| Title : | The impact of credit risk management on the financial performance of Nepalese commercial bank: a comparative study of public banks, joint venture banks and private banks | | Material Type: | printed text | | Authors: | Printa Shakya, Author | | Publication Date: | 2017 | | Pagination: | 118p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Credit-Management
| | Class number: | 332.7 | | Abstract: | A commercial bank is an institution that provides financial services, including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit (Campbell, 2007). It plays an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial bank is the financial intermediation 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.Credit risk is by far the most significant risk faced by banks and the success of their business depends on accurate measurement and efficient management of this risk to a greater extent than any other risk (Gieseche, 2004). Credit risk management is very important to banks as it is an integral part of the loan process. The importance of strong credit risk management for building quality loan portfolio is of paramount importance to robust performance of commercial banks as well as overall economy (Charles and Kenneth, 2013). Thus, the importance of credit risk management in banks is due to its ability in affecting the bank’s financial performance, existence and growth.
This study attempts to examine the impact of credit risk management on financial performance of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 to 2014/15. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and annual reports of selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of credit risk management on financial performance of Nepalese commercial banks.
The average return on assets is highest for NBBL (5.32 percent) and lowest for MBL (0.59 percent). The average return on equity is highest for NBBL (45.57 percent) and lowest for NBL (-49.54 percent).Likewise, the average net interest margin is highest for ADBL (5.89 percent) and lowest for NMB (2.34 percent).The structure and pattern analysis of average capital adequacy ratio shows that NMB has the highest average (20.10 percent) and RBBL has the lowest capital adequacy ratio of (-11.13 percent).RBBL has the highest non-performing loan (8.28 percent) and EBL has the lowest (0.53 percent).ADBL has the highest average loans and advances to deposit ratio (98.36 percent) and RBBL has the lowest (52.20 percent).The structure and pattern analysis of average deposit shows that RBBL has the highest average (Rs 88.70 billion) and LBL has the lowest of (Rs 10.72 billion).Similarly, NIBL has the highest bank size of (Rs. 24.96 billion) and ADBLhas the lowest (Rs. 19.51 billion).
The descriptive statistics for the public banks reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 1.93 percent, -6.01 percent, 4.10 percent, 0.27 percent, 6.63 percent, 69.28 percent, Rs24.99 billion and Rs 64.90 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 2.50 percent, 24.96 percent, 3.63 percent, 11.99 percent, 2.24 percent, 68.62 percent, Rs24.55 billion and Rs 44.91 billion respectively. Likewise, the descriptive statistics for the private bank reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 1.48 percent, 14.92 percent, 3.09 percent, 13.25 percent, 1.79 percent, 79.67 percent, Rs23.94 billion and Rs 25.95 billion respectively.
The correlation analysis for public banks shows that deposit,capital adequacy ratio, loans and advances to deposit ratio and bank size arepositively related to return on assets, return on equity as well as net interest margin, while nonperforming loan is negatively related to return on assets, return on equity as well as net interest margin. The correlation analysis for joint venture banks shows that loans and advances to deposit ratio, bank size and deposit are positively related to return on assets, return on equity as well as net interest margin. However, non-performing loans are negatively related to return on assets, return on equity as well as net interest margin. Likewise, capital adequacy ratio is negatively related to return on assets and net interest margin. The correlation analysis for private banks shows that bank size and deposit are positively related to return on assets and net interest margin. The result also shows that loans and advances to deposit ratio and capital adequacy ratio are negatively related to return on equity whereas it is positively related with return on assets and net interest margin. Nonperforming loans is negatively related to return on assets, return on equity and net interest margin.
The regression analysis reveals that non-performing loanshave negative impact on return on assets in all the sectors included in the study. This indicates that higher return on assets, lower would be the non-performing loan. However, loans and advances to deposit ratio has positive impact on return on equity in all the sectors included in the study. This reveals that higher the loans and advances to deposit ratio, higher would be the return on assets. Similarly deposit and bank size has positive impact on return on assets in all the sectors included in the study. This states that higher the deposit and bank size, higher would be the return on assets.
The study also shows that capital adequacy ratio has positive impact return on assets and net interest margin in public and joint venture banks. This reveals that higher the capital adequacy ratio, higher would be the return on assets andnet interest margin. However, loans and advances to deposit ratio has negative impact return on equity in private banks. This states that higher the loans and advances to deposit ratio, lower would be the return on equity. On the other hand, the deposit and bank size has positive impact on return on equity and net interest margin in all the sectors included in the study. This denotes that higher the bank size and return on equity, higher would be the bank size and deposit.
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The impact of credit risk management on the financial performance of Nepalese commercial bank: a comparative study of public banks, joint venture banks and private banks [printed text] / Printa Shakya, Author . - 2017 . - 118p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Credit-Management
| | Class number: | 332.7 | | Abstract: | A commercial bank is an institution that provides financial services, including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit (Campbell, 2007). It plays an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial bank is the financial intermediation 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.Credit risk is by far the most significant risk faced by banks and the success of their business depends on accurate measurement and efficient management of this risk to a greater extent than any other risk (Gieseche, 2004). Credit risk management is very important to banks as it is an integral part of the loan process. The importance of strong credit risk management for building quality loan portfolio is of paramount importance to robust performance of commercial banks as well as overall economy (Charles and Kenneth, 2013). Thus, the importance of credit risk management in banks is due to its ability in affecting the bank’s financial performance, existence and growth.
This study attempts to examine the impact of credit risk management on financial performance of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 to 2014/15. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and annual reports of selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of credit risk management on financial performance of Nepalese commercial banks.
The average return on assets is highest for NBBL (5.32 percent) and lowest for MBL (0.59 percent). The average return on equity is highest for NBBL (45.57 percent) and lowest for NBL (-49.54 percent).Likewise, the average net interest margin is highest for ADBL (5.89 percent) and lowest for NMB (2.34 percent).The structure and pattern analysis of average capital adequacy ratio shows that NMB has the highest average (20.10 percent) and RBBL has the lowest capital adequacy ratio of (-11.13 percent).RBBL has the highest non-performing loan (8.28 percent) and EBL has the lowest (0.53 percent).ADBL has the highest average loans and advances to deposit ratio (98.36 percent) and RBBL has the lowest (52.20 percent).The structure and pattern analysis of average deposit shows that RBBL has the highest average (Rs 88.70 billion) and LBL has the lowest of (Rs 10.72 billion).Similarly, NIBL has the highest bank size of (Rs. 24.96 billion) and ADBLhas the lowest (Rs. 19.51 billion).
The descriptive statistics for the public banks reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 1.93 percent, -6.01 percent, 4.10 percent, 0.27 percent, 6.63 percent, 69.28 percent, Rs24.99 billion and Rs 64.90 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 2.50 percent, 24.96 percent, 3.63 percent, 11.99 percent, 2.24 percent, 68.62 percent, Rs24.55 billion and Rs 44.91 billion respectively. Likewise, the descriptive statistics for the private bank reveals that the average return on assets, return on equity, net interest margin, capital adequacy ratio, non-performing loan, loans and advances to deposit ratio, bank size and deposit is 1.48 percent, 14.92 percent, 3.09 percent, 13.25 percent, 1.79 percent, 79.67 percent, Rs23.94 billion and Rs 25.95 billion respectively.
The correlation analysis for public banks shows that deposit,capital adequacy ratio, loans and advances to deposit ratio and bank size arepositively related to return on assets, return on equity as well as net interest margin, while nonperforming loan is negatively related to return on assets, return on equity as well as net interest margin. The correlation analysis for joint venture banks shows that loans and advances to deposit ratio, bank size and deposit are positively related to return on assets, return on equity as well as net interest margin. However, non-performing loans are negatively related to return on assets, return on equity as well as net interest margin. Likewise, capital adequacy ratio is negatively related to return on assets and net interest margin. The correlation analysis for private banks shows that bank size and deposit are positively related to return on assets and net interest margin. The result also shows that loans and advances to deposit ratio and capital adequacy ratio are negatively related to return on equity whereas it is positively related with return on assets and net interest margin. Nonperforming loans is negatively related to return on assets, return on equity and net interest margin.
The regression analysis reveals that non-performing loanshave negative impact on return on assets in all the sectors included in the study. This indicates that higher return on assets, lower would be the non-performing loan. However, loans and advances to deposit ratio has positive impact on return on equity in all the sectors included in the study. This reveals that higher the loans and advances to deposit ratio, higher would be the return on assets. Similarly deposit and bank size has positive impact on return on assets in all the sectors included in the study. This states that higher the deposit and bank size, higher would be the return on assets.
The study also shows that capital adequacy ratio has positive impact return on assets and net interest margin in public and joint venture banks. This reveals that higher the capital adequacy ratio, higher would be the return on assets andnet interest margin. However, loans and advances to deposit ratio has negative impact return on equity in private banks. This states that higher the loans and advances to deposit ratio, lower would be the return on equity. On the other hand, the deposit and bank size has positive impact on return on equity and net interest margin in all the sectors included in the study. This denotes that higher the bank size and return on equity, higher would be the bank size and deposit.
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