| Title : | Relationship between capital and risk: evidence from Nepalese commercial banks | | Material Type: | printed text | | Authors: | Krishna Kumar Rokka, Author | | Publication Date: | 2014 | | Pagination: | 80p. | | Size: | GRP/Thesis | | Accompanying material: | 1/B | | General note: | Including bibliography | | Languages : | English | | Descriptors: | Bank capital
Banks and banking
Commercial banks
Nepal
Risk
| | Keywords: | 'bank bank and banking commercial banks nepal risk nepal' | | Class number: | 332.106 | | Abstract: | Banking is the most regulated industry in the world. Apart from the product and its service, banking regulation also cover its institution. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk bank are exposed to. Furthermore, bank is also very important to the economy as the failure of banking will inhibit economic crisis. This motivation is known as systemic risk reduction motivation. In general, banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' health and risk taking behavior, and its impact on competitiveness banks. This states that there is somehow relationship between banking capital and the risk taking behavior of commercial banks. There is far less researches on the empirical side. All work investigating the relationship between capital and risk relationship between banking capital and risk taking has focused on the developing countries. This study investigates the relationship between capital and banks if selected commercial banks of Nepal. The objectives of the study were to examine the relationship between the capital and risk with other bank specific variables viz. bank size, ROA and net lending to total assets, and to examine the opinion of banking practitioner on the capital and risk.
This study is guided by M.M. theory to capital, Markowitz portfolio theory and managers incentive theory. M.M. theory states that that valuation of the firm is irrelevant to the capital structure of a company whether it is highly leverage or has lower debt component. Markowitz portfolio theory states that a single assets may be very risky when held in isolation, but not much risky when held in combination with other assets in a portfolio. Managers’ incentive theory states that manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, it is in the manager's own best interest to maximize his own wealth. So there is conflict of interest and as a result agency cost problem arises. There are several studies conducted on the relationship between capital and risk. Some of the review showed positive relationship between capital and risk, large size banks hold less capital than small banks, profit and capital are positively related, net lending is inversely related with risk. Capital regulation has played important role in preventing commercial banks from failures by restricting them in involving excessive risk taking.
This study has used both qualitative and quantitative approach by using descriptive research design. Data were collected from 14 commercial banks out of 31 commercial banks which existed and had the required data during the entire study period. The study used secondary data, which was retrieved from bank and financial statistics published by NRB and the individual bank’s financial statement. The primary source of data was collected through the questionnaire survey from the bank officers. The collected data was analyzed using SPSS software. Descriptive statistics, correlation analysis, portfolio analysis and regression analysis were carried out to analyze the secondary data.
The result of the study showed that bank size and capital is significantly and negatively related with banking risk which implies that large size bank tens to be less risky and larger capital banks tend to reduce the risk taking behavior. Similarly, capital is negatively related to bank size indicating that larger banks tend to hold less capital due to their economies of scale and lower transaction cost. Profitability is positively related to capital but not statistically insignificant. The study also finds that regulators plays important role in controlling the risk taking activity of the commercial bank and it has helped banks in maintaining positive relationship between capital and risk. The study reveals that out of many factors, credit risk is more responsible for banking risk and market discipline and regulations have contributed a lot for capital base requirement.
The major conclusion of the study is that there is inverse relationship between capital and banking risk. Similarly, the inverse relationship between bank size and risk indicates that large banks tend to have lower risk. Overall the results suggest that regulators should monitor closely bank loan expansion, and capital adequacy requirement on risk-taking activities so as to ensure a safer operating environment for banks in Nepal. And further studies are suggested with wide coverage of banks and financial system.
 
|
Relationship between capital and risk: evidence from Nepalese commercial banks [printed text] / Krishna Kumar Rokka, Author . - 2014 . - 80p. ; GRP/Thesis + 1/B. Including bibliography Languages : English | Descriptors: | Bank capital
Banks and banking
Commercial banks
Nepal
Risk
| | Keywords: | 'bank bank and banking commercial banks nepal risk nepal' | | Class number: | 332.106 | | Abstract: | Banking is the most regulated industry in the world. Apart from the product and its service, banking regulation also cover its institution. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk bank are exposed to. Furthermore, bank is also very important to the economy as the failure of banking will inhibit economic crisis. This motivation is known as systemic risk reduction motivation. In general, banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' health and risk taking behavior, and its impact on competitiveness banks. This states that there is somehow relationship between banking capital and the risk taking behavior of commercial banks. There is far less researches on the empirical side. All work investigating the relationship between capital and risk relationship between banking capital and risk taking has focused on the developing countries. This study investigates the relationship between capital and banks if selected commercial banks of Nepal. The objectives of the study were to examine the relationship between the capital and risk with other bank specific variables viz. bank size, ROA and net lending to total assets, and to examine the opinion of banking practitioner on the capital and risk.
This study is guided by M.M. theory to capital, Markowitz portfolio theory and managers incentive theory. M.M. theory states that that valuation of the firm is irrelevant to the capital structure of a company whether it is highly leverage or has lower debt component. Markowitz portfolio theory states that a single assets may be very risky when held in isolation, but not much risky when held in combination with other assets in a portfolio. Managers’ incentive theory states that manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, it is in the manager's own best interest to maximize his own wealth. So there is conflict of interest and as a result agency cost problem arises. There are several studies conducted on the relationship between capital and risk. Some of the review showed positive relationship between capital and risk, large size banks hold less capital than small banks, profit and capital are positively related, net lending is inversely related with risk. Capital regulation has played important role in preventing commercial banks from failures by restricting them in involving excessive risk taking.
This study has used both qualitative and quantitative approach by using descriptive research design. Data were collected from 14 commercial banks out of 31 commercial banks which existed and had the required data during the entire study period. The study used secondary data, which was retrieved from bank and financial statistics published by NRB and the individual bank’s financial statement. The primary source of data was collected through the questionnaire survey from the bank officers. The collected data was analyzed using SPSS software. Descriptive statistics, correlation analysis, portfolio analysis and regression analysis were carried out to analyze the secondary data.
The result of the study showed that bank size and capital is significantly and negatively related with banking risk which implies that large size bank tens to be less risky and larger capital banks tend to reduce the risk taking behavior. Similarly, capital is negatively related to bank size indicating that larger banks tend to hold less capital due to their economies of scale and lower transaction cost. Profitability is positively related to capital but not statistically insignificant. The study also finds that regulators plays important role in controlling the risk taking activity of the commercial bank and it has helped banks in maintaining positive relationship between capital and risk. The study reveals that out of many factors, credit risk is more responsible for banking risk and market discipline and regulations have contributed a lot for capital base requirement.
The major conclusion of the study is that there is inverse relationship between capital and banking risk. Similarly, the inverse relationship between bank size and risk indicates that large banks tend to have lower risk. Overall the results suggest that regulators should monitor closely bank loan expansion, and capital adequacy requirement on risk-taking activities so as to ensure a safer operating environment for banks in Nepal. And further studies are suggested with wide coverage of banks and financial system.
 
|
|
Refine your search Apply to external sourcesRelationship between capital and risk: evidence from Nepalese commercial banks / Krishna Kumar Rokka
