| Title : | Impact of banks-specific and macroeconomic factors on the profitability of Nepalese commercial banks: a comparative study of public, joint venture and private banks | | Material Type: | printed text | | Authors: | Erika Shakya, Author | | Publication Date: | 2017 | | Pagination: | 120p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Performance of the banks has been a major issue for economic planners and policy makers as the gains of the real sector economy depends on how efficiently the banks are performing (Sharma and Mani, 2012). The good financial performance of the bank results in the benefits for the shareholders. On the other hand, the poor performance of the bank leads the financial institution to the possible crisis and insolvency.There exists the concern for evaluating the performance of the banking institution. Bikker (2010) demonstrated that measuring the performance of banks is hard and that simple indicators or complex models that have been devised differ strongly in quality. Profitability is the most significant and consistent indicator for measuring the performance of the banks as it contributes huge amount of profit that ultimately impacts its performance positively (Tariq et al., 2014).
Loans and advances and non performing loans are the major variables in determining the asset quality of the bank.The banks can improve their profitability through controlling the bank size and capital structure further reducing the liquidity (Alkhazaleh and Almsafir, 2014). However, there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the profitability of the bank and a general framework of liquidity management is needed by a bank to assure sufficient liquidity for executing their operations more efficiently (Alshatti, 2015).
The major objective of this study is to determine the impact of bank specific and macroeconomic variables on the profitability of Nepalese commercial banks. The study is based on the secondary data of 16 commercial banks comprising of 3 public banks, 7 private banks and 6 joint venture banks for the study period of 2008/09 to 2014/15 making the total of 112 observations. All the data were collected using secondary sources which include the official websites of selected commercial banks, Economic Bulletin and economic review published by Nepal Rastra Bank, Supervision reports of NRB and annual reports of commercial banks. This study has employed descriptive and causal-comparative research designs to deal with the fundamental issues concerned with the impact of internal and external factors on the banks’ profitability.
The results shows that NBBL has the highest average return on assets and ADBL has the highest average NIM among the selected Nepalese commercial banks during the study period. Likewise, the average non-performing loan is highest for RBBL (8.27 percent), average credit to deposit ratio is highest for ADBL (105.95 percent), average management efficiency is highest for ADBL (9.53 percent) and average capital adequacy ratio is highest for SBBL (17.7 percent). The descriptive statistics for public sector banks reveals that the average return on assets is 1.88 percent, average net interest margin is 81.47 percent, average non-performing loan is 6.96 percent, average credit to deposit ratio is 71.75 percent, average management efficiency is 6.91 percent, average capital adequacy ratio is 0.56 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion. Likewise, the descriptive statistics for joint venture banks reveals that the average return on assets is 2.50 percent, average net interest margin is 71.98 percent, average non-performing loan is 2.37 percent, average credit to deposit ratio is 67.31 percent, average management efficiency is 6.98 percent, average capital adequacy ratio is 11.68 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion. Similarly, the descriptive statistics for private banks reveals that the average return on assets is 1.26 percent, average net interest margin is 76.19 percent, average non-performing loan is 1.43 percent, average credit to deposit ratio is 82.17 percent, average management efficiency is 7.97 percent, average capital adequacy ratio is 12.46 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion.
The Pearson’s correlation analysis reveals that non-performing loan is positively related to ROA and negatively related to NIM for public and joint venture banks whereas non-performing loan is negatively related to ROA and NIM for private banks. As for liquidity position, credit to deposit ratio is positively related to the performance of both public and joint venture banks whereas in case of private banks CDR is negatively related to the bank performance. Similarly, management efficiency is positively related to the performance of public, joint venture and private banks. Likewise, the result shows that there is the positive relationship between capital adequacy ratio and profitability for public and private banks whereas it is negatively related to the performance of joint venture banks. The result also shows that inflation is negatively related to the performance of public banks and joint venture banks. As for private banks, the inflation is negatively related to ROA and positively related to NIM. Similarly, the result shows money supply is positively related to ROA and NIM for public banks whereas it is negatively related to ROA and NIM for joint venture bank.
The regression results show that non-performing loan is positively significant to return on assets in case of public banks and joint venture banks whereas it is negatively related to return on assets at 5 percent level of significance in case of private banks. Similarly, credit to deposit ratio and management efficiency has a positive and significant impact on the performance of public and joint venture banks. The result shows the positive of capital adequacy ratio on return on assets of public banks and private banks where the beta coefficient of private banks is not significant. However, in case of joint venture banks capital adequacy ratio has the negative and significant impact on return on assets at 5 percent level of significance. Likewise, the result shows that the beta coefficient for money supply is with respect to return on assets in case of public banks and private banks, where the beta coefficient is significant only for private banks at 5 percent level of significance.
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Impact of banks-specific and macroeconomic factors on the profitability of Nepalese commercial banks: a comparative study of public, joint venture and private banks [printed text] / Erika Shakya, Author . - 2017 . - 120p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Performance of the banks has been a major issue for economic planners and policy makers as the gains of the real sector economy depends on how efficiently the banks are performing (Sharma and Mani, 2012). The good financial performance of the bank results in the benefits for the shareholders. On the other hand, the poor performance of the bank leads the financial institution to the possible crisis and insolvency.There exists the concern for evaluating the performance of the banking institution. Bikker (2010) demonstrated that measuring the performance of banks is hard and that simple indicators or complex models that have been devised differ strongly in quality. Profitability is the most significant and consistent indicator for measuring the performance of the banks as it contributes huge amount of profit that ultimately impacts its performance positively (Tariq et al., 2014).
Loans and advances and non performing loans are the major variables in determining the asset quality of the bank.The banks can improve their profitability through controlling the bank size and capital structure further reducing the liquidity (Alkhazaleh and Almsafir, 2014). However, there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the profitability of the bank and a general framework of liquidity management is needed by a bank to assure sufficient liquidity for executing their operations more efficiently (Alshatti, 2015).
The major objective of this study is to determine the impact of bank specific and macroeconomic variables on the profitability of Nepalese commercial banks. The study is based on the secondary data of 16 commercial banks comprising of 3 public banks, 7 private banks and 6 joint venture banks for the study period of 2008/09 to 2014/15 making the total of 112 observations. All the data were collected using secondary sources which include the official websites of selected commercial banks, Economic Bulletin and economic review published by Nepal Rastra Bank, Supervision reports of NRB and annual reports of commercial banks. This study has employed descriptive and causal-comparative research designs to deal with the fundamental issues concerned with the impact of internal and external factors on the banks’ profitability.
The results shows that NBBL has the highest average return on assets and ADBL has the highest average NIM among the selected Nepalese commercial banks during the study period. Likewise, the average non-performing loan is highest for RBBL (8.27 percent), average credit to deposit ratio is highest for ADBL (105.95 percent), average management efficiency is highest for ADBL (9.53 percent) and average capital adequacy ratio is highest for SBBL (17.7 percent). The descriptive statistics for public sector banks reveals that the average return on assets is 1.88 percent, average net interest margin is 81.47 percent, average non-performing loan is 6.96 percent, average credit to deposit ratio is 71.75 percent, average management efficiency is 6.91 percent, average capital adequacy ratio is 0.56 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion. Likewise, the descriptive statistics for joint venture banks reveals that the average return on assets is 2.50 percent, average net interest margin is 71.98 percent, average non-performing loan is 2.37 percent, average credit to deposit ratio is 67.31 percent, average management efficiency is 6.98 percent, average capital adequacy ratio is 11.68 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion. Similarly, the descriptive statistics for private banks reveals that the average return on assets is 1.26 percent, average net interest margin is 76.19 percent, average non-performing loan is 1.43 percent, average credit to deposit ratio is 82.17 percent, average management efficiency is 7.97 percent, average capital adequacy ratio is 12.46 percent, average inflation rate is 2.23 percent and average money supply is Rs. 1180.33 billion.
The Pearson’s correlation analysis reveals that non-performing loan is positively related to ROA and negatively related to NIM for public and joint venture banks whereas non-performing loan is negatively related to ROA and NIM for private banks. As for liquidity position, credit to deposit ratio is positively related to the performance of both public and joint venture banks whereas in case of private banks CDR is negatively related to the bank performance. Similarly, management efficiency is positively related to the performance of public, joint venture and private banks. Likewise, the result shows that there is the positive relationship between capital adequacy ratio and profitability for public and private banks whereas it is negatively related to the performance of joint venture banks. The result also shows that inflation is negatively related to the performance of public banks and joint venture banks. As for private banks, the inflation is negatively related to ROA and positively related to NIM. Similarly, the result shows money supply is positively related to ROA and NIM for public banks whereas it is negatively related to ROA and NIM for joint venture bank.
The regression results show that non-performing loan is positively significant to return on assets in case of public banks and joint venture banks whereas it is negatively related to return on assets at 5 percent level of significance in case of private banks. Similarly, credit to deposit ratio and management efficiency has a positive and significant impact on the performance of public and joint venture banks. The result shows the positive of capital adequacy ratio on return on assets of public banks and private banks where the beta coefficient of private banks is not significant. However, in case of joint venture banks capital adequacy ratio has the negative and significant impact on return on assets at 5 percent level of significance. Likewise, the result shows that the beta coefficient for money supply is with respect to return on assets in case of public banks and private banks, where the beta coefficient is significant only for private banks at 5 percent level of significance.
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