| Title : | The relationship between financial risk management and financial performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Shilpa Upreti, Author | | Publication Date: | 2017 | | Pagination: | 99p. | | Size: | GRP/Thesis | | Accompanying material: | 11/B | | Languages : | English | | Descriptors: | Risk management
| | Class number: | 368 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, it is constantly facing different types of risk. The risky lending increases the profitability in one hand while on the other hand, it can lead to the bank failure too if cannot be managed properly. In such circumstances, credit character, credit monitoring, repayment capacity of borrower, liquidity, operating expense, interest rate spread, debt to equity ratio, capital adequacy ratio and the concept of prudent lending plays a great role for analyzing the impact of risk management on the financial performance in the context of commercial banks of Nepal. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001).
Francis (2007) revealed that capital adequacy and credit risk have positive effect on bank profitability. However, liquidity ratio were negatively and significantly related to bank profitability.Gaur& Gupta (2011) supported the positive relationship arguing that experience through age helps the business to perform better. Ngetich&Wanjau (2011) argued banks which perform well manage to keep interest spread wide.Rachdi (2013) revealed that inflation rates had a negatively significant influence on financial performance of banks.
The major objective of the study is to assess the relationship between financial risk management and financial performance of the Nepalese commercial banks. The study is based on secondary data of 15 commercial banks with 135 observations for the period of 2007/08 to 2015/16. The main sources of data include various issues of Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The panel data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship between risk management and financial performance of Nepalese commercial banks.
The study found that capital adequacy ratio, interest rate spread, bank age and inflation rate have positive relationship with return on assets and net interest margin. It indicates that higher the capital adequacy ratio, interest rate spread, bank age and inflation, higher would be the return on assets and net interest margin. Similarly, non performing loan, liquidity ratio and debt to equity ratio are negatively related to return on assets and return on net interest margin. It indicates that lower the non performing loan, higher would be the return on assets and net interest margin. It also indicates that higher the debt to equity, lower would be the return on assets and net interest margin. Likewise, older the bank, greater would be the return on assets and net interest margin.
The regression results of return on assets show that capital adequacy ratio, interest rate spread have positive and significant impact on return on assets. However, results show thatnon performing loan, liquidity ratio and debt to equity ratio have negative impact on return on assets. Likewise, results show that beta coefficient is positive for inflation. However, coefficient is not significant. Likewise, regression resultof net interest margin show that beta coefficients are positive for interest rate spread, interest rate spread, bank age and capital adequacy ratio, where beta coefficients are significant. Non-performing loan, Liquidity ratio and debt to equity ratio have negative impact on net interest margin. Thus, interest rate spread, capital adequacy ratio and non-performing loan are the major factors affecting the profitability of Nepalese commercial banks.
|
The relationship between financial risk management and financial performance of Nepalese commercial banks [printed text] / Shilpa Upreti, Author . - 2017 . - 99p. ; GRP/Thesis + 11/B. Languages : English | Descriptors: | Risk management
| | Class number: | 368 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, it is constantly facing different types of risk. The risky lending increases the profitability in one hand while on the other hand, it can lead to the bank failure too if cannot be managed properly. In such circumstances, credit character, credit monitoring, repayment capacity of borrower, liquidity, operating expense, interest rate spread, debt to equity ratio, capital adequacy ratio and the concept of prudent lending plays a great role for analyzing the impact of risk management on the financial performance in the context of commercial banks of Nepal. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001).
Francis (2007) revealed that capital adequacy and credit risk have positive effect on bank profitability. However, liquidity ratio were negatively and significantly related to bank profitability.Gaur& Gupta (2011) supported the positive relationship arguing that experience through age helps the business to perform better. Ngetich&Wanjau (2011) argued banks which perform well manage to keep interest spread wide.Rachdi (2013) revealed that inflation rates had a negatively significant influence on financial performance of banks.
The major objective of the study is to assess the relationship between financial risk management and financial performance of the Nepalese commercial banks. The study is based on secondary data of 15 commercial banks with 135 observations for the period of 2007/08 to 2015/16. The main sources of data include various issues of Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The panel data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship between risk management and financial performance of Nepalese commercial banks.
The study found that capital adequacy ratio, interest rate spread, bank age and inflation rate have positive relationship with return on assets and net interest margin. It indicates that higher the capital adequacy ratio, interest rate spread, bank age and inflation, higher would be the return on assets and net interest margin. Similarly, non performing loan, liquidity ratio and debt to equity ratio are negatively related to return on assets and return on net interest margin. It indicates that lower the non performing loan, higher would be the return on assets and net interest margin. It also indicates that higher the debt to equity, lower would be the return on assets and net interest margin. Likewise, older the bank, greater would be the return on assets and net interest margin.
The regression results of return on assets show that capital adequacy ratio, interest rate spread have positive and significant impact on return on assets. However, results show thatnon performing loan, liquidity ratio and debt to equity ratio have negative impact on return on assets. Likewise, results show that beta coefficient is positive for inflation. However, coefficient is not significant. Likewise, regression resultof net interest margin show that beta coefficients are positive for interest rate spread, interest rate spread, bank age and capital adequacy ratio, where beta coefficients are significant. Non-performing loan, Liquidity ratio and debt to equity ratio have negative impact on net interest margin. Thus, interest rate spread, capital adequacy ratio and non-performing loan are the major factors affecting the profitability of Nepalese commercial banks.
|
|
Refine your search Apply to external sourcesThe relationship between financial risk management and financial performance of Nepalese commercial banks / Shilpa Upreti
