| Title : | Ownership structure, risk and performance in Nepalese banking industries | | Material Type: | printed text | | Authors: | Bhawana Ojha, Author | | Publication Date: | 2015 | | Pagination: | 109p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Stock ownership
| | Class number: | 658.152 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of ownership is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between ownership structure, risk and performance are studied extensively in different period of time. In regards to the relationship between ownership structure, risk and profitability, different results are found. Some of the studies state that, there is a country where ownership structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of ownership structure and bank profitability. In the same way, some says that ownership is negatively related with risk. However, other says that it has significant positive relation with the level of risk involved in the banks.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on ownership structure, risk and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of ownership structure and some bank specific variables on risk and performance of Nepalese banks.
The results in the prior studies on ownership structure, risk and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the ownership structure, risk and performance of Nepalese commercial banks. For this, the sample of 20 commercial banks with data of 7 years from 2008 to 2004 has been taken. Data has been collected from various secondary sources like annual reports of
viii
sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like Return on Equity (ROE), Return on Assets (ROA) of the banks have been used as the dependent variable while Nonperforming loan (NPL) has been used as a measure of risk taking behavior. Ownership structure variables like government ownership, foreign ownership and private ownership, and bank specific variables like size, loan, liquidity, deposit and capital ratios have been considered as independent variables. Based on the results, foreign ownership, private ownership, capital and loans in Nepal are important ownership structure and bank specific variables in order of their relative importance that enhances the performance of the banks. To be more specific, foreign ownership, private ownership, capital and deposit are the independent variables that tend to influence the performance in positive manner. It implies that increase in any of these variables is likely to augment the performance of the banks. However, more use of private ownership, size, loan, liquidity, deposit and capital ratios in Nepal reduces the risk in commercial banking industry.
The recommendation put forward by this study is that banks are suggested to increase the proportion of foreign ownership and private ownership to have better performance. On the other hand, it is recommended to reduce the foreign and government ownership to reduce the risk (NPL) in the banks. The size and the loan ratio should be smaller to increase the performance on the banks. To minimize the risk, banks are suggested to hold highly liquid fund. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on risk and performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks’ risk taking behavior and performance evaluation. |
Ownership structure, risk and performance in Nepalese banking industries [printed text] / Bhawana Ojha, Author . - 2015 . - 109p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Stock ownership
| | Class number: | 658.152 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of ownership is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between ownership structure, risk and performance are studied extensively in different period of time. In regards to the relationship between ownership structure, risk and profitability, different results are found. Some of the studies state that, there is a country where ownership structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of ownership structure and bank profitability. In the same way, some says that ownership is negatively related with risk. However, other says that it has significant positive relation with the level of risk involved in the banks.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on ownership structure, risk and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of ownership structure and some bank specific variables on risk and performance of Nepalese banks.
The results in the prior studies on ownership structure, risk and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the ownership structure, risk and performance of Nepalese commercial banks. For this, the sample of 20 commercial banks with data of 7 years from 2008 to 2004 has been taken. Data has been collected from various secondary sources like annual reports of
viii
sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like Return on Equity (ROE), Return on Assets (ROA) of the banks have been used as the dependent variable while Nonperforming loan (NPL) has been used as a measure of risk taking behavior. Ownership structure variables like government ownership, foreign ownership and private ownership, and bank specific variables like size, loan, liquidity, deposit and capital ratios have been considered as independent variables. Based on the results, foreign ownership, private ownership, capital and loans in Nepal are important ownership structure and bank specific variables in order of their relative importance that enhances the performance of the banks. To be more specific, foreign ownership, private ownership, capital and deposit are the independent variables that tend to influence the performance in positive manner. It implies that increase in any of these variables is likely to augment the performance of the banks. However, more use of private ownership, size, loan, liquidity, deposit and capital ratios in Nepal reduces the risk in commercial banking industry.
The recommendation put forward by this study is that banks are suggested to increase the proportion of foreign ownership and private ownership to have better performance. On the other hand, it is recommended to reduce the foreign and government ownership to reduce the risk (NPL) in the banks. The size and the loan ratio should be smaller to increase the performance on the banks. To minimize the risk, banks are suggested to hold highly liquid fund. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on risk and performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks’ risk taking behavior and performance evaluation. |
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