| Title : | The effects of bank capital on profitability and risk of Nepalese commercial Banks | | Material Type: | printed text | | Authors: | Jagriti Bohora, Author | | Publication Date: | 2016 | | Pagination: | 88p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Banks and banking
| | Class number: | 332.109 | | Abstract: | Banking sector plays a key role in the financial sector as an intermediary between borrowers and lenders. The depositing and lending operations are the essential activities in the household consumption and company’s investments parts on both domestic and foreign transactions that have significant impact on economic growth and stability. In modern finance, banks play a crucial role in the process of financial intermediation (Fungacova & Poghosyan, 2011). It is important for investigating the impact of capital on profitability and risk. More importantly, the recent credit crisis has emphasized the need to further understand the determinants of bank risk in an environment of lower bank capital (Festicet al., 2011). It is thus no surprise that the relationship between bank capital and risk has recently become a cause for concern, especially as the level of capital may give rise to both beneficial and adverse effects on bank profitability (Lee & Hsieh, 2013). Calomiris & Kahn (1991) banker’s have typically argued that being forced to hold more capital would jeopardize their performance, especially profitability, and the argument that higher capital need not be beneficial has found some support in the academic literature as well. The goal of this paper is to examine the effect of bank capital in profitability and risk.
The major purpose of the study is to examine the effects on bank capital on profitability and risk of Nepalese commercial banks. And the specific objectives are: to identify the structure and pattern of return on assets, return on equity, variance of return on assets, capital adequacy ratio, liquidity ratio, foreign ownership, inflation and gross domestic product, to find out the relationship of bank specific variables (capital adequacy ratio, liquidity ratio, foreign ownership) and macroeconomic variables (inflation and gross domestic product) with return of assets, return on equity and variance of return on assets, to examine the effect of gross domestic product and inflation on profitability and risk and to determine the major factors affecting profitability and risk of Nepalese commercial banks.
This study is based on the secondary data which includes the observation period of 6 years from 2009 to 2014 for 17 commercial banks which make total number of observations of 102.The secondary data are collected from the various issues of Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of concerned sample banks. For macroeconomic variables including inflation and gross domestic product growth rate, data have been collected from Quarterly Economic Bulletin publish by Nepal Rastra Bank. The study employed descriptive and causal comparative research designs.
The result shows that capital adequacy ratio and foreign ownership are positively correlated to return on asset indicating higher the capital adequacy ratio and foreign ownership, higher would be return on assets. The inflation and gross domestic product are positively correlated to return on assets. Liquidity ratio is negatively correlated to return on assets. Hence, it indicates that higher the liquidity, lower would be ROA. However, capital adequacy ratio and liquidity ratio are negatively correlated to return on equity. The foreign ownership, inflation and gross domestic product are positively related to return on equity. Similarly, capital adequacy ratio and foreign ownership are positively related to variance of return on assets. Likewise, inflation and gross domestic product are positively related to variance of return on assets. Liquidity ratio is negatively related to variance of return on assets. The beta coefficients for capital adequacy ratio and foreign ownership are positive. It indicates that capital adequacy and foreign ownership have significant positive impact on ROA. The beta coefficients for inflation and gross domestic product are positive with ROA. The beta coefficient is negative for liquidity ratio. The beta coefficients for foreign ownership, inflation and gross domestic product are positive and significant with ROE. The capital adequacy ratio and liquidity ratio has negative impact on return on equity. The beta coefficients for capital adequacy ratio and foreign ownership are positive with variance of return on assets. The beta coefficients are positive for inflation and gross domestic product. However, liquidity has significant negative impact on variance of return on assets. The study found that liquidity ratio and foreign ownership are the major determinants of Nepalese commercial banks profitability and risk.
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The effects of bank capital on profitability and risk of Nepalese commercial Banks [printed text] / Jagriti Bohora, Author . - 2016 . - 88p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Banks and banking
| | Class number: | 332.109 | | Abstract: | Banking sector plays a key role in the financial sector as an intermediary between borrowers and lenders. The depositing and lending operations are the essential activities in the household consumption and company’s investments parts on both domestic and foreign transactions that have significant impact on economic growth and stability. In modern finance, banks play a crucial role in the process of financial intermediation (Fungacova & Poghosyan, 2011). It is important for investigating the impact of capital on profitability and risk. More importantly, the recent credit crisis has emphasized the need to further understand the determinants of bank risk in an environment of lower bank capital (Festicet al., 2011). It is thus no surprise that the relationship between bank capital and risk has recently become a cause for concern, especially as the level of capital may give rise to both beneficial and adverse effects on bank profitability (Lee & Hsieh, 2013). Calomiris & Kahn (1991) banker’s have typically argued that being forced to hold more capital would jeopardize their performance, especially profitability, and the argument that higher capital need not be beneficial has found some support in the academic literature as well. The goal of this paper is to examine the effect of bank capital in profitability and risk.
The major purpose of the study is to examine the effects on bank capital on profitability and risk of Nepalese commercial banks. And the specific objectives are: to identify the structure and pattern of return on assets, return on equity, variance of return on assets, capital adequacy ratio, liquidity ratio, foreign ownership, inflation and gross domestic product, to find out the relationship of bank specific variables (capital adequacy ratio, liquidity ratio, foreign ownership) and macroeconomic variables (inflation and gross domestic product) with return of assets, return on equity and variance of return on assets, to examine the effect of gross domestic product and inflation on profitability and risk and to determine the major factors affecting profitability and risk of Nepalese commercial banks.
This study is based on the secondary data which includes the observation period of 6 years from 2009 to 2014 for 17 commercial banks which make total number of observations of 102.The secondary data are collected from the various issues of Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of concerned sample banks. For macroeconomic variables including inflation and gross domestic product growth rate, data have been collected from Quarterly Economic Bulletin publish by Nepal Rastra Bank. The study employed descriptive and causal comparative research designs.
The result shows that capital adequacy ratio and foreign ownership are positively correlated to return on asset indicating higher the capital adequacy ratio and foreign ownership, higher would be return on assets. The inflation and gross domestic product are positively correlated to return on assets. Liquidity ratio is negatively correlated to return on assets. Hence, it indicates that higher the liquidity, lower would be ROA. However, capital adequacy ratio and liquidity ratio are negatively correlated to return on equity. The foreign ownership, inflation and gross domestic product are positively related to return on equity. Similarly, capital adequacy ratio and foreign ownership are positively related to variance of return on assets. Likewise, inflation and gross domestic product are positively related to variance of return on assets. Liquidity ratio is negatively related to variance of return on assets. The beta coefficients for capital adequacy ratio and foreign ownership are positive. It indicates that capital adequacy and foreign ownership have significant positive impact on ROA. The beta coefficients for inflation and gross domestic product are positive with ROA. The beta coefficient is negative for liquidity ratio. The beta coefficients for foreign ownership, inflation and gross domestic product are positive and significant with ROE. The capital adequacy ratio and liquidity ratio has negative impact on return on equity. The beta coefficients for capital adequacy ratio and foreign ownership are positive with variance of return on assets. The beta coefficients are positive for inflation and gross domestic product. However, liquidity has significant negative impact on variance of return on assets. The study found that liquidity ratio and foreign ownership are the major determinants of Nepalese commercial banks profitability and risk.
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