| Title : | The relationship among capital adequacy, cost income ratio and performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Pratikshya Parajuli, Author | | Publication Date: | 2017 | | Pagination: | 105p. | | Size: | GRP/Thesis | | Accompanying material: | 10/B | | Languages : | English | | Descriptors: | Bank loans
Capital adequacy
| | Class number: | 332.120 | | Abstract: | Banking has become an important feature, which renders service to the people in financial matters, and its magnitude of action is extending day by day. Commercial banks are the heart of the economic system which accepts the deposits of million people, government and business units. Bank performance is the bank profitability and productivity in banking. The trend of commercial banking is changing rapidly. Due to the problem of profitability and stiff competition in the industry, commercial banks need strict regulations to enable quality improvement in order to gain or maintain competitive advantage and avoid elimination from the market. With the present global credit crunch, capital adequacy and cost income ratio being critical for banks, the present study examines the relationship between these variables and profitability. Capital adequacy plays crucial role for reducing different risk components in banking Industry, and it is necessary to reduce moral hazard and competitiveness. Furthermore, adequate capitalization is an important variable in business, banks must have enough capital to provide funds for its internal needs and for expansion, as well as ensure security for depositors. 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 relationship of capital adequacy and cost income ratio with 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 2009/10 to 2014/15. 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, cost income ratio, equity capital to assets, debt to equity, liquidity ratio and bank size on financial performance of Nepalese commercial banks.
The result shows that average return on assets is highest for NABIL (7.29 percent) and lowest for MBL (0.32 percent). The average return on equity is highest for NABIL (35.18 percent) and lowest for NBL (-8.38 percent). The average net interest margin is highest for ADBL (6.13 percent) and lowest for SBI (2.43 percent). The average capital adequacy is highest for JBNL (27.37 percent) and lowest for RBB(-2.95 percent). The average cost to income ratio is highest for NBL (90.15 percent) and lowest for NIBL (25.45 percent). The average equity capital to total assets ratio is highest for JBNL (22.96 percent)and lowest for NBL (-2.90 percent). The average debt to equity ratio is highest for RBB (22.63 times)and lowest for NBL (-11.60 times). The average liquidity ratio is highest for JBNL (39.59 percent) and lowest for ADBL (9.70 percent). The average bank size is highest for RBB (114.59 billion) and lowest for JBNL (13.71 billion).
The descriptive statistics for selected commercial bank shows that the average return on assets, return on equity, net interest margin, capital adequacy, cost income ratio, equity capital to total assets, debt equity ratio, liquidity ratio and bank size are 1.88 percent, 17.85 percent, 3.32 percent, 10.30 percent, 43.49 percent, 7.77 percent, 10.18 times, 18.77 percent, and Rs. 48.55 billionrespectively.
The correlation matrix shows that debt to equity ratio and bank size are positively related to return on assets,whilecapital adequacy, cost income ratio, equity capital to total assets and liquidity ratio are negatively related to return on assets. The result states that capital adequacy, equity capital to total assets, debt to equity ratio and bank size has positive relationship with return on equity. However, cost income ratio and liquidity ratio have negative relationship with return on equity. On the other hand, cost income ratio and bank size is positively related to net interest margin, whereas capital adequacy,equity capital to total assets, debt to equity ratio and liquidity ratio are negatively related to net interest margin.
The regression analysis reveals that debt to equity ratio and bank size has positive impact on return on assets. This indicates that higher the debt to equity ratio and bank size, higher would bethe return on assets. However, capital adequacy, cost income ratio, equity capital to total assets, and liquidity ratio has negative impact on return on assets. This indicates that higher the capital adequacy,cost income ratio, equity capital to total assetsand liquidity ratio, lower would bethe return on assets.
On the other hand, capital adequacy, equity capital to total assets, debt to equity ratio and bank sizehas positive impact on return on equity. This indicates that higher the capital adequacy,equity capital to total assets, debt to equity ratio and bank size, higher would be the return on equity. However, the study reveals that cost income ratio and liquidity ratio has negative impact on return on equity. This indicates that higher the cost income ratio and liquidity ratio, lower would be the return on equity.
The study also shows that cost income ratio and bank size has positive impact on net interest margin. This reveals that higher thecost income ratio and bank size, higher would be the net interest margin. However, capital adequacy, equity capital to total assets, debt to equity ratio and liquidity ratiohas negative impact on net interest margin. This indicates that higher the capital adequacy,equity capital to total assets, debt to equity ratio and liquidity ratio, lower would be the net interest margin.
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The relationship among capital adequacy, cost income ratio and performance of Nepalese commercial banks [printed text] / Pratikshya Parajuli, Author . - 2017 . - 105p. ; GRP/Thesis + 10/B. Languages : English | Descriptors: | Bank loans
Capital adequacy
| | Class number: | 332.120 | | Abstract: | Banking has become an important feature, which renders service to the people in financial matters, and its magnitude of action is extending day by day. Commercial banks are the heart of the economic system which accepts the deposits of million people, government and business units. Bank performance is the bank profitability and productivity in banking. The trend of commercial banking is changing rapidly. Due to the problem of profitability and stiff competition in the industry, commercial banks need strict regulations to enable quality improvement in order to gain or maintain competitive advantage and avoid elimination from the market. With the present global credit crunch, capital adequacy and cost income ratio being critical for banks, the present study examines the relationship between these variables and profitability. Capital adequacy plays crucial role for reducing different risk components in banking Industry, and it is necessary to reduce moral hazard and competitiveness. Furthermore, adequate capitalization is an important variable in business, banks must have enough capital to provide funds for its internal needs and for expansion, as well as ensure security for depositors. 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 relationship of capital adequacy and cost income ratio with 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 2009/10 to 2014/15. 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, cost income ratio, equity capital to assets, debt to equity, liquidity ratio and bank size on financial performance of Nepalese commercial banks.
The result shows that average return on assets is highest for NABIL (7.29 percent) and lowest for MBL (0.32 percent). The average return on equity is highest for NABIL (35.18 percent) and lowest for NBL (-8.38 percent). The average net interest margin is highest for ADBL (6.13 percent) and lowest for SBI (2.43 percent). The average capital adequacy is highest for JBNL (27.37 percent) and lowest for RBB(-2.95 percent). The average cost to income ratio is highest for NBL (90.15 percent) and lowest for NIBL (25.45 percent). The average equity capital to total assets ratio is highest for JBNL (22.96 percent)and lowest for NBL (-2.90 percent). The average debt to equity ratio is highest for RBB (22.63 times)and lowest for NBL (-11.60 times). The average liquidity ratio is highest for JBNL (39.59 percent) and lowest for ADBL (9.70 percent). The average bank size is highest for RBB (114.59 billion) and lowest for JBNL (13.71 billion).
The descriptive statistics for selected commercial bank shows that the average return on assets, return on equity, net interest margin, capital adequacy, cost income ratio, equity capital to total assets, debt equity ratio, liquidity ratio and bank size are 1.88 percent, 17.85 percent, 3.32 percent, 10.30 percent, 43.49 percent, 7.77 percent, 10.18 times, 18.77 percent, and Rs. 48.55 billionrespectively.
The correlation matrix shows that debt to equity ratio and bank size are positively related to return on assets,whilecapital adequacy, cost income ratio, equity capital to total assets and liquidity ratio are negatively related to return on assets. The result states that capital adequacy, equity capital to total assets, debt to equity ratio and bank size has positive relationship with return on equity. However, cost income ratio and liquidity ratio have negative relationship with return on equity. On the other hand, cost income ratio and bank size is positively related to net interest margin, whereas capital adequacy,equity capital to total assets, debt to equity ratio and liquidity ratio are negatively related to net interest margin.
The regression analysis reveals that debt to equity ratio and bank size has positive impact on return on assets. This indicates that higher the debt to equity ratio and bank size, higher would bethe return on assets. However, capital adequacy, cost income ratio, equity capital to total assets, and liquidity ratio has negative impact on return on assets. This indicates that higher the capital adequacy,cost income ratio, equity capital to total assetsand liquidity ratio, lower would bethe return on assets.
On the other hand, capital adequacy, equity capital to total assets, debt to equity ratio and bank sizehas positive impact on return on equity. This indicates that higher the capital adequacy,equity capital to total assets, debt to equity ratio and bank size, higher would be the return on equity. However, the study reveals that cost income ratio and liquidity ratio has negative impact on return on equity. This indicates that higher the cost income ratio and liquidity ratio, lower would be the return on equity.
The study also shows that cost income ratio and bank size has positive impact on net interest margin. This reveals that higher thecost income ratio and bank size, higher would be the net interest margin. However, capital adequacy, equity capital to total assets, debt to equity ratio and liquidity ratiohas negative impact on net interest margin. This indicates that higher the capital adequacy,equity capital to total assets, debt to equity ratio and liquidity ratio, lower would be the net interest margin.
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