| Title : | Determinants of non-performing loans and cost efficiency in Nepalese commercial banks | | Material Type: | printed text | | Authors: | Ramesh Raut Kshetri, Author | | Publication Date: | 2017 | | Pagination: | 100p. | | Size: | GRP/Thesis | | Accompanying material: | 9/B | | Languages : | English | | Descriptors: | Non-performing loan
| | Class number: | 332.175 | | Abstract: | Commercial banks are the heart of economic system. One of the important functions of the commercial banks is the financial intermediation functions and thus its transfers the fund from surplus units to the deficit units.Researchers over the last decades believe that there is a connection between non-performing loans and cost efficiency. The relationship between non-performing loans and cost efficiency as well as its determinants are studied extensively by several researchers. In regard to the relationship between non-performing loans and cost efficiency, researchers found different results. Some of the scholars’ state that, non-performing loans has negative relationship with cost efficiency. Meanwhile other researchers indicate the nonlinear negative and positive relationship between non-performing loans and cost efficiency.
This study investigates determinants of non-performing loans and cost efficiency of commercial banks of Nepal. The study has employed descriptive and causal comparative research designs to deal with the fundamental issues associated with non-performing loans and cost efficiencies and factors influencing these parameters in the context of Nepal.The stud
y is based on secondary data. The variables used in the study are categorized into bank specific variables (capital adequacy ratio, return on assets, bank size, risk weighted assets, priority sector lending, credit growth, percentage of loan to deposit and percentage loan loss provision to total loans). Similarly, this study covers data on bank specific variables for 7 years ranging for year 2008/09 to 2014/15.
The study reveals that non-performing loans have significant impact on cost efficiency of banks and suggests specifically that bank should try to minimize non-performing loans in order to achieve cost efficiency. More specifically, the study finds that capital adequacy ratio, credit growth, loan to deposit percentage, priority sector lending, and risk weighted assets, were statistically significant factors that determine the non-performing loans of commercial banks in Nepal. However, the result did not support the significant effect of return of assets. Similarly,non-performing loans, capital adequacy ratio, bank size and loan loss provision were statistically significant factors that determine the cost efficiency of commercial banks in Nepal.
The study observed a negative relationship between return on assets and non-performing loans indicating that profitable banks have low non-performing loans. Hence, it is recommended that banks should be able to maximize and maintain optimum ROA so that they don’t have to go for lending in riskier assets to increase revenue. Likewise, the study observed a negative and significant relationship between capital adequacy ratio and non-performing loans. Hence it is recommended that banks should focus on enhancing their capital, as well capitalized banks are less incentive to take risk which reduces the percentage of non-performing loans in such banks. The study remains enough ground for future researchers in the same topic. The future studies can be done by using both secondary and primary data so that along with determinants of non-performing loans and cost efficiency, perception of loan officers, operation officer as well as managers regarding the impact of non-performing loans on cost efficiency can also be obtained. In addition to commercial banks, the further studies can select other financial institutions like development banks, finance companies; micro finance and cooperatives can be included in sample so as to grasp the wider view of determinants of non-performing loans on cost efficiency.
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Determinants of non-performing loans and cost efficiency in Nepalese commercial banks [printed text] / Ramesh Raut Kshetri, Author . - 2017 . - 100p. ; GRP/Thesis + 9/B. Languages : English | Descriptors: | Non-performing loan
| | Class number: | 332.175 | | Abstract: | Commercial banks are the heart of economic system. One of the important functions of the commercial banks is the financial intermediation functions and thus its transfers the fund from surplus units to the deficit units.Researchers over the last decades believe that there is a connection between non-performing loans and cost efficiency. The relationship between non-performing loans and cost efficiency as well as its determinants are studied extensively by several researchers. In regard to the relationship between non-performing loans and cost efficiency, researchers found different results. Some of the scholars’ state that, non-performing loans has negative relationship with cost efficiency. Meanwhile other researchers indicate the nonlinear negative and positive relationship between non-performing loans and cost efficiency.
This study investigates determinants of non-performing loans and cost efficiency of commercial banks of Nepal. The study has employed descriptive and causal comparative research designs to deal with the fundamental issues associated with non-performing loans and cost efficiencies and factors influencing these parameters in the context of Nepal.The stud
y is based on secondary data. The variables used in the study are categorized into bank specific variables (capital adequacy ratio, return on assets, bank size, risk weighted assets, priority sector lending, credit growth, percentage of loan to deposit and percentage loan loss provision to total loans). Similarly, this study covers data on bank specific variables for 7 years ranging for year 2008/09 to 2014/15.
The study reveals that non-performing loans have significant impact on cost efficiency of banks and suggests specifically that bank should try to minimize non-performing loans in order to achieve cost efficiency. More specifically, the study finds that capital adequacy ratio, credit growth, loan to deposit percentage, priority sector lending, and risk weighted assets, were statistically significant factors that determine the non-performing loans of commercial banks in Nepal. However, the result did not support the significant effect of return of assets. Similarly,non-performing loans, capital adequacy ratio, bank size and loan loss provision were statistically significant factors that determine the cost efficiency of commercial banks in Nepal.
The study observed a negative relationship between return on assets and non-performing loans indicating that profitable banks have low non-performing loans. Hence, it is recommended that banks should be able to maximize and maintain optimum ROA so that they don’t have to go for lending in riskier assets to increase revenue. Likewise, the study observed a negative and significant relationship between capital adequacy ratio and non-performing loans. Hence it is recommended that banks should focus on enhancing their capital, as well capitalized banks are less incentive to take risk which reduces the percentage of non-performing loans in such banks. The study remains enough ground for future researchers in the same topic. The future studies can be done by using both secondary and primary data so that along with determinants of non-performing loans and cost efficiency, perception of loan officers, operation officer as well as managers regarding the impact of non-performing loans on cost efficiency can also be obtained. In addition to commercial banks, the further studies can select other financial institutions like development banks, finance companies; micro finance and cooperatives can be included in sample so as to grasp the wider view of determinants of non-performing loans on cost efficiency.
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