| Title : | Relationship between risk, capital and efficiency :evidence from Nepalese commercial banks | | Material Type: | printed text | | Authors: | Prabha Paudel, Author | | Publication Date: | 2015 | | Pagination: | 84p. | | Size: | GRP/Thesis | | Accompanying material: | 5/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Banks
Banks and banking
Commercial banks
Nepal
Risk
| | Keywords: | 'return on equity return on assets risk weighted assets' | | Class number: | 332.106 | | Abstract: | Bank efficiency has received much attention in academic literature. There is far less research on the empirical side. All the empirical work investigating relationship between risk, capital and efficiency has focused developed economy. This study investigates the relationship between risks, capital and efficiency behaviour of selected Nepalese commercial banks. This study is guided by economic efficiency theory and regulatory and efficient marketing monitoring hypothesis. Economic efficiency theory states that company should achieve their output at the lowest possible cost per unit produced. Regulators and efficient marketing monitoring hypothesis states that regulators encourage banks to increase their capital to commensurate with the amount of risk taken by the banks. There are several studies conducted on the relationship between risk, capital and efficiency. Some of the review showed that large banks enjoy better efficiency than smaller bank, more capital and large sized banks can improve the operating efficiency of banking firm. Local banks were doing better than foreign banks in case of ROA and ROE. Capital regulations and performance was more problematic in the case of merger and acquisition between a big bank having large workforce and a small bank having staff strength but high personnel cost.
The main objective of the study is to assess the relationship between risk, capital and efficiency in Nepalese commercial banks. The other specific objectives are to identify the correlation of bank efficiency with nonperforming loan to total liabilities, capital fund to risk weighted assets, core capital to risk weighted assets, total equity to total assets and logarithm of total assets, examine correlation of banks capital with size, return on assets and total interest revenue to total assets, assess correlation of bank risk with efficiency, capital, net loan to total assets and loan to deposit ratio, analyze whether the higher capital ratio reduces overall bank risk. In order to achieve the objectives quantitative approach was used by using descriptive research. Data were collected from 15 commercial banks out of 30 commercial banks. The study used secondary data which was retrieved from published statements of accounts of the banks both from the central bank and the respective commercial banks for the period of ten years 2004-2013.The collected data was analyzed using Statistical Package for Social Sciences (SPSS) software. Descriptive statistics for panel data, correlation matrix and stepwise regression models were carried out to determine the effects of bank specific variables.
The result of the study showed that non-joint ventures offer more loan to deposit ratio than joint venture and public banks. Public banks have low equity to total assets which means that public banks are likely burdened. The study showed that loan loss reserves to total assets have negative relationship with loan to deposit ratio which implies that higher credit to deposit increases the bank risk. Similarly, the study showed that capital and operating efficiency has negative relationship which indicates that whenever there is less efficiency than capital of the company decreases. In addition, there is positive relationship between efficiency and non-performing loan to total loan, total equity to total assets, capital fund to risk-weighted assets and loan loss reserves to total assets.
The major conclusion of the study is risk and capital are negatively related in Nepalese Commercial Banks which implies that risk increases with the decrease of stock of capital in Nepalese Commercial Banks. Furthermore there is significant relationship between risk and efficiency which implies that efficient banks have higher risk. Further banks which have higher net loans to total assets composition has higher risk as there is positive relationship between net loans to total assets and risk. In addition risk and loan to deposit ratio has negative relationship which suggest that risk increases with decrease in loan to deposit ratio. In capital equation, there is positive relationship between capital and interest revenue to total assets which implies that capital increases with increase in interest revenue. Based on the findings, it shows inverse relationship between total assets and capital of commercial banks which shows larger banks has less capital, so firm willing to increase their capital should increase their return on assets and proper management of variables should be done in order to improve bank performance. And future studies can be carried out by selecting other development banks and finance companies and to generalize the findings and to further investigate the relationship between relationship between risk, capital and efficiency. Alternative accounting and market based indicators of banking-risk, Basel capital strength factors and alternative bank cost and efficiency measures are suggested in order to examine the consistency of findings. In future research more sophisticated statistical tools can be used to make findings more reliable and valid across different industry sectors in developing countries like Nepal. And also future research should cover macroeconomic condition of the country. Moreover, the definition of risk and capital should be changed to observed stronger theoretical foundation and for efficiency variable; future study should use cost and economic efficiency to give clear picture from different aspect. |
Relationship between risk, capital and efficiency :evidence from Nepalese commercial banks [printed text] / Prabha Paudel, Author . - 2015 . - 84p. ; GRP/Thesis + 5/B. Including bibilography Languages : English | Descriptors: | Banks
Banks and banking
Commercial banks
Nepal
Risk
| | Keywords: | 'return on equity return on assets risk weighted assets' | | Class number: | 332.106 | | Abstract: | Bank efficiency has received much attention in academic literature. There is far less research on the empirical side. All the empirical work investigating relationship between risk, capital and efficiency has focused developed economy. This study investigates the relationship between risks, capital and efficiency behaviour of selected Nepalese commercial banks. This study is guided by economic efficiency theory and regulatory and efficient marketing monitoring hypothesis. Economic efficiency theory states that company should achieve their output at the lowest possible cost per unit produced. Regulators and efficient marketing monitoring hypothesis states that regulators encourage banks to increase their capital to commensurate with the amount of risk taken by the banks. There are several studies conducted on the relationship between risk, capital and efficiency. Some of the review showed that large banks enjoy better efficiency than smaller bank, more capital and large sized banks can improve the operating efficiency of banking firm. Local banks were doing better than foreign banks in case of ROA and ROE. Capital regulations and performance was more problematic in the case of merger and acquisition between a big bank having large workforce and a small bank having staff strength but high personnel cost.
The main objective of the study is to assess the relationship between risk, capital and efficiency in Nepalese commercial banks. The other specific objectives are to identify the correlation of bank efficiency with nonperforming loan to total liabilities, capital fund to risk weighted assets, core capital to risk weighted assets, total equity to total assets and logarithm of total assets, examine correlation of banks capital with size, return on assets and total interest revenue to total assets, assess correlation of bank risk with efficiency, capital, net loan to total assets and loan to deposit ratio, analyze whether the higher capital ratio reduces overall bank risk. In order to achieve the objectives quantitative approach was used by using descriptive research. Data were collected from 15 commercial banks out of 30 commercial banks. The study used secondary data which was retrieved from published statements of accounts of the banks both from the central bank and the respective commercial banks for the period of ten years 2004-2013.The collected data was analyzed using Statistical Package for Social Sciences (SPSS) software. Descriptive statistics for panel data, correlation matrix and stepwise regression models were carried out to determine the effects of bank specific variables.
The result of the study showed that non-joint ventures offer more loan to deposit ratio than joint venture and public banks. Public banks have low equity to total assets which means that public banks are likely burdened. The study showed that loan loss reserves to total assets have negative relationship with loan to deposit ratio which implies that higher credit to deposit increases the bank risk. Similarly, the study showed that capital and operating efficiency has negative relationship which indicates that whenever there is less efficiency than capital of the company decreases. In addition, there is positive relationship between efficiency and non-performing loan to total loan, total equity to total assets, capital fund to risk-weighted assets and loan loss reserves to total assets.
The major conclusion of the study is risk and capital are negatively related in Nepalese Commercial Banks which implies that risk increases with the decrease of stock of capital in Nepalese Commercial Banks. Furthermore there is significant relationship between risk and efficiency which implies that efficient banks have higher risk. Further banks which have higher net loans to total assets composition has higher risk as there is positive relationship between net loans to total assets and risk. In addition risk and loan to deposit ratio has negative relationship which suggest that risk increases with decrease in loan to deposit ratio. In capital equation, there is positive relationship between capital and interest revenue to total assets which implies that capital increases with increase in interest revenue. Based on the findings, it shows inverse relationship between total assets and capital of commercial banks which shows larger banks has less capital, so firm willing to increase their capital should increase their return on assets and proper management of variables should be done in order to improve bank performance. And future studies can be carried out by selecting other development banks and finance companies and to generalize the findings and to further investigate the relationship between relationship between risk, capital and efficiency. Alternative accounting and market based indicators of banking-risk, Basel capital strength factors and alternative bank cost and efficiency measures are suggested in order to examine the consistency of findings. In future research more sophisticated statistical tools can be used to make findings more reliable and valid across different industry sectors in developing countries like Nepal. And also future research should cover macroeconomic condition of the country. Moreover, the definition of risk and capital should be changed to observed stronger theoretical foundation and for efficiency variable; future study should use cost and economic efficiency to give clear picture from different aspect. |
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