| Title : | Factors influencing the interest setting behaviour of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Bikash Yadav, Author | | Publication Date: | 2018 | | Pagination: | 98p. | | Size: | GRP/Thesis | | Accompanying material: | 11/B | | Languages : | English | | Descriptors: | Bank and banking
Banks
Investors
| | Keywords: | 'interest rate deposit rate inflation rate return on assets return on equity' | | Class number: | 332.6 | | Abstract: | The interest setting behavior is treated as an important indicator of intermediation efficiency. Banks’ interest rate represents a vital component of profitability and typified a summary measure of bank net interest rate of return. Interest rates are of significant importance for efficient mobilization of resources for economic and productive activities. In the economy market, the interest setting behavior is significantly influenced by a number of factors which include macroeconomic environment, inflation and the policy interest rate (Treasury bill rate). Higher interest rate usually implies lower baking sector efficiency, marked by higher costs due to inefficient control of operating expenses, and have a negative impact of financial developments, resulting with lower investments and slower economic activity.
The major purpose of this study is to identify the firm-specific and macroeconomic factors influencing the interest setting behavior of Nepalese commercial banks. The study has the following specific objectives is to analyze the impact of assets growth ratio, efficiency ratio and capital adequacy ratio in determining the interest rate, to determine the impact of return on assets on interest setting behavior and to examine the relationship between macro-economic factors such as GDP growth and inflation on interest setting behavior.
This study is based on secondary data which were gathering for a sample of 18 commercial banks of Nepal within the time period from 2010 to 2016, leading to total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is casual comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, credit risk, management efficiency, liquidity position, return on assets and growth and macro-economic variables like GDP growth and inflation with dependent variable such as: I1 (interest on deposit) and I2 (interest on loan). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows thatcapital adequacy ratio has negative relation to I1 (interest on deposit) and I2 (interest on loan). The beta coefficient of credit risk is positive and highly significant. Efficiency ratio has negative relation with interest rate. The beta coefficient of liquidity ratio is negative for I1 (interest on deposit) and positive for I2 (interest on loan). Return on assets has positive relationship with interest on deposit. The beta coefficient of return on assets is large and highly significant. In the contrast return on assets has negative relationship with interest on loan. The beta coefficient of assets growth ratio is large and highly significant. GDP growth has negative and insignificant relation with interest on deposit whereas positive and significant relation with interest on loan. The beta coefficient of inflation is small and highly insignificant for interest on deposit and significant for interest on loan.
The major conclusion of this study is thatinterest rateof Nepalese commercial banks is affected by bank-specific factors and macroeconomic factors. Credit risk and return on assets is an internal factor which holds a definitely significant positive effect on interest on deposit where as capital adequacy ratio, efficiency ratio, liquidity ratio, assets growth ratio, GDP growth rate and inflation is an internal factor which holds significant negative effect on interest on deposit. Credit risk, liquidity ratio, GDP growth rate and inflation is an internal factor which holds a definitely significant positive effect on interest on loan where as capital adequacy ratio, efficiency ratio, return on assets and assets growth ratio is an internal factor which holds significant negative effect on interest on loan.
The study also concludes that there are behaviors towards the commercial banks in Nepal, which always expects to maintain a stable interest rate at a certain level in the long term. Thus, the high interest rate is not defined as the low level of efficiency of Nepalese commercial banks, but rather reflects the high asymmetric information and the high level of profitability of the bank.
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Factors influencing the interest setting behaviour of Nepalese commercial banks [printed text] / Bikash Yadav, Author . - 2018 . - 98p. ; GRP/Thesis + 11/B. Languages : English | Descriptors: | Bank and banking
Banks
Investors
| | Keywords: | 'interest rate deposit rate inflation rate return on assets return on equity' | | Class number: | 332.6 | | Abstract: | The interest setting behavior is treated as an important indicator of intermediation efficiency. Banks’ interest rate represents a vital component of profitability and typified a summary measure of bank net interest rate of return. Interest rates are of significant importance for efficient mobilization of resources for economic and productive activities. In the economy market, the interest setting behavior is significantly influenced by a number of factors which include macroeconomic environment, inflation and the policy interest rate (Treasury bill rate). Higher interest rate usually implies lower baking sector efficiency, marked by higher costs due to inefficient control of operating expenses, and have a negative impact of financial developments, resulting with lower investments and slower economic activity.
The major purpose of this study is to identify the firm-specific and macroeconomic factors influencing the interest setting behavior of Nepalese commercial banks. The study has the following specific objectives is to analyze the impact of assets growth ratio, efficiency ratio and capital adequacy ratio in determining the interest rate, to determine the impact of return on assets on interest setting behavior and to examine the relationship between macro-economic factors such as GDP growth and inflation on interest setting behavior.
This study is based on secondary data which were gathering for a sample of 18 commercial banks of Nepal within the time period from 2010 to 2016, leading to total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is casual comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, credit risk, management efficiency, liquidity position, return on assets and growth and macro-economic variables like GDP growth and inflation with dependent variable such as: I1 (interest on deposit) and I2 (interest on loan). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows thatcapital adequacy ratio has negative relation to I1 (interest on deposit) and I2 (interest on loan). The beta coefficient of credit risk is positive and highly significant. Efficiency ratio has negative relation with interest rate. The beta coefficient of liquidity ratio is negative for I1 (interest on deposit) and positive for I2 (interest on loan). Return on assets has positive relationship with interest on deposit. The beta coefficient of return on assets is large and highly significant. In the contrast return on assets has negative relationship with interest on loan. The beta coefficient of assets growth ratio is large and highly significant. GDP growth has negative and insignificant relation with interest on deposit whereas positive and significant relation with interest on loan. The beta coefficient of inflation is small and highly insignificant for interest on deposit and significant for interest on loan.
The major conclusion of this study is thatinterest rateof Nepalese commercial banks is affected by bank-specific factors and macroeconomic factors. Credit risk and return on assets is an internal factor which holds a definitely significant positive effect on interest on deposit where as capital adequacy ratio, efficiency ratio, liquidity ratio, assets growth ratio, GDP growth rate and inflation is an internal factor which holds significant negative effect on interest on deposit. Credit risk, liquidity ratio, GDP growth rate and inflation is an internal factor which holds a definitely significant positive effect on interest on loan where as capital adequacy ratio, efficiency ratio, return on assets and assets growth ratio is an internal factor which holds significant negative effect on interest on loan.
The study also concludes that there are behaviors towards the commercial banks in Nepal, which always expects to maintain a stable interest rate at a certain level in the long term. Thus, the high interest rate is not defined as the low level of efficiency of Nepalese commercial banks, but rather reflects the high asymmetric information and the high level of profitability of the bank.
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