| Title : | Effect of capital and liquidity risk on the profitability of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Sita Chaudhary, Author | | Pagination: | 117p. | | Size: | GRP/Thesis | | Accompanying material: | 10/B | | Languages : | English | | Descriptors: | Liquidity (Economics)
| | Class number: | 658.152 | | Abstract: | Commercial banking is one of the important factor of Nepalese economy. Commercial banks are the main pillar of the financial system in Nepal. It makes the flow of resources for the rest of the character of the economy. Finance is life blood of the trade, commerce and are the vanes in the circulation of the funds in economy. Growth of any country depends upon the strong banking and financial system. As most of the economic depression are the result of the banking system failure. The importance of the banking sectors is immense in the progress and richness of any state. The economic development and prosperity comes from the well-developed and perfect banking system. Strong banking system plays important role in efficient allocation and utilization of credit. Bank is a backbone of all the industries, because every transaction where money is involved, the bank is the main pillar of funding (Haque& Tariq, 2012).
Capital adequacy ratio is one of the most significant current issues in banking which evaluate the amount of a bank’s efficiency and stability. Capital adequacy generally affects all entities. But as a term, it is most often used in discussing the position of firms in the financial section of the economy, and precisely, whether firms have sufficient capital to cover the risks that they confront (Abba, 2013).Jinghan (2010) asserts that banks need a high degree of liquidity in their assets portfolio. The bank must hold a sufficient large proportion of its assets the form of cash and liquid assets for the purpose enhancing customers’ confidence and corporate performance (profitability). According to Christian et al. (2008), capital adequacy measures provide significant information regarding a firm's returns; while a few of the individual variables representing asset quality and earnings are informative. Size and growth and loan exposure measures do not appear to have any significant explanatory power when examining returns.
This study attempts to explore the effect of capital and liquidity risk on performance of selected commercial banks in context of Nepal. This study is based on the secondary data for 20 commercial banks with 120 observations for the period of 2010/11 to 2015/16. The data and information are collected from various issues of Banking and Financial Statistics, Bank Supervision Report published by NRB and annual reports of the selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as this study examines the impact of capital adequacy ratio, debt to assets ratio, debt to equity ratio, non-performing loan ratio, liquidity ratio, quick ratio and bank size on performance of Nepalese commercial banks.
The result shows that average return on assets is highest for ADBL (2.90 percent) and lowest for JBNL (0.62 percent). The average earning per share is highest for EBL (82.28 rupees) and lowest for JBNL (5.09 rupees). The average capital adequacy ratio is highest for JBNL (18.47 percent) and lowest for NBL (0.95 percent). Similarly, average debt to assets ratio is highest for NBL (100.27 percent) and lowest for JBNL (85.45 percent). The average debt to equity ratio is highest for NSBI (15.92 times) and NBL (-7.31 times). Likewise, average liquidity ratio is highest for SCB (32.27 percent) and lowest for ADBL (8.21 percent). The average quick ratio is highest for SCBL (26.29 percent) and lowest SIDBL (9.94 percent). The average non-performing loan ratio is highest for NBB (14.48 percent) and lowest for SCB (0.13 percent) and average bank size is highest for EBL (RS. 25.50 billion) and lowest for JBNL (Rs. 23.41 billion).
The descriptive statistics for selected commercial bank shows that the average return on assets, earnings per share, capital adequacy ratio, debt to assets ratio, non-performing loan ratio, liquidity ratio, quick ratio, and bank size are 1.59 percent, 33.07 rupees, 12.34 percent, 91.37 percent, 9.37 times, 2.63 percent, 17.26 percent, and Rs. 24.58 billion.
The correlation matrix of selected commercial banks shows that capital adequacy ratio is positively correlated with return on assets. Similarly, quick ratio have positive relationship with return on assets. There is positive relationship of bank size with return on assets. However, there is negative relationship of debt to assets ratio, debt to equity ratio, liquidity ratio and non-performing asset ratio with return on assets. The result also shows that there is positive relationship of capital adequacy ratio, quick ratio and bank size and with earnings per share. However, there is negative relationship of debt to assets ratio, non-performing loan ratio, liquidity ratio, and debt to equity ratio with earnings per share.
The regression results indicate that capital adequacy ratio and quick ratio has positive impact on return on assets. Similarly, bank size has positive impact on return on assets. This study also reveals that debt to assets ratio debt to equity ratio, liquidity ratio and non-performing loan ratio has negative impact on the return on assets. Likewise, results shows that the capital adequacy ratio and quick ratio has positive impact on earnings per share. Similarly, bank size has positive impact on earnings per share. However, results shows that the debt to assets ratio, debt to equity ratio, non-performing loan ratio, and liquidity ratio has negative impact on earnings per share.
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Effect of capital and liquidity risk on the profitability of Nepalese commercial banks [printed text] / Sita Chaudhary, Author . - [s.d.] . - 117p. ; GRP/Thesis + 10/B. Languages : English | Descriptors: | Liquidity (Economics)
| | Class number: | 658.152 | | Abstract: | Commercial banking is one of the important factor of Nepalese economy. Commercial banks are the main pillar of the financial system in Nepal. It makes the flow of resources for the rest of the character of the economy. Finance is life blood of the trade, commerce and are the vanes in the circulation of the funds in economy. Growth of any country depends upon the strong banking and financial system. As most of the economic depression are the result of the banking system failure. The importance of the banking sectors is immense in the progress and richness of any state. The economic development and prosperity comes from the well-developed and perfect banking system. Strong banking system plays important role in efficient allocation and utilization of credit. Bank is a backbone of all the industries, because every transaction where money is involved, the bank is the main pillar of funding (Haque& Tariq, 2012).
Capital adequacy ratio is one of the most significant current issues in banking which evaluate the amount of a bank’s efficiency and stability. Capital adequacy generally affects all entities. But as a term, it is most often used in discussing the position of firms in the financial section of the economy, and precisely, whether firms have sufficient capital to cover the risks that they confront (Abba, 2013).Jinghan (2010) asserts that banks need a high degree of liquidity in their assets portfolio. The bank must hold a sufficient large proportion of its assets the form of cash and liquid assets for the purpose enhancing customers’ confidence and corporate performance (profitability). According to Christian et al. (2008), capital adequacy measures provide significant information regarding a firm's returns; while a few of the individual variables representing asset quality and earnings are informative. Size and growth and loan exposure measures do not appear to have any significant explanatory power when examining returns.
This study attempts to explore the effect of capital and liquidity risk on performance of selected commercial banks in context of Nepal. This study is based on the secondary data for 20 commercial banks with 120 observations for the period of 2010/11 to 2015/16. The data and information are collected from various issues of Banking and Financial Statistics, Bank Supervision Report published by NRB and annual reports of the selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as this study examines the impact of capital adequacy ratio, debt to assets ratio, debt to equity ratio, non-performing loan ratio, liquidity ratio, quick ratio and bank size on performance of Nepalese commercial banks.
The result shows that average return on assets is highest for ADBL (2.90 percent) and lowest for JBNL (0.62 percent). The average earning per share is highest for EBL (82.28 rupees) and lowest for JBNL (5.09 rupees). The average capital adequacy ratio is highest for JBNL (18.47 percent) and lowest for NBL (0.95 percent). Similarly, average debt to assets ratio is highest for NBL (100.27 percent) and lowest for JBNL (85.45 percent). The average debt to equity ratio is highest for NSBI (15.92 times) and NBL (-7.31 times). Likewise, average liquidity ratio is highest for SCB (32.27 percent) and lowest for ADBL (8.21 percent). The average quick ratio is highest for SCBL (26.29 percent) and lowest SIDBL (9.94 percent). The average non-performing loan ratio is highest for NBB (14.48 percent) and lowest for SCB (0.13 percent) and average bank size is highest for EBL (RS. 25.50 billion) and lowest for JBNL (Rs. 23.41 billion).
The descriptive statistics for selected commercial bank shows that the average return on assets, earnings per share, capital adequacy ratio, debt to assets ratio, non-performing loan ratio, liquidity ratio, quick ratio, and bank size are 1.59 percent, 33.07 rupees, 12.34 percent, 91.37 percent, 9.37 times, 2.63 percent, 17.26 percent, and Rs. 24.58 billion.
The correlation matrix of selected commercial banks shows that capital adequacy ratio is positively correlated with return on assets. Similarly, quick ratio have positive relationship with return on assets. There is positive relationship of bank size with return on assets. However, there is negative relationship of debt to assets ratio, debt to equity ratio, liquidity ratio and non-performing asset ratio with return on assets. The result also shows that there is positive relationship of capital adequacy ratio, quick ratio and bank size and with earnings per share. However, there is negative relationship of debt to assets ratio, non-performing loan ratio, liquidity ratio, and debt to equity ratio with earnings per share.
The regression results indicate that capital adequacy ratio and quick ratio has positive impact on return on assets. Similarly, bank size has positive impact on return on assets. This study also reveals that debt to assets ratio debt to equity ratio, liquidity ratio and non-performing loan ratio has negative impact on the return on assets. Likewise, results shows that the capital adequacy ratio and quick ratio has positive impact on earnings per share. Similarly, bank size has positive impact on earnings per share. However, results shows that the debt to assets ratio, debt to equity ratio, non-performing loan ratio, and liquidity ratio has negative impact on earnings per share.
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