total deposit and return on equity (ROE).
The major objective of the study is to assess the relationship between bank risk, solvency and financial performance of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 20 observations for the period of 2009/10 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 the relationship between risk management and financial performance of Nepalese commercial banks.
The result shows that NBBL has highest average ROA, NBL has the highest average ROE and LBL has the highest average NIM among the selected commercial banks throughout the study period.Similarly the average NPLR is highest for NBBL (5.96 times) among the selected commercial banks. The average of NPLR has decreased over the study period. Likewise, the average OER is highest for MBL (163.31 times) and it is decreased over the study period of selective commercial banks. The average LDR is highest for LBL (88.40 times) and it has decreased over the study period. Debt to total assets and debt to total equity is highest for NSBI and average of both DTA and DTE has increased over the study period.
The descriptive analysis shows that mean of selected commercial banks are ROA, ROE and NIM, non-performing loan ratio and operating efficiency ratio, loan to deposit ratio, debt to total equity and debt to total assets, firm size and GDP are 1.61 percent, 16.39 percent, 3.26 percent, 1.88 times and 72.37 times, 77.95times, 9.41 times, 0.88 times, 24.12 and 4.31 percent respectively.
The regression results revealed that beta coefficient of operating efficiency ratio is negative and significant with return on assets, Return on equity and net interest margin.The results also revealed that beta coefficient of debt to total equity and firm size are positive and significant with return on assets, Return on equity and net interest margin, where beta coefficients are significant at 1 percent level of significance.
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