| Title : | Determinants of banks profitability in Nepal | | Material Type: | printed text | | Authors: | Navin Kumar Mahatha, Author | | Publication Date: | 2017 | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Bank profits
| | Class number: | 338.709 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, financial sector development plays vital role for appropriate functioning of whole economy.
The banks and financial institutions are special components of a healthy and wealthy financial system of the country (Alam et al., 2011). It receives money from those who want to save in the form of deposits and it lends money to those who need it. Banking sector plays the significant role in overall development of the economy in all countries, thus it is said that the banking sector mirrors the larger economy (Singh &Dutta, 2013). Banks motivate people to keep their surplus money as deposits in the bank then bank utilize that money by providing loan to these people who have deficit and need of that fund or by investing that fund in other profitable sector (Selgin, 1988).
In the Nepalese financial system, commercial banks are the major mobilizer and disbursers of financial resources. They have all pervasive roles in the growth of a developing country like Nepal. The role of banks in accelerating the economic development of a country like Nepal has been increasingly recognized. They are specially called upon to use their resources to attain social upliftment and speedier economic development (Rai, 2004).
Financial sector is regarded as one of the major areas of the economy that plays a vital role in developing nation. A strong financial system promotes investment by financial productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. In Nepal several commercial banks entered in to the business after liberalization in 1989, deregulation advancement in information technology and globalization. Since then financial institutions were free to enter the market. The development in financial sector and bank performance is of great concern in today’s competitive banking industry. Banking Sector development have been a regular feature in the Nepalese financial system, conducted mainly to improve the performance of commercial banks on the one hand and to improve the effectiveness and efficiency of the banking system and the economy in general.The major objective of the study is to analyze the determinants of profitability of commercial banks in Nepal. The specific objectives are as follows:a) to evaluate whether the change in number of bank has significant impact on the ROE and NIM of the commercial banks,b) to evaluate whether the change in interest rate spread of the bank has significant impact on the profitability of the commercial banks. c)to examine the impact of real GDP per capita growth on bank performance, d) To evaluate whether the stock market capitalization to GDP ratio has significant impact on the profitability of the commercial banks.
The major purpose of this study is to examine the explanatory power of internal and external variables on performance of Nepalese commercial banks. Specifically, bank competition, GDP growth rate, market interest rate, relative size of the bank, stock market capitalization, cash reserve ratio, bank capital, bank loan and inflation rate on performance of Nepalese commercial banks. The study is based on the secondary data of 21 Nepalese commercial banks for the period of 2009/10 to 2013/14 with a total of 126 observations. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of financial sector development variables on Nepalese commercial banks.
The result shows that number of the bank (bank competition), relative size of the bank, stock market capitalization, bank capital and cash reserve ratio are the major factors of that affects the bank performance on Nepalese commercial banks. The result reveals that stock market capitalization have positive relation with bank profitability. This indicates that increase in stock market capitalization leads to increase in profitability of the banks. The results also show that numbers of banks have negative relationship with return on equity, which indicates that more the banks are in the market, lower would be the return on equity. Similarly, bank capital has positive relationship with net interest margin, which indicates that higher the bank capital, higher would be the net interest margin. The regression results show that inflation rate have positive and significant beta coefficient for net interest margin. Likewise, results show that cash reserve ratios have positive and significant relationship with net interest margin. However, relative size of the bank has negative impact on return on equity, this indicates that increase in relative size of the bank leads to decrease in return on equity. Likewise, cash reserve ratio has negative impact on return on equity.
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Determinants of banks profitability in Nepal [printed text] / Navin Kumar Mahatha, Author . - 2017 . - ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Bank profits
| | Class number: | 338.709 | | Abstract: | Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, financial sector development plays vital role for appropriate functioning of whole economy.
The banks and financial institutions are special components of a healthy and wealthy financial system of the country (Alam et al., 2011). It receives money from those who want to save in the form of deposits and it lends money to those who need it. Banking sector plays the significant role in overall development of the economy in all countries, thus it is said that the banking sector mirrors the larger economy (Singh &Dutta, 2013). Banks motivate people to keep their surplus money as deposits in the bank then bank utilize that money by providing loan to these people who have deficit and need of that fund or by investing that fund in other profitable sector (Selgin, 1988).
In the Nepalese financial system, commercial banks are the major mobilizer and disbursers of financial resources. They have all pervasive roles in the growth of a developing country like Nepal. The role of banks in accelerating the economic development of a country like Nepal has been increasingly recognized. They are specially called upon to use their resources to attain social upliftment and speedier economic development (Rai, 2004).
Financial sector is regarded as one of the major areas of the economy that plays a vital role in developing nation. A strong financial system promotes investment by financial productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. In Nepal several commercial banks entered in to the business after liberalization in 1989, deregulation advancement in information technology and globalization. Since then financial institutions were free to enter the market. The development in financial sector and bank performance is of great concern in today’s competitive banking industry. Banking Sector development have been a regular feature in the Nepalese financial system, conducted mainly to improve the performance of commercial banks on the one hand and to improve the effectiveness and efficiency of the banking system and the economy in general.The major objective of the study is to analyze the determinants of profitability of commercial banks in Nepal. The specific objectives are as follows:a) to evaluate whether the change in number of bank has significant impact on the ROE and NIM of the commercial banks,b) to evaluate whether the change in interest rate spread of the bank has significant impact on the profitability of the commercial banks. c)to examine the impact of real GDP per capita growth on bank performance, d) To evaluate whether the stock market capitalization to GDP ratio has significant impact on the profitability of the commercial banks.
The major purpose of this study is to examine the explanatory power of internal and external variables on performance of Nepalese commercial banks. Specifically, bank competition, GDP growth rate, market interest rate, relative size of the bank, stock market capitalization, cash reserve ratio, bank capital, bank loan and inflation rate on performance of Nepalese commercial banks. The study is based on the secondary data of 21 Nepalese commercial banks for the period of 2009/10 to 2013/14 with a total of 126 observations. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of financial sector development variables on Nepalese commercial banks.
The result shows that number of the bank (bank competition), relative size of the bank, stock market capitalization, bank capital and cash reserve ratio are the major factors of that affects the bank performance on Nepalese commercial banks. The result reveals that stock market capitalization have positive relation with bank profitability. This indicates that increase in stock market capitalization leads to increase in profitability of the banks. The results also show that numbers of banks have negative relationship with return on equity, which indicates that more the banks are in the market, lower would be the return on equity. Similarly, bank capital has positive relationship with net interest margin, which indicates that higher the bank capital, higher would be the net interest margin. The regression results show that inflation rate have positive and significant beta coefficient for net interest margin. Likewise, results show that cash reserve ratios have positive and significant relationship with net interest margin. However, relative size of the bank has negative impact on return on equity, this indicates that increase in relative size of the bank leads to decrease in return on equity. Likewise, cash reserve ratio has negative impact on return on equity.
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