| Title : | Determinants of credit risk and capital adequacy: a comparative study of Nepalese public, joint venture and private banks | | Material Type: | printed text | | Authors: | Sadikshya Thapa, Author | | Publication Date: | 2016 | | Pagination: | 136p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Capital adequacy
| | Class number: | 332.1206 | | Abstract: | Financial sector is the backbone of the economy of a country. It works as a facilitator for achieving sustained economic growth through efficient monetary intermediation. Financial systems perform the essential economic function of channeling funds from units who have saved surplus funds to units who have a shortage of funds. Likewise, capital adequacy has long been regarded as an important parameter from a financial economics viewpoint since it is linked with a firm’s ability to meet the demands of various stakeholders and its decision is amongst the major issues in business firms. The credit rating companies assess the capital adequacy and strategic planning in a firm in order to determine the credit worthiness. Therefore, the assessment on capital adequacy and credit risk is important because of its importance to profitability, long term sustenance and economic growth. Different models have been developed to explain the determinants of credit risk and capital adequacy. There is an accepted norm in finance that bank specific variables and macroeconomic variables explain the behavior of capital adequacy and credit risk.
Most of the empirical work investigates the determinants of credit risk and capital adequacy with bank specific variables and macroeconomic variables mostly in the developed economy. However such studies are lacking in the developing economy. Therefore, this study tries to investigate the relationship between the profitability and stock return with bank specific variables and macroeconomic variables evidence from Nepalese commercial banks.
The major objective of the study is to examine the determinants of credit risk and capital adequacy in the context of Nepalese private, public and joint venture commercial banks. The study is based on the secondary data of 20 Nepalese commercial banks for the period of 2007/08 to 2014/15 with a total of 160 observations. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of 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 effect of bank specific and macroeconomic factors on profitability and stock return of Nepalese commercial banks.
The analysis of credit risk indicates that the percentage of credit risk is highest for NBB (10.19 percent) and lowest for EBL (0.59 percent). It has been found that credit risk has decreased in the majority of the selected commercial banks during the study period. NMB has highest average total capital ratio (17.21 percent) and RBBL has lowest total capital ratio (-15.27) percent). When the capital is compared over a period of time for individual banks, it is noticed that capital has increased in majority of the selected commercial banks in recent years. The average return on asset is highest for NBB (5.45 percent) and lowest for MBL (0.60 percent). It has been found that return on asset has increased in the majority of the selected commercial banks during the study period.
The descriptive analysis for joint venture banks shows that mean CR and CAP of selected commercial banks are 3.07 percent and 11.06 percent respectively. The descriptive analysis for private domestic bank shows that mean CR and CAP of selected commercial banks are 1.81 percent and 12.58 percent respectively. The descriptive analysis for public sector banks shows that mean CR and CAP of selected commercial banks are 8.10 percent and -2.07 percent respectively.
The study reveals that bank size and capital adequacy are negatively correlated to credit of public, private and joint venture banks. This indicates that higher the bank size and capital adequacy, lower would be the credit risk. However, assets quality is also positively related to credit risk. Similarly, bank size is positively related to capital adequacy in the case of joint venture banks, whereas it is negative for public and private banks. Likewise, GDP growth is positively related to capital adequacy in the case of private domestic banks. However, inflation is positively related to credit risk and capital adequacy in the case of joint venture banks, whereas it is negative for public and private banks.
The results of the regression analysis show that there is positive and significant impact of assets quality on CR for private domestic banks, whereas there is negative and significant impact of management efficiency on CR. Similarly, in case of public banks, there is positive impact of capital adequacy and credit growth on CR. The results revealed that there is positive impact of tangibility on CAP for joint venture and public sector banks. However, there is negative and significant impact of return on assets and bank size on CAP. Similarly, the study reveals that there is positive and significant impact of liquidity on CAP for private domestic banks. Thus, this study concludes that assets quality and bank size are the major determinants of banks’ credit risk, whereas tangibility is the major determinant of banks’ capital adequacy.
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Determinants of credit risk and capital adequacy: a comparative study of Nepalese public, joint venture and private banks [printed text] / Sadikshya Thapa, Author . - 2016 . - 136p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Capital adequacy
| | Class number: | 332.1206 | | Abstract: | Financial sector is the backbone of the economy of a country. It works as a facilitator for achieving sustained economic growth through efficient monetary intermediation. Financial systems perform the essential economic function of channeling funds from units who have saved surplus funds to units who have a shortage of funds. Likewise, capital adequacy has long been regarded as an important parameter from a financial economics viewpoint since it is linked with a firm’s ability to meet the demands of various stakeholders and its decision is amongst the major issues in business firms. The credit rating companies assess the capital adequacy and strategic planning in a firm in order to determine the credit worthiness. Therefore, the assessment on capital adequacy and credit risk is important because of its importance to profitability, long term sustenance and economic growth. Different models have been developed to explain the determinants of credit risk and capital adequacy. There is an accepted norm in finance that bank specific variables and macroeconomic variables explain the behavior of capital adequacy and credit risk.
Most of the empirical work investigates the determinants of credit risk and capital adequacy with bank specific variables and macroeconomic variables mostly in the developed economy. However such studies are lacking in the developing economy. Therefore, this study tries to investigate the relationship between the profitability and stock return with bank specific variables and macroeconomic variables evidence from Nepalese commercial banks.
The major objective of the study is to examine the determinants of credit risk and capital adequacy in the context of Nepalese private, public and joint venture commercial banks. The study is based on the secondary data of 20 Nepalese commercial banks for the period of 2007/08 to 2014/15 with a total of 160 observations. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of 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 effect of bank specific and macroeconomic factors on profitability and stock return of Nepalese commercial banks.
The analysis of credit risk indicates that the percentage of credit risk is highest for NBB (10.19 percent) and lowest for EBL (0.59 percent). It has been found that credit risk has decreased in the majority of the selected commercial banks during the study period. NMB has highest average total capital ratio (17.21 percent) and RBBL has lowest total capital ratio (-15.27) percent). When the capital is compared over a period of time for individual banks, it is noticed that capital has increased in majority of the selected commercial banks in recent years. The average return on asset is highest for NBB (5.45 percent) and lowest for MBL (0.60 percent). It has been found that return on asset has increased in the majority of the selected commercial banks during the study period.
The descriptive analysis for joint venture banks shows that mean CR and CAP of selected commercial banks are 3.07 percent and 11.06 percent respectively. The descriptive analysis for private domestic bank shows that mean CR and CAP of selected commercial banks are 1.81 percent and 12.58 percent respectively. The descriptive analysis for public sector banks shows that mean CR and CAP of selected commercial banks are 8.10 percent and -2.07 percent respectively.
The study reveals that bank size and capital adequacy are negatively correlated to credit of public, private and joint venture banks. This indicates that higher the bank size and capital adequacy, lower would be the credit risk. However, assets quality is also positively related to credit risk. Similarly, bank size is positively related to capital adequacy in the case of joint venture banks, whereas it is negative for public and private banks. Likewise, GDP growth is positively related to capital adequacy in the case of private domestic banks. However, inflation is positively related to credit risk and capital adequacy in the case of joint venture banks, whereas it is negative for public and private banks.
The results of the regression analysis show that there is positive and significant impact of assets quality on CR for private domestic banks, whereas there is negative and significant impact of management efficiency on CR. Similarly, in case of public banks, there is positive impact of capital adequacy and credit growth on CR. The results revealed that there is positive impact of tangibility on CAP for joint venture and public sector banks. However, there is negative and significant impact of return on assets and bank size on CAP. Similarly, the study reveals that there is positive and significant impact of liquidity on CAP for private domestic banks. Thus, this study concludes that assets quality and bank size are the major determinants of banks’ credit risk, whereas tangibility is the major determinant of banks’ capital adequacy.
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