| Title : | Impact of monetary policy instruments on profitability of Nepalese commercial banks: a comparative study of joint venture banks, public banks and private banks | | Material Type: | printed text | | Authors: | Saroj Shrestha, Author | | Publication Date: | 2017 | | Pagination: | 103p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Monetary policy
| | Class number: | 332.46 | | Abstract: | Monetary policy is the monetary authority's policy to manage the supply of money with a view to achieve pre-determined macroeconomic goals. It helps in influencing the economy through inflation, national output and employment through its control on bank credit, quantity of money, bank deposit, interest rate etc.Generally, monetary policy is formulated by the central bank of a particular country in order to control money supply and promote economic development.Monetary policy is one of the tools to control money supply in an economy of a nation. The actions are taken by the monetary authorities in order to achieve a desirable economic growth. Monetary policy plays the significant role in economic development of any country.More specifically, monetary authority adopts expansion of the money supply and reduce interest rate during recession period. In developing countries, with an objective to achieve full employment or potential output levels, it promotes and encourages economic growth both in the industrial and agricultural sectors of the economy (Meshack and Nyamute, 2016). Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the banks. Monetary policy is the actions which undertake to influence the cost of money and credit availability. There are two important channels in monetary policy i.e. interest rate channel and exchange channel. The interest rate channel is very important on banking prospective because the fluctuation in interest rate affect the market rate of short term and long term interest rate. Thus, such fluctuation leads to severe impact on banking sector. Therefore, the bank size matters a lot to cope with such issue (Zaman et al., 2014).Monetary policy transmission mechanism to the real economy remains a hot topic. One area of debate is the relative importance of the money and credit channels in the transmission of monetary policy. The main objective of monetary policy is to promote economic development by controlling money supply and providing price stability. The action taken by monetary authority plays a vital role on financial operations of most financial institutions operating in the economy. Monetary policy has the potential to trigger activities through provision of affordable and denying access to credit respectively. Commercial banks are considered as the most avenues through which monetary policy is implemented by most central bank in many countries. Thus, commercial banks performance are heavily affected by the action taken by monetary authority for macro-economic environmental changes (Meshack and Nyamute, 2016).
According to Udeh & Annebuike (2015),cash reserve ratio and minimum rediscounted rate are positively correlated to bank performance. However, liquidity rate and interest rate are negatively correlated to bank performance. Zaman et al. (2014) showed that interest rate has negative and significant relationship with bank performance. Likewise, the bank size has positive and significant relationship with bank performance. Amaliawiati and Winarso (2013) revealed that BI rate has negative and significant relationship with return on assets. Kaushal & Neha (2011)showed that cash reserve ratio, bank rate, prime lending rate and statutory liquidity ratio have negative and significant impact on profitability. However, repo has positive and significant relationship with profitability of private banks. Similarly, cash reserve ratio, bank rate, statutory liquidity ratio, prime lending rate and repo rate have negative and significant relationship with profitability of public banks. Meshack and Nyamute (2016) revealedthat there is positive relationship between open market operation rate and bank performance. However, the central bank rate and cash reserve ratio are negatively related to performance of commercial banks.
The major objective of this study is to examine the impact of monetary policy on profitability of Nepalese commercial banks. The results are based on the secondary data and contain the sample of 19 commercial banks of Nepal during the period of 2007/08 to 2014/15. Out of total sampled banks, 6 banks are joint venture, 10 banks are private, and 3 banks are public commercial banks.The data has been collected from the banking and financial statistics and bank supervision report and quarterly economic bulletin published by Nepal Rastra Bank and annual reports of selected commercial banks.The research design adopted in this study is causal comparative type as it deals with the relationship between monetary policyand profitability.
The result shows that NBB has highest average return on assets (5.04 percent), and ADBL has highest average net interest margin (6.04 percent) among the selected commercial banks over the study period. The study shows the decreasing trend of ROA for joint venture banks and private banks. Meanwhile, it shows the increasing trend of ROA for public banks. Likewise, it shows the horizontal trend of NIM for joint venture banks, private banks and public banks. Overall, the study shows that NCC has highest average cash reserve ratio (20.39 percent) andhighest average statutory liquidity ratio (54.63 percent) and ADBL has highestaverage credit to deposit ratio (106.09 percent). The result also shows that t-bills rate is highest in year 2011 (7.41%), bank rate is highest in year 2012, 2013, 2014 (8.00%) and broad money supply is highest in year 2015 (Rs 1877.80 billion).
The descriptive statistics for joint venture banks shows that the average return on assets is 2.2939 percent, average return on equity is 25.8160 percent, average net interest margin is 3.5738 percent, average short term debt ratio is 2.80412 percent, average long term debt ratio is 88.5931 percent, average total debt ratio is 91.3972 percent, average firm size is Rs. 24.6530 billion and average assets growth is 11.9928 percent. Similarly, the descriptive statistics for private banks shows that the average return on assets is 1.3938 percent, average return on equity is 15.0260 percent, average net interest margin is 3.0237 percent, average short term debt ratio is 1.8376 percent, average long term debt ratio is 87.0226 percent, average total debt ratio is 88.1653 percent, average firm size is Rs. 24.1135 billion and average assets growth is 15.6346 percent.
Likewise, the descriptive statistics for joint venture banks shows that the average return on assets is 2.59 percent, average net interest margin is 3.59 percent, average cash reserve ratio is 9.34 percent, average statutory liquidity ratio is 14.35 percent, average credit to deposit ratio is 69.19 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent. Similarly, descriptive statistics for public banks shows that the average return on assets is 1.72 percent, average net interest margin is 4.38 percent, average cash reserve ratio is 11.10 percent, average statutory liquidity ratio is 17.75 percent, average credit to deposit ratio is 71.14 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent. Likewise, descriptive statistics for private banks shows that the average return on assets is 1.70 percent, average net interest margin is 3.09 percent, average cash reserve ratio is 10.07 percent, average statutory liquidity ratio is 11.51 percent, average credit to deposit ratio is 82.03 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent.
The correlation matrix for joint venture banks reveals that cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate and broad money supply are positively correlated to return on assets and net interest margin while bank rateis negatively correlated to return on assets. Similarly, the correlation matrix for public banks reveals that credit to deposit ratio, t-bills rate and broad money supply are positively correlated to return on assets and net interest margin while cash reserve ratio, statutory liquidity ratio and bank rate are negatively correlated to return on assets and net interest margin. Similarly, correlation matrix for private banks reveals that statutory liquidity ratio, credit to deposit ratio and t-bills rate are positively correlated to return on assets and net interest margin. while short term debt ratio, long term debt ratio and total debt ratio are negatively correlated to return on assets. Likewise, cash reserve ratio and bank rate are positively correlated to net interest margin while broad money supply is negatively correlated to net interest margin. The cash reserve ratio, statutory liquidity ratio are negatively correlated to return on assets while broad money supply is positively correlated to return on assets.
The regression analysis reveals that cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate and broad money supply have positive impact on return on assets whereas bank ratehas negative impact on return on assets for joint venture banks. Similarly, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate, bank rate and broad money supply have positive impact on net interest margin for joint venture banks. Likewise, credit to deposit ratio, t-bills rate and broad money supply have positive impact on return on assets whereas cash reserve ratio, statutory liquidity ratioand bank rate have negative impact on return on assets and net interest margin for public banks. Similarly, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio and t-bills rate have positive impact on return on assets whereas bank rate and broad money supply have negative impact on return on assets for private banks. Likewise, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rateand bank rate have positive impact on net interest margin whereas broad money supplyhas negative impact on net interest margin for private banks.
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Impact of monetary policy instruments on profitability of Nepalese commercial banks: a comparative study of joint venture banks, public banks and private banks [printed text] / Saroj Shrestha, Author . - 2017 . - 103p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Monetary policy
| | Class number: | 332.46 | | Abstract: | Monetary policy is the monetary authority's policy to manage the supply of money with a view to achieve pre-determined macroeconomic goals. It helps in influencing the economy through inflation, national output and employment through its control on bank credit, quantity of money, bank deposit, interest rate etc.Generally, monetary policy is formulated by the central bank of a particular country in order to control money supply and promote economic development.Monetary policy is one of the tools to control money supply in an economy of a nation. The actions are taken by the monetary authorities in order to achieve a desirable economic growth. Monetary policy plays the significant role in economic development of any country.More specifically, monetary authority adopts expansion of the money supply and reduce interest rate during recession period. In developing countries, with an objective to achieve full employment or potential output levels, it promotes and encourages economic growth both in the industrial and agricultural sectors of the economy (Meshack and Nyamute, 2016). Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the banks. Monetary policy is the actions which undertake to influence the cost of money and credit availability. There are two important channels in monetary policy i.e. interest rate channel and exchange channel. The interest rate channel is very important on banking prospective because the fluctuation in interest rate affect the market rate of short term and long term interest rate. Thus, such fluctuation leads to severe impact on banking sector. Therefore, the bank size matters a lot to cope with such issue (Zaman et al., 2014).Monetary policy transmission mechanism to the real economy remains a hot topic. One area of debate is the relative importance of the money and credit channels in the transmission of monetary policy. The main objective of monetary policy is to promote economic development by controlling money supply and providing price stability. The action taken by monetary authority plays a vital role on financial operations of most financial institutions operating in the economy. Monetary policy has the potential to trigger activities through provision of affordable and denying access to credit respectively. Commercial banks are considered as the most avenues through which monetary policy is implemented by most central bank in many countries. Thus, commercial banks performance are heavily affected by the action taken by monetary authority for macro-economic environmental changes (Meshack and Nyamute, 2016).
According to Udeh & Annebuike (2015),cash reserve ratio and minimum rediscounted rate are positively correlated to bank performance. However, liquidity rate and interest rate are negatively correlated to bank performance. Zaman et al. (2014) showed that interest rate has negative and significant relationship with bank performance. Likewise, the bank size has positive and significant relationship with bank performance. Amaliawiati and Winarso (2013) revealed that BI rate has negative and significant relationship with return on assets. Kaushal & Neha (2011)showed that cash reserve ratio, bank rate, prime lending rate and statutory liquidity ratio have negative and significant impact on profitability. However, repo has positive and significant relationship with profitability of private banks. Similarly, cash reserve ratio, bank rate, statutory liquidity ratio, prime lending rate and repo rate have negative and significant relationship with profitability of public banks. Meshack and Nyamute (2016) revealedthat there is positive relationship between open market operation rate and bank performance. However, the central bank rate and cash reserve ratio are negatively related to performance of commercial banks.
The major objective of this study is to examine the impact of monetary policy on profitability of Nepalese commercial banks. The results are based on the secondary data and contain the sample of 19 commercial banks of Nepal during the period of 2007/08 to 2014/15. Out of total sampled banks, 6 banks are joint venture, 10 banks are private, and 3 banks are public commercial banks.The data has been collected from the banking and financial statistics and bank supervision report and quarterly economic bulletin published by Nepal Rastra Bank and annual reports of selected commercial banks.The research design adopted in this study is causal comparative type as it deals with the relationship between monetary policyand profitability.
The result shows that NBB has highest average return on assets (5.04 percent), and ADBL has highest average net interest margin (6.04 percent) among the selected commercial banks over the study period. The study shows the decreasing trend of ROA for joint venture banks and private banks. Meanwhile, it shows the increasing trend of ROA for public banks. Likewise, it shows the horizontal trend of NIM for joint venture banks, private banks and public banks. Overall, the study shows that NCC has highest average cash reserve ratio (20.39 percent) andhighest average statutory liquidity ratio (54.63 percent) and ADBL has highestaverage credit to deposit ratio (106.09 percent). The result also shows that t-bills rate is highest in year 2011 (7.41%), bank rate is highest in year 2012, 2013, 2014 (8.00%) and broad money supply is highest in year 2015 (Rs 1877.80 billion).
The descriptive statistics for joint venture banks shows that the average return on assets is 2.2939 percent, average return on equity is 25.8160 percent, average net interest margin is 3.5738 percent, average short term debt ratio is 2.80412 percent, average long term debt ratio is 88.5931 percent, average total debt ratio is 91.3972 percent, average firm size is Rs. 24.6530 billion and average assets growth is 11.9928 percent. Similarly, the descriptive statistics for private banks shows that the average return on assets is 1.3938 percent, average return on equity is 15.0260 percent, average net interest margin is 3.0237 percent, average short term debt ratio is 1.8376 percent, average long term debt ratio is 87.0226 percent, average total debt ratio is 88.1653 percent, average firm size is Rs. 24.1135 billion and average assets growth is 15.6346 percent.
Likewise, the descriptive statistics for joint venture banks shows that the average return on assets is 2.59 percent, average net interest margin is 3.59 percent, average cash reserve ratio is 9.34 percent, average statutory liquidity ratio is 14.35 percent, average credit to deposit ratio is 69.19 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent. Similarly, descriptive statistics for public banks shows that the average return on assets is 1.72 percent, average net interest margin is 4.38 percent, average cash reserve ratio is 11.10 percent, average statutory liquidity ratio is 17.75 percent, average credit to deposit ratio is 71.14 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent. Likewise, descriptive statistics for private banks shows that the average return on assets is 1.70 percent, average net interest margin is 3.09 percent, average cash reserve ratio is 10.07 percent, average statutory liquidity ratio is 11.51 percent, average credit to deposit ratio is 82.03 percent, average t-bills rate is 3.45 percent, average bank rate is 7.21 percent and broad money supply growth rate 21.62 percent.
The correlation matrix for joint venture banks reveals that cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate and broad money supply are positively correlated to return on assets and net interest margin while bank rateis negatively correlated to return on assets. Similarly, the correlation matrix for public banks reveals that credit to deposit ratio, t-bills rate and broad money supply are positively correlated to return on assets and net interest margin while cash reserve ratio, statutory liquidity ratio and bank rate are negatively correlated to return on assets and net interest margin. Similarly, correlation matrix for private banks reveals that statutory liquidity ratio, credit to deposit ratio and t-bills rate are positively correlated to return on assets and net interest margin. while short term debt ratio, long term debt ratio and total debt ratio are negatively correlated to return on assets. Likewise, cash reserve ratio and bank rate are positively correlated to net interest margin while broad money supply is negatively correlated to net interest margin. The cash reserve ratio, statutory liquidity ratio are negatively correlated to return on assets while broad money supply is positively correlated to return on assets.
The regression analysis reveals that cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate and broad money supply have positive impact on return on assets whereas bank ratehas negative impact on return on assets for joint venture banks. Similarly, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rate, bank rate and broad money supply have positive impact on net interest margin for joint venture banks. Likewise, credit to deposit ratio, t-bills rate and broad money supply have positive impact on return on assets whereas cash reserve ratio, statutory liquidity ratioand bank rate have negative impact on return on assets and net interest margin for public banks. Similarly, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio and t-bills rate have positive impact on return on assets whereas bank rate and broad money supply have negative impact on return on assets for private banks. Likewise, cash reserve ratio, statutory liquidity ratio, credit to deposit ratio, t-bills rateand bank rate have positive impact on net interest margin whereas broad money supplyhas negative impact on net interest margin for private banks.
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