| Title : | Factor affecting financial performance of Nepalese banks | | Material Type: | printed text | | Authors: | Rejina Singh, Author | | Publication Date: | 2016 | | Pagination: | 61p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Financial statements
| | Class number: | 658.15 | | Abstract: | Commercial banks play a vital role in the economic resource allocation of countries. They channel funds from depositors to investors continuously. They can do so, if they generate necessary income to cover their operational cost they incur in the due course. In other words for sustainable intermediation function, banks need to maintain good financial performance like profit earning. Financial performance is a measure of an organization’s earnings, profits and appreciations in value as evidenced by the rise in the entity’s share price (Mwangi and Murigu, 2015). Beyond the intermediation function, the financial performance rewards the shareholders for their investments. This in turn, encourages additional investment and brings about economic growth. On other hand, poor banking performance can lead to banking failure and crisis which have negative repercussions on the economic growth (Ongore and Kusa, 2013).
The concept of financial performance has received significant attention from scholars in the various areas of business. Ali et al. (2011) explained it is interesting to study the determinants of profitability of commercial banks, as it is extremely useful for improving the organizational performance. Profitability is defined as proxy of financial performance which is one of the major objectives of banking institutions (Burca and Batrinca, 2014). Therefore, in order to ensure sound financial performance banks should focus on the factors likely to affect profitability and extend of their influence (Yesmine and Bhuiyah, 2015). This study focuses on the dependent variable namely bank performance which has been measured in terms of return on assets, return on equity and net interest margin.
This study examines the factor affecting the financial performance of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study are to analyze the impact of liquidity management, capital adequacy ratio, bank size, credit risk, economic growth and inflation on bank performance. The study has selected 18 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal Rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The result shows that Agricultural Development Bank has the highest capital adequacy ratio. Similarly, credit risk is larger for the Prime Commercial bank. The study found that the bank size has been increased for the selected commercial bank during the study period. The results show that return on assets and liquidity management are negatively related, whereas there is positive relationship of capital adequacy ratio, credit risk, bank size, economic growth and inflation with return on assets. It indicates that the higher the liquidity management, lower will be return on assets, whereas higher the capital adequacy ratio, credit risk, economic growth and inflation, higher would be return on assets. Similarly, capital adequacy ratio, bank size, credit risk, economic growth and inflation are positively related with return on equity, while liquidity management is negative related with return on equity. This means increase in capital adequacy ratio, bank size, credit risk, economic growth rate and inflation lead to increase in return on equity, while increase in liquidity management decreases return on equity. The study also showed that there is negative relationship liquidity management, economic growth and inflation with net interest margin. However, capital adequacy, bank size and credit risk are positively related with net interest margin.
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Factor affecting financial performance of Nepalese banks [printed text] / Rejina Singh, Author . - 2016 . - 61p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Financial statements
| | Class number: | 658.15 | | Abstract: | Commercial banks play a vital role in the economic resource allocation of countries. They channel funds from depositors to investors continuously. They can do so, if they generate necessary income to cover their operational cost they incur in the due course. In other words for sustainable intermediation function, banks need to maintain good financial performance like profit earning. Financial performance is a measure of an organization’s earnings, profits and appreciations in value as evidenced by the rise in the entity’s share price (Mwangi and Murigu, 2015). Beyond the intermediation function, the financial performance rewards the shareholders for their investments. This in turn, encourages additional investment and brings about economic growth. On other hand, poor banking performance can lead to banking failure and crisis which have negative repercussions on the economic growth (Ongore and Kusa, 2013).
The concept of financial performance has received significant attention from scholars in the various areas of business. Ali et al. (2011) explained it is interesting to study the determinants of profitability of commercial banks, as it is extremely useful for improving the organizational performance. Profitability is defined as proxy of financial performance which is one of the major objectives of banking institutions (Burca and Batrinca, 2014). Therefore, in order to ensure sound financial performance banks should focus on the factors likely to affect profitability and extend of their influence (Yesmine and Bhuiyah, 2015). This study focuses on the dependent variable namely bank performance which has been measured in terms of return on assets, return on equity and net interest margin.
This study examines the factor affecting the financial performance of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study are to analyze the impact of liquidity management, capital adequacy ratio, bank size, credit risk, economic growth and inflation on bank performance. The study has selected 18 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal Rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The result shows that Agricultural Development Bank has the highest capital adequacy ratio. Similarly, credit risk is larger for the Prime Commercial bank. The study found that the bank size has been increased for the selected commercial bank during the study period. The results show that return on assets and liquidity management are negatively related, whereas there is positive relationship of capital adequacy ratio, credit risk, bank size, economic growth and inflation with return on assets. It indicates that the higher the liquidity management, lower will be return on assets, whereas higher the capital adequacy ratio, credit risk, economic growth and inflation, higher would be return on assets. Similarly, capital adequacy ratio, bank size, credit risk, economic growth and inflation are positively related with return on equity, while liquidity management is negative related with return on equity. This means increase in capital adequacy ratio, bank size, credit risk, economic growth rate and inflation lead to increase in return on equity, while increase in liquidity management decreases return on equity. The study also showed that there is negative relationship liquidity management, economic growth and inflation with net interest margin. However, capital adequacy, bank size and credit risk are positively related with net interest margin.
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