| Title : | The impact of liquidity management on profitability in Nepalese commercial banks | | Material Type: | printed text | | Authors: | Nitish Bajracharya, Author | | Publication Date: | 2016 | | Pagination: | 113p. | | Size: | GRP/Thesis | | Accompanying material: | 5/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Banks
Banks and banking
Commercial banks
Liquidity (Economics)
liquidity on profitability
| | Keywords: | 'liquidity return on equity return on assets liquidity risk | | Class number: | 332.632 | | Abstract: | Liquidity is a financial term that means the amount of capital that is available for investment. Todays, most of this capital is credit fund. That is because the large financial institutions that do most investments prefer using borrowed money (Felix and Claudine, 2008). Low interest rates mean credit is cheaper, thus, businesses and investors are more likely to borrow. The return on investment has to be higher than the interest rate, to make investments attractive. In this way, high liquidity spurs economic growth (Heffernan, 1996). The banking institution had contributed significantly to the effectiveness of the entire financial system as they offer an efficient institutional mechanism through which resources can be mobilized and directed from less essential uses to more productive investments (Wilner, 2000).
Liquidity creation itself is seen as the primary source of economic welfare contribution by banks and also as their primary source of risk (Bryant 1980; Diamond and Dybvig 1983; Calomiris and Kahn 1991). Therefore, virtually every financial transaction or commitment has implications for bank’s liquidity. In Nepalese context, Karki (2004) found that liquidity ratio was relatively fluctuating over the period, return on equity is found satisfactory and there is positive relationship between deposits and loan advances. Joshi (2004) found that the liquidity and banks loan are positively related to banks profitability and Maharjan (2007) revealed that the capital adequacy and liquidity is positively associated with banks profitability.
This study has aimed to determine the impact of bank liquidity on financial performance through analyzing statistically significant factors affecting banks liquidity on financial performance. The other objectives are to determine a relationship between bank profitability and bank liquidity management, to ascertain the impact of cash balances on bank performance, and to analyze the most important indicators of the liquidity management and investigates the effect of each indicator on the banks’ profitability and to investigate the impact of liquidity risk on performance of Nepalese commercial banks.
The research design adopted in this study consists of descriptive and causal comparative research designs to deal with the various issues raised in this study. The descriptive research design has been adopted to undertake fact finding operation searching for adequate information in Nepalese context. The study is based on pooled cross-sectional analysis of secondary data of 16 commercial banks for the period 2004/05 to 2013/14.
The study shows that average return on assets is 1.82 percent and average return on equity is 13.27 percent. Similarly, average investment ratio is 0.71 times whereas average net credit facility to total assetsis noticed to be 71.13 percent for selected banks during the study period. Likewise, the average capital ratio is observed to be 7 percent and average liquidity risk is found to be 7.68 percent. In the same way, average quick ratio is 6.60 times whereas average total assets are noticed to be Rs. 31,443 million. Furthermore, average cash is observed to be Rs. 1,317.1 million and average cash to deposits ratio is found to be 4 percent. Finally, average cash to assets ratio is found to be 3 percent.
It is found that beta coefficients are positive for investment ratio, net credit facility to total assets, capital ratio, liquidity risk, total assets, and cash with return on assets indicating that increase in investment ratio, NCF_TA, capital ratio, liquidity risk, total assets, and cashleads to increase in return on assets. Likewise, the result observed negative relationship of return on assets with quick ratio, cash deposits ratio and cash assets ratio indicating that higher quick ratio, cash deposits ratio and cash assets ratio, lower would be the return on assets. The result also shows that there is positive relationship of return on equity with investment ratio, net credit facility to total assets, and capital ratio whereas there is negative relationship of return on equity with liquidity risk, quick ratio, total assets, cash, cash deposits ratio and cash assets ratio.
The report also investigates the fact that the analysis conducted has limitations. Finance companies and development banks has not been used in study, only 16 commercial banks has been used as sample due to availability of data and the study has assumed the linear relationship between dependent and independent variables. |
The impact of liquidity management on profitability in Nepalese commercial banks [printed text] / Nitish Bajracharya, Author . - 2016 . - 113p. ; GRP/Thesis + 5/B. Including bibilography Languages : English | Descriptors: | Banks
Banks and banking
Commercial banks
Liquidity (Economics)
liquidity on profitability
| | Keywords: | 'liquidity return on equity return on assets liquidity risk | | Class number: | 332.632 | | Abstract: | Liquidity is a financial term that means the amount of capital that is available for investment. Todays, most of this capital is credit fund. That is because the large financial institutions that do most investments prefer using borrowed money (Felix and Claudine, 2008). Low interest rates mean credit is cheaper, thus, businesses and investors are more likely to borrow. The return on investment has to be higher than the interest rate, to make investments attractive. In this way, high liquidity spurs economic growth (Heffernan, 1996). The banking institution had contributed significantly to the effectiveness of the entire financial system as they offer an efficient institutional mechanism through which resources can be mobilized and directed from less essential uses to more productive investments (Wilner, 2000).
Liquidity creation itself is seen as the primary source of economic welfare contribution by banks and also as their primary source of risk (Bryant 1980; Diamond and Dybvig 1983; Calomiris and Kahn 1991). Therefore, virtually every financial transaction or commitment has implications for bank’s liquidity. In Nepalese context, Karki (2004) found that liquidity ratio was relatively fluctuating over the period, return on equity is found satisfactory and there is positive relationship between deposits and loan advances. Joshi (2004) found that the liquidity and banks loan are positively related to banks profitability and Maharjan (2007) revealed that the capital adequacy and liquidity is positively associated with banks profitability.
This study has aimed to determine the impact of bank liquidity on financial performance through analyzing statistically significant factors affecting banks liquidity on financial performance. The other objectives are to determine a relationship between bank profitability and bank liquidity management, to ascertain the impact of cash balances on bank performance, and to analyze the most important indicators of the liquidity management and investigates the effect of each indicator on the banks’ profitability and to investigate the impact of liquidity risk on performance of Nepalese commercial banks.
The research design adopted in this study consists of descriptive and causal comparative research designs to deal with the various issues raised in this study. The descriptive research design has been adopted to undertake fact finding operation searching for adequate information in Nepalese context. The study is based on pooled cross-sectional analysis of secondary data of 16 commercial banks for the period 2004/05 to 2013/14.
The study shows that average return on assets is 1.82 percent and average return on equity is 13.27 percent. Similarly, average investment ratio is 0.71 times whereas average net credit facility to total assetsis noticed to be 71.13 percent for selected banks during the study period. Likewise, the average capital ratio is observed to be 7 percent and average liquidity risk is found to be 7.68 percent. In the same way, average quick ratio is 6.60 times whereas average total assets are noticed to be Rs. 31,443 million. Furthermore, average cash is observed to be Rs. 1,317.1 million and average cash to deposits ratio is found to be 4 percent. Finally, average cash to assets ratio is found to be 3 percent.
It is found that beta coefficients are positive for investment ratio, net credit facility to total assets, capital ratio, liquidity risk, total assets, and cash with return on assets indicating that increase in investment ratio, NCF_TA, capital ratio, liquidity risk, total assets, and cashleads to increase in return on assets. Likewise, the result observed negative relationship of return on assets with quick ratio, cash deposits ratio and cash assets ratio indicating that higher quick ratio, cash deposits ratio and cash assets ratio, lower would be the return on assets. The result also shows that there is positive relationship of return on equity with investment ratio, net credit facility to total assets, and capital ratio whereas there is negative relationship of return on equity with liquidity risk, quick ratio, total assets, cash, cash deposits ratio and cash assets ratio.
The report also investigates the fact that the analysis conducted has limitations. Finance companies and development banks has not been used in study, only 16 commercial banks has been used as sample due to availability of data and the study has assumed the linear relationship between dependent and independent variables. |
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