| Title : | Problem loans and cost efficiency in Nepalese Commercial Banks | | Material Type: | printed text | | Authors: | Shreesh Parajuli, Author | | Publication Date: | 2015 | | Pagination: | 78p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Bank and banking
Bank loans
| | Class number: | 332.12 | | Abstract: | Researchers over the last decades believe that there is a connection between problem loans and cost efficiency. There are many studies published to examine this relationship. The relationship between problem loans and cost efficiency are studied extensively by several researchers. In regards to the relationship between problem loans and cost efficiency, researchers found different results. Some of the scholars’ state that, problem loans has negative relationship with cost efficiency. Meanwhile other researchers indicate the nonlinear negative and positive relationship between problem loans and cost efficiency.
This study investigates the impact of problem loans and cost efficiency and determinants of problem 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 problem loans and cost efficiencies and factors influencing these parameters in the context of Nepal.The study 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, foreign ownership, credit growth, percentage of loan to deposit and percentage loan loss provision to total loans) and control variables (inflation, real GDP growth). Similarly this study covers data on bank specific variables for 7 years ranging for year 2008 to 2014.
The study reveals that problem loans have significant impact on cost efficiency of banks and suggests specifically that bank should try to minimize problem 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 problem loans of commercial banks in Nepal. However, the result did not support the significant effect of return of assets, inflation and real GDP growth. Similarly problem loans, capital adequacy ratio, bank size and loan loss provision were statistically significant factors that determine the cost efficiency of commercial banks in Nepal. However, the result did not support the significant effect of foreign ownership, inflation and real GDP growth.
The study observed a negative relationship between return on assets and problem loans indicating that profitable banks have low problem 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 problem 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 problem 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 problem loans and cost efficiency, perception of loan officers, operation officer as well as managers regarding the impact of problem 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 impact of problem loans on cost efficiency and their determinants.
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Problem loans and cost efficiency in Nepalese Commercial Banks [printed text] / Shreesh Parajuli, Author . - 2015 . - 78p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Bank and banking
Bank loans
| | Class number: | 332.12 | | Abstract: | Researchers over the last decades believe that there is a connection between problem loans and cost efficiency. There are many studies published to examine this relationship. The relationship between problem loans and cost efficiency are studied extensively by several researchers. In regards to the relationship between problem loans and cost efficiency, researchers found different results. Some of the scholars’ state that, problem loans has negative relationship with cost efficiency. Meanwhile other researchers indicate the nonlinear negative and positive relationship between problem loans and cost efficiency.
This study investigates the impact of problem loans and cost efficiency and determinants of problem 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 problem loans and cost efficiencies and factors influencing these parameters in the context of Nepal.The study 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, foreign ownership, credit growth, percentage of loan to deposit and percentage loan loss provision to total loans) and control variables (inflation, real GDP growth). Similarly this study covers data on bank specific variables for 7 years ranging for year 2008 to 2014.
The study reveals that problem loans have significant impact on cost efficiency of banks and suggests specifically that bank should try to minimize problem 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 problem loans of commercial banks in Nepal. However, the result did not support the significant effect of return of assets, inflation and real GDP growth. Similarly problem loans, capital adequacy ratio, bank size and loan loss provision were statistically significant factors that determine the cost efficiency of commercial banks in Nepal. However, the result did not support the significant effect of foreign ownership, inflation and real GDP growth.
The study observed a negative relationship between return on assets and problem loans indicating that profitable banks have low problem 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 problem 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 problem 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 problem loans and cost efficiency, perception of loan officers, operation officer as well as managers regarding the impact of problem 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 impact of problem loans on cost efficiency and their determinants.
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