| Title : | Relationship between liquidity risk and credit risk: a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Umesh Raj Pant, Author | | Publication Date: | 2017 | | Pagination: | 110p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Bank liquidity
| | Class number: | 339.53 | | Abstract: | Liquidity risk and credit risk are perceived as the major factors that influence the overall performance of the bank and financial institutions. Credit risk is one of the major factor which impact the overall performance of the banks therefore it should be managed properly otherwise it would lead to the total collapse of banks. Liquidity risk is another type of risk which bank cannot neglect as the greater liquidity risk leads to poor day to day operational performance. Particularly, many researchers believe that there is connection between liquidity risk and credit risk of banks. Many studies published to investigate this relationship. In regards to the relationship between liquidity risk and credit risk, researcher found different results. Some of the scholars believed that, liquidity risk and credit risk has positive relationship, some believed that there is negative relationship whereas, some scholars believed that there is no connection between these two risk factors.
This major objective of the study is to examine the relationship between liquidity risk and credit risk in case of Nepalese commercial banks. The study has employed descriptive and causal comparative research designs to deal with the major issues associated with relationship between liquidity risk and credit risk and factors influencing these parameters in the context of Nepal. The study is based on secondary data. The relationship between dependent and independent variables are analyzed in single step and multi-step regression analysis. The other variables used in the study are categorized into bank specific variables (bank size, assets quality i.e. loan loss provision to total loan, management inefficiency, capital adequacy ratio) and control variables (inflation rate and economic growth rate). The study covers the data from 2009/10 to 2014/15.
It is observed that credit risk, asset quality, economic growth rate, inflation rate, management inefficiency and capital adequacy ratio has positive correlation between liquidity risk of selected commercial bank during the study period. Bank size is negatively correlated with liquidity risk whereas positively correlated with credit risk during the study period. Similarly, asset quality, economic growth rate, inflation rate and management inefficiency ratio is positively related with credit risk during the observation period. Moreover, it is also found that capital adequacy ratio has negative impact on credit risk of selected commercial banks during the study period. More specifically, this study reveals that liquidity risk and credit risk are positively related. Likewise, the study also shows that higher the bank size, lower would be the liquidity risk. However, asset quality i.e. loan loss provision to total loan has positive impact on liquidity risk.This shows that higher loan loss provision leads to high level of liquidity risk. Likewise, management inefficiency and asset quality is positively related to credit risk whereas, capital adequacy ratio is negatively related to credit risk.
Finally, the study concludes that major determinant of liquidity risk and credit risk are assets quality i.e. loan loss provision to total loan and management inefficiency followed by capital adequacy ratio, bank size. However, the result shows that macroeconomic variables viz. inflation and economic growth rate has no any significant impact on liquidity risk and credit risk.The study found positive relationship between liquidity risk and credit risk. Hence, the banks should give due attention to manage both risks factors for the stability of the bank.
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Relationship between liquidity risk and credit risk: a case of Nepalese commercial banks [printed text] / Umesh Raj Pant, Author . - 2017 . - 110p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Bank liquidity
| | Class number: | 339.53 | | Abstract: | Liquidity risk and credit risk are perceived as the major factors that influence the overall performance of the bank and financial institutions. Credit risk is one of the major factor which impact the overall performance of the banks therefore it should be managed properly otherwise it would lead to the total collapse of banks. Liquidity risk is another type of risk which bank cannot neglect as the greater liquidity risk leads to poor day to day operational performance. Particularly, many researchers believe that there is connection between liquidity risk and credit risk of banks. Many studies published to investigate this relationship. In regards to the relationship between liquidity risk and credit risk, researcher found different results. Some of the scholars believed that, liquidity risk and credit risk has positive relationship, some believed that there is negative relationship whereas, some scholars believed that there is no connection between these two risk factors.
This major objective of the study is to examine the relationship between liquidity risk and credit risk in case of Nepalese commercial banks. The study has employed descriptive and causal comparative research designs to deal with the major issues associated with relationship between liquidity risk and credit risk and factors influencing these parameters in the context of Nepal. The study is based on secondary data. The relationship between dependent and independent variables are analyzed in single step and multi-step regression analysis. The other variables used in the study are categorized into bank specific variables (bank size, assets quality i.e. loan loss provision to total loan, management inefficiency, capital adequacy ratio) and control variables (inflation rate and economic growth rate). The study covers the data from 2009/10 to 2014/15.
It is observed that credit risk, asset quality, economic growth rate, inflation rate, management inefficiency and capital adequacy ratio has positive correlation between liquidity risk of selected commercial bank during the study period. Bank size is negatively correlated with liquidity risk whereas positively correlated with credit risk during the study period. Similarly, asset quality, economic growth rate, inflation rate and management inefficiency ratio is positively related with credit risk during the observation period. Moreover, it is also found that capital adequacy ratio has negative impact on credit risk of selected commercial banks during the study period. More specifically, this study reveals that liquidity risk and credit risk are positively related. Likewise, the study also shows that higher the bank size, lower would be the liquidity risk. However, asset quality i.e. loan loss provision to total loan has positive impact on liquidity risk.This shows that higher loan loss provision leads to high level of liquidity risk. Likewise, management inefficiency and asset quality is positively related to credit risk whereas, capital adequacy ratio is negatively related to credit risk.
Finally, the study concludes that major determinant of liquidity risk and credit risk are assets quality i.e. loan loss provision to total loan and management inefficiency followed by capital adequacy ratio, bank size. However, the result shows that macroeconomic variables viz. inflation and economic growth rate has no any significant impact on liquidity risk and credit risk.The study found positive relationship between liquidity risk and credit risk. Hence, the banks should give due attention to manage both risks factors for the stability of the bank.
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