| Title : | The determinants of credit risk in Nepalese banking industry | | Material Type: | printed text | | Authors: | Sher Bahadur Darai, Author | | Publication Date: | 2017 | | Pagination: | 98p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Credit risk
| | Class number: | 332.7 | | Abstract: | The credit risk in commercial banks has been on the limelight with regards to problems facing global financial institutions. A look around on the causes of global financial crisis, the Euro zone crisis and the fall of world greatest institutions such as Enron boils down to the question of how best is credit risk being managed. The magnitude of the financial crisis clearly demonstrates how critical commercial banks have been interconnected to the world economy (Angello & Sousa, 2012). A commercial bank exists not only to accept deposit but also to grant credit facilities, therefore inevitably exposed to credit risk. Credit risk is by far the most significant risk faced by banks and the success of their business depends upon accurate measurement and efficient management of this risk to a greater extent than any other risk (Giesecke, 2004)
Credit risk plays a vital role in banking business, so bankers and regulators try to make their own model to increase their loan portfolio quality. Among the several risk in bank, credit risk is primary cause of bank failure (Bhattacharya & Roy, 2008). It has found that effective Credit Risk Management (CRM) is essential for banking in order to minimize credit losses (Santomero, 1997).Credit risk management is indeed a very difficult and complex task in the financial industry because of the unpredictable mature of macroeconomic factors coupled with the various microeconomics variables which are peculiar to the banking industry or specific to a particular bank (Garr, 2013).
The major objective of the study is to examine the determinants of credit risk in context Nepalese commercial banks. The specific objective s of this study are: a) to examine the structure and pattern of risk weighted exposure, impaired loans and loan loss Provision of Nepalese commercial banks, b) to examine the structure and pattern of selected bank specific and macroeconomic factors of Nepalese commercial banks, c) To find out the relation of selected bank specific and macroeconomic factors with credit risk of Nepalese commercial banks, d) to analyze the most important factors affecting credit risk of Nepalese commercial.
This study has employed descriptive research design and causal comparative research design to deal with issues associated with factors influencing credit risk of the commercial banks in the context of Nepal. This study is based on the secondary data which are gathered for 20 commercial banks in Nepal. The main sources of the data are Annual Supervision Report and Economic Bulletin published by Nepal Rastra Bank and annual report of selected commercial banks. The data are collected on risk weighted exposure, impaired loans, loan loss provision, bank size, capital adequacy ratio, operational inefficiency, gross domestic product (GDP), money supply and inflation rate. Cross sectional data are used in this study where 20 commercial banks out of 30 in Nepal are included over the period of 2007/08 to 2013/14.
The result shows bank size, money supply and inflation rate is positively related to risk weighted exposure. It means that increase in bank size, money supply and inflation rate leads to increases in risk weighted exposure. Capital adequacy ratio is negatively related to risk weighted exposure indicating that increase in capital adequacy ratio leads to decrease in risk weighted exposure. Likewise, GDP growth rate is also negatively related to risk weighted exposure. Operational inefficiency is positively related to loan loss provision which indicates that higher the operational inefficiency higher would be the loan loss provision. There is negative correlation between bank size, capital adequacy ratio, GDP growth rate and inflation rate with loan loss provision. It means that increase in bank size, capital adequacy ratio, GDP growth rate and inflation rate leads to increase loan loss provision. The result reveals that the beta coefficient is positive for bank size with risk weighted exposure. However, beta coefficient is negative for bank size with impaired loan and loan loss provision. The result indicates that larger the bank size higher would be the risk weighted exposure. The result reveals the negative beta coefficient for capital adequacy ratio with risk weighted exposure, impaired loan and loan loss provision. The capital adequacy ratio is significant at 5 percent level. The result hence indicates that higher the capital adequacy ratio lower would be the risk weighted exposure, impaired loan and loan loss provision. The result found positive beta coefficient for operational inefficiency with risk weighted exposure, impaired loan and loan loss provision. The operational inefficiency is significant at 1 percent level of significance. The result hence indicates that higher the operational inefficiency higher would be the risk weighted exposure, impaired loan and loan loss provision. Positive relation between money supply and risk weighted exposure and impaired loan has been observed which indicates higher the money supply higher would be the risk weighted exposure and impaired loan. However, beta coefficient for money supply is negative with loan loss provision which indicates that higher the money supply lower would be the loan loss provision.
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The determinants of credit risk in Nepalese banking industry [printed text] / Sher Bahadur Darai, Author . - 2017 . - 98p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Credit risk
| | Class number: | 332.7 | | Abstract: | The credit risk in commercial banks has been on the limelight with regards to problems facing global financial institutions. A look around on the causes of global financial crisis, the Euro zone crisis and the fall of world greatest institutions such as Enron boils down to the question of how best is credit risk being managed. The magnitude of the financial crisis clearly demonstrates how critical commercial banks have been interconnected to the world economy (Angello & Sousa, 2012). A commercial bank exists not only to accept deposit but also to grant credit facilities, therefore inevitably exposed to credit risk. Credit risk is by far the most significant risk faced by banks and the success of their business depends upon accurate measurement and efficient management of this risk to a greater extent than any other risk (Giesecke, 2004)
Credit risk plays a vital role in banking business, so bankers and regulators try to make their own model to increase their loan portfolio quality. Among the several risk in bank, credit risk is primary cause of bank failure (Bhattacharya & Roy, 2008). It has found that effective Credit Risk Management (CRM) is essential for banking in order to minimize credit losses (Santomero, 1997).Credit risk management is indeed a very difficult and complex task in the financial industry because of the unpredictable mature of macroeconomic factors coupled with the various microeconomics variables which are peculiar to the banking industry or specific to a particular bank (Garr, 2013).
The major objective of the study is to examine the determinants of credit risk in context Nepalese commercial banks. The specific objective s of this study are: a) to examine the structure and pattern of risk weighted exposure, impaired loans and loan loss Provision of Nepalese commercial banks, b) to examine the structure and pattern of selected bank specific and macroeconomic factors of Nepalese commercial banks, c) To find out the relation of selected bank specific and macroeconomic factors with credit risk of Nepalese commercial banks, d) to analyze the most important factors affecting credit risk of Nepalese commercial.
This study has employed descriptive research design and causal comparative research design to deal with issues associated with factors influencing credit risk of the commercial banks in the context of Nepal. This study is based on the secondary data which are gathered for 20 commercial banks in Nepal. The main sources of the data are Annual Supervision Report and Economic Bulletin published by Nepal Rastra Bank and annual report of selected commercial banks. The data are collected on risk weighted exposure, impaired loans, loan loss provision, bank size, capital adequacy ratio, operational inefficiency, gross domestic product (GDP), money supply and inflation rate. Cross sectional data are used in this study where 20 commercial banks out of 30 in Nepal are included over the period of 2007/08 to 2013/14.
The result shows bank size, money supply and inflation rate is positively related to risk weighted exposure. It means that increase in bank size, money supply and inflation rate leads to increases in risk weighted exposure. Capital adequacy ratio is negatively related to risk weighted exposure indicating that increase in capital adequacy ratio leads to decrease in risk weighted exposure. Likewise, GDP growth rate is also negatively related to risk weighted exposure. Operational inefficiency is positively related to loan loss provision which indicates that higher the operational inefficiency higher would be the loan loss provision. There is negative correlation between bank size, capital adequacy ratio, GDP growth rate and inflation rate with loan loss provision. It means that increase in bank size, capital adequacy ratio, GDP growth rate and inflation rate leads to increase loan loss provision. The result reveals that the beta coefficient is positive for bank size with risk weighted exposure. However, beta coefficient is negative for bank size with impaired loan and loan loss provision. The result indicates that larger the bank size higher would be the risk weighted exposure. The result reveals the negative beta coefficient for capital adequacy ratio with risk weighted exposure, impaired loan and loan loss provision. The capital adequacy ratio is significant at 5 percent level. The result hence indicates that higher the capital adequacy ratio lower would be the risk weighted exposure, impaired loan and loan loss provision. The result found positive beta coefficient for operational inefficiency with risk weighted exposure, impaired loan and loan loss provision. The operational inefficiency is significant at 1 percent level of significance. The result hence indicates that higher the operational inefficiency higher would be the risk weighted exposure, impaired loan and loan loss provision. Positive relation between money supply and risk weighted exposure and impaired loan has been observed which indicates higher the money supply higher would be the risk weighted exposure and impaired loan. However, beta coefficient for money supply is negative with loan loss provision which indicates that higher the money supply lower would be the loan loss provision.
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