| Title : | The impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Amrit K. Shrestha, Author | | Publication Date: | 2016 | | Pagination: | 78p. | | Size: | GRP/Thesis | | Accompanying material: | 4/B | | General note: | Including bibliography
| | Languages : | English | | Descriptors: | Bank and banking
Bank capital
Bank investments
Bank loans
Bank management
| | Keywords: | 'capital adequacy bank capital financial performance' | | Class number: | 332.120 | | Abstract: | Banks primary role is to ensure the growth and development of an economy. To ensure availability of funds at any point in time (in meeting with customers’ needs and demands), statutory requirements must be in place to regulate and measure banks’ capital. Capital plays an important role in enhancing banks’ performance. The major concern of the study here is to understand how the capital adequacy and bank operating efficiency influences the overall financial performance of the bank. The importance of the capital is to finance the assets as well as to protect the long term and short term creditors who make the fund available to the business.
The review of the literature reveals the existence of many gaps of knowledge in respect of the factors affecting bank profitability, particularly in the context of Nepal. The review showed that sound operating efficiency and capital adequacy impacted positively on bank’s financial performance with the exception of loans and advances which was found to have a negative impact on banks’ profitability in the period under study. As per the review of the literature most of the empirical studies that have been conducted with the aim of identifying factors affecting bank profitability belong to European Union and some emerging markets such as Philippines, Malaysia and Tunisia. Moreover, the literature review also reveals the existence of controversial conclusions that results from different studies made so far.
The major purpose of the study is to investigate the impact of capital adequacy and bank operating efficiency on financial performance in Nepalese commercial banks. Secondary data have been used for the purpose of the study which is collected from annual reports of the sample banks. The secondary data of the sample banks while 8 years data from 2005/06 to 2012/13 has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, correlation analysis, stepwise regressions have been carried out to examine the secondary data.
Based on the secondary analysis of data, the study showed that there is a significant relationship between financial performance and capital adequacy. Better capital adequacy results in better financial performance. This study revealed that core capital ratio, risk based capital ratio and total capital ratio has negative significant relationship with ROA where as bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity have positive and significant relation with ROA. In case of ROE, loan loss provision to total loan has negative and significant relation with ROE whereas, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity has positive relation with ROE.
It is theoretically acceptable that banks with good capital adequacy ratio have a good profitability. A bank with a strong capital adequacy is also able to absorb possible loan losses and thus avoids bank ‘run’, insolvency and failure. This study result indicates that, capital adequacy ratio is positive with both the dependent variable ROA and ROE but it is only significant with ROA and insignificant with ROE.
Finally, most of the studies were all based on quantitative analysis this study somehow presents some analyze related with qualitative analysis. Many more unanswered questions are still hovering in the Nepalese banking field. Thus, to address such unanswered question there is requirement of the fresh research to be conducted on above mentioned various issues. Further studies can extend and provide more in-depth result on capital adequacy and bank operating efficiency on financial performances of Nepal. The results indicate that the major effect of higher capital adequacy, better the financial performances of banks followed by degrade in banking image. The major conclusion of this study is that bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity are positively correlated with return on assets. Loan loss provision to total loan, core capital ratio, risk based capital ratio and total capital ratio are negatively correlated with return on assets. Likewise, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity, core capital ratio, risk based capital, total capital ratio are positively correlated with return on equity loan loss provision to total and loan loss reserve to equity are negatively correlated with return on equity.
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The impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks [printed text] / Amrit K. Shrestha, Author . - 2016 . - 78p. ; GRP/Thesis + 4/B. Including bibliography
Languages : English | Descriptors: | Bank and banking
Bank capital
Bank investments
Bank loans
Bank management
| | Keywords: | 'capital adequacy bank capital financial performance' | | Class number: | 332.120 | | Abstract: | Banks primary role is to ensure the growth and development of an economy. To ensure availability of funds at any point in time (in meeting with customers’ needs and demands), statutory requirements must be in place to regulate and measure banks’ capital. Capital plays an important role in enhancing banks’ performance. The major concern of the study here is to understand how the capital adequacy and bank operating efficiency influences the overall financial performance of the bank. The importance of the capital is to finance the assets as well as to protect the long term and short term creditors who make the fund available to the business.
The review of the literature reveals the existence of many gaps of knowledge in respect of the factors affecting bank profitability, particularly in the context of Nepal. The review showed that sound operating efficiency and capital adequacy impacted positively on bank’s financial performance with the exception of loans and advances which was found to have a negative impact on banks’ profitability in the period under study. As per the review of the literature most of the empirical studies that have been conducted with the aim of identifying factors affecting bank profitability belong to European Union and some emerging markets such as Philippines, Malaysia and Tunisia. Moreover, the literature review also reveals the existence of controversial conclusions that results from different studies made so far.
The major purpose of the study is to investigate the impact of capital adequacy and bank operating efficiency on financial performance in Nepalese commercial banks. Secondary data have been used for the purpose of the study which is collected from annual reports of the sample banks. The secondary data of the sample banks while 8 years data from 2005/06 to 2012/13 has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, correlation analysis, stepwise regressions have been carried out to examine the secondary data.
Based on the secondary analysis of data, the study showed that there is a significant relationship between financial performance and capital adequacy. Better capital adequacy results in better financial performance. This study revealed that core capital ratio, risk based capital ratio and total capital ratio has negative significant relationship with ROA where as bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity have positive and significant relation with ROA. In case of ROE, loan loss provision to total loan has negative and significant relation with ROE whereas, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity has positive relation with ROE.
It is theoretically acceptable that banks with good capital adequacy ratio have a good profitability. A bank with a strong capital adequacy is also able to absorb possible loan losses and thus avoids bank ‘run’, insolvency and failure. This study result indicates that, capital adequacy ratio is positive with both the dependent variable ROA and ROE but it is only significant with ROA and insignificant with ROE.
Finally, most of the studies were all based on quantitative analysis this study somehow presents some analyze related with qualitative analysis. Many more unanswered questions are still hovering in the Nepalese banking field. Thus, to address such unanswered question there is requirement of the fresh research to be conducted on above mentioned various issues. Further studies can extend and provide more in-depth result on capital adequacy and bank operating efficiency on financial performances of Nepal. The results indicate that the major effect of higher capital adequacy, better the financial performances of banks followed by degrade in banking image. The major conclusion of this study is that bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity are positively correlated with return on assets. Loan loss provision to total loan, core capital ratio, risk based capital ratio and total capital ratio are negatively correlated with return on assets. Likewise, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity, core capital ratio, risk based capital, total capital ratio are positively correlated with return on equity loan loss provision to total and loan loss reserve to equity are negatively correlated with return on equity.
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