| Title : | Bank profitability and liquidity management: a comparative study of public banks, joint venture banks and private banks | | Material Type: | printed text | | Authors: | Dan Bahadur Bhandari, Author | | Publication Date: | 2016 | | Pagination: | 107p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Bank liquidity
Liquidity (Economics)
| | Class number: | 332.632 | | Abstract: | Liquidity management is anidea that is gettinga thoughtful attention all over the world especially with the present financial conditions and the state of the world economy. Some of the outstanding corporate goals comprise the need to exploit profit, preserve high level of liquidity in order to guarantee safety and to achieve the highest level of owner’s net worth attached with the accomplishment of other corporate purposes. The prominence of liquidity management as it affects corporate productivity in today’s business cannot be over emphasized. The critical part in managing working capital is to maintain the liquidity in day-to-day operation to safeguard its smooth running and meets its obligation (Eljelly, 2004). Liquidity plays a significant role in the effective functioning of a business firm.
Liquidity is the ability of financialorganizations to meet their short-term obligations (Olagunju et al., 2011). It is the ability of banks to change their assets into cash in a shortest possible time. Nwankwo (2004)explained that the banking liquidity management is simply to meet financial commitment whether it is withdrawing from a current account or interbank deposit or a maturing issue of commercial paper. Bank liquidity refers to the ability of a bank to raise certain amount of funds at a certain cost within a certain period of time to discharge obligations (Andabai and Bingilar, 2015). The greater the amount of funds a bank can raise in a certain time at a specified cost, the more liquid the bank is (Mehar, 2001). Liquidity management is important to financial management decision. The optimal liquidity management can be accomplished by a company that manage the trade-off between profitability and liquidity management (Bhunia and Khan, 2011).
The major objective of the study is to assess the relationship between bank profitability and liquidity management of the Nepalese commercial banks. The study is based on secondary data of 23 commercial banks with 138 observations for the period of 2009/10 to 2014/15. 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 relationship between liquidity management and bank profitability of Nepalese commercial banks.
The result shows that NBBL has highest average ROA, and NABIL has the highest average ROE among the selected commercial banks throughout the study period. Similarly, the average liquid assets to total assets ratio is highest for SCBL (34.52 percent), average quick ratio is highest for NCC (35.11 times), average cash to deposit ratio is highest for MBL (5.53 percent), average investment in government securities is highest for RBBL (RS. 19.72 billion) and average capital adequacy ratio is highest for JBL (14.33 percent).
The descriptive statistics for public bank shows that the average return on assets , return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 1.92 percent, -6.12 percent, 25.73 percent, 3.52 percent, 3.06 time, Rs. 12.71 billion, 2.57 percent and Rs. 81.46 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 2.15 percent, 23.47 percent, 26.78 percent, 2.39 percent, 10.58 time, Rs. 6.28 billion, 14.60 percent and Rs. 11.84 billion respectively. The result for the private bank reveals that the average return on assets, return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 1.38 percent ,13.45 percent, 25.72 percent, 3.27 percent, 17.73 time, Rs. 2.83 billion, 69.58 percent and Rs. 23.91 billion respectively.
The study of public banks shows that firm size and capital adequacy ratio is positively related to return on assets and return on equity whereas quick ratio, liquid assets to total assets ratio are negatively related to return on assets and return on equity. Similarly, the study of joint venture banks reveals that investment in government securities and firm size of the banks are negatively related to return on assets whereas liquid assets to total assets ratio and capital adequacy ratio are positively related to return on assets and return on equity. Likewise, the study of private banks shows that investment in government securities and firm size is positively related to return on assets and return on equity whereas liquid assets to total assets ratio, cash to deposit ratio, quick ratio and capital adequacy ratio are negatively related to return on assets and return on equity.
The regression results show that liquid assets to total assets ratio of the banks have significant negative impact on the bank profitability of public banks of Nepal with return on assets indicating higher the liquid assets to total assets ratio, lower would be the return on assets whereas it has positive and significant impact on return on assets of joint venture banks. Similarly, firm size has significant negative impact on the return on assets for joint venture banks whereas it has positive and significant impact on the return on assets for the private banks. The study also reveals that investment in government securities has significant positive impact with return on equity of public and private banks of Nepal indicating higher the investment in government securities, higher will be the return on equity. Similarly, the study also found that liquid assets to total assets ratio and firm size has significant positive impact on the return on equity for joint venture banks indicating that higher the liquid assets to total assets ratio and firm size, higher would be the return on equity.
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Bank profitability and liquidity management: a comparative study of public banks, joint venture banks and private banks [printed text] / Dan Bahadur Bhandari, Author . - 2016 . - 107p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Bank liquidity
Liquidity (Economics)
| | Class number: | 332.632 | | Abstract: | Liquidity management is anidea that is gettinga thoughtful attention all over the world especially with the present financial conditions and the state of the world economy. Some of the outstanding corporate goals comprise the need to exploit profit, preserve high level of liquidity in order to guarantee safety and to achieve the highest level of owner’s net worth attached with the accomplishment of other corporate purposes. The prominence of liquidity management as it affects corporate productivity in today’s business cannot be over emphasized. The critical part in managing working capital is to maintain the liquidity in day-to-day operation to safeguard its smooth running and meets its obligation (Eljelly, 2004). Liquidity plays a significant role in the effective functioning of a business firm.
Liquidity is the ability of financialorganizations to meet their short-term obligations (Olagunju et al., 2011). It is the ability of banks to change their assets into cash in a shortest possible time. Nwankwo (2004)explained that the banking liquidity management is simply to meet financial commitment whether it is withdrawing from a current account or interbank deposit or a maturing issue of commercial paper. Bank liquidity refers to the ability of a bank to raise certain amount of funds at a certain cost within a certain period of time to discharge obligations (Andabai and Bingilar, 2015). The greater the amount of funds a bank can raise in a certain time at a specified cost, the more liquid the bank is (Mehar, 2001). Liquidity management is important to financial management decision. The optimal liquidity management can be accomplished by a company that manage the trade-off between profitability and liquidity management (Bhunia and Khan, 2011).
The major objective of the study is to assess the relationship between bank profitability and liquidity management of the Nepalese commercial banks. The study is based on secondary data of 23 commercial banks with 138 observations for the period of 2009/10 to 2014/15. 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 relationship between liquidity management and bank profitability of Nepalese commercial banks.
The result shows that NBBL has highest average ROA, and NABIL has the highest average ROE among the selected commercial banks throughout the study period. Similarly, the average liquid assets to total assets ratio is highest for SCBL (34.52 percent), average quick ratio is highest for NCC (35.11 times), average cash to deposit ratio is highest for MBL (5.53 percent), average investment in government securities is highest for RBBL (RS. 19.72 billion) and average capital adequacy ratio is highest for JBL (14.33 percent).
The descriptive statistics for public bank shows that the average return on assets , return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 1.92 percent, -6.12 percent, 25.73 percent, 3.52 percent, 3.06 time, Rs. 12.71 billion, 2.57 percent and Rs. 81.46 billion respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 2.15 percent, 23.47 percent, 26.78 percent, 2.39 percent, 10.58 time, Rs. 6.28 billion, 14.60 percent and Rs. 11.84 billion respectively. The result for the private bank reveals that the average return on assets, return on equity, liquid assets to total assets ratio, cash to deposit ratio, quick ratio, investment in government securities, capital adequacy ratio and firm size is 1.38 percent ,13.45 percent, 25.72 percent, 3.27 percent, 17.73 time, Rs. 2.83 billion, 69.58 percent and Rs. 23.91 billion respectively.
The study of public banks shows that firm size and capital adequacy ratio is positively related to return on assets and return on equity whereas quick ratio, liquid assets to total assets ratio are negatively related to return on assets and return on equity. Similarly, the study of joint venture banks reveals that investment in government securities and firm size of the banks are negatively related to return on assets whereas liquid assets to total assets ratio and capital adequacy ratio are positively related to return on assets and return on equity. Likewise, the study of private banks shows that investment in government securities and firm size is positively related to return on assets and return on equity whereas liquid assets to total assets ratio, cash to deposit ratio, quick ratio and capital adequacy ratio are negatively related to return on assets and return on equity.
The regression results show that liquid assets to total assets ratio of the banks have significant negative impact on the bank profitability of public banks of Nepal with return on assets indicating higher the liquid assets to total assets ratio, lower would be the return on assets whereas it has positive and significant impact on return on assets of joint venture banks. Similarly, firm size has significant negative impact on the return on assets for joint venture banks whereas it has positive and significant impact on the return on assets for the private banks. The study also reveals that investment in government securities has significant positive impact with return on equity of public and private banks of Nepal indicating higher the investment in government securities, higher will be the return on equity. Similarly, the study also found that liquid assets to total assets ratio and firm size has significant positive impact on the return on equity for joint venture banks indicating that higher the liquid assets to total assets ratio and firm size, higher would be the return on equity.
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