| Title : | Bank-specific and macroeconomic determinants of non-performing loans of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Prerana Singh, Author | | Publication Date: | 2016 | | Pagination: | 100p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Banking sectors play a key role in the development of an economy. The stability of banking sector is important for the development of an economy. The primary function of bank is to mobilize deposits from surplus units to deficit units in the form of loan and advances in various sectors such as agricultural, industry, personal and governments. However, in recent times, the banks have become very cautious in extending loans due to increasing volume of non-performing loans (Sontakke and Tiwari, 2013). A non-performing loan is one in which the maturity date has passed but the least part of the loan is still outstanding. This implies that the principal or interest on these loans have been left unpaid for at least 90 days (Caprio and Klingebiel, 1996). The success of commercial banks depends on profitability. Loan is the major component of earning assets of commercial banks. However, the profitability will be more if the bank have less non-performing loan. On the other hand, if the non-performing loan is high, the banks may not be able to reap profit. Instead, they may be in loss because the banks need to put reserves for the amount of non-performing loans (Farhan et al., 2012). This study focus on dependent variable non-performing loans which consists of three proxies: Non-performing loans, credit risk and non-performing loan to total assets.
The major purpose of the study is to examine the bank-specific and macroeconomic determinants of non-performing loans of Nepalese commercial banks. The specific objectives of this study are (a) to analyze the structure and pattern of dependent variables and independent variables. (b) to assess the affect of bank specific variables and macroeconomic variables on non-performing loans of the commercial banks. (c) to evaluate the factors affecting credit risk of Nepalese commercial banks. (d) to examine the possible factors affecting the non-performing loans to total assets of Nepalese commercial banks.
The study is based on descriptive and causal-comparative research designs. The descriptive research design has been adopted to undertake fact-finding operation searching for adequate information about the impact of bank size, return on assets, return on equity, capital adequacy ratio, loan loss provision, gross domestic product and inflation on non-performing loans of Nepalese commercial banks. Moreover, this study also emphasizes on cause and effect relationship between non-performing loans and its determinants in Nepalese context. This study is based on the secondary data which are gathered from 20 commercial banks in Nepal with 140 total number of observations for the study period 2008-2014. The main sources of data are official website of concern commercial banks, annual reports of commercial banks, Supervision Reports published by NRB, annual reports of respective banks and published journals along with the publications of the World Bank.
The result shows that average non-performing loan is highest for RBBL and lowest for LXBL. The average credit risk is highest for RBBL and lowest for EBL. Similarly, the capital adequacy ratio is highest for NMB and lowest for RBBL. The study reveals that bank size and loan loss provision have positive relationship with non-performing loan. Return on assets and return on equity are negatively related to the non-performing loan. It indicates that increase in return on assets and return on equity lead to decrease in nonperforming loan. Regarding the macroeconomic variable, the study found that non-performing loan is negatively related to inflation. The regression result shows that beta coefficients are positive for bank size and loan loss provision with non-performing loans; whereas beta coefficients are negative for return on assets, return on equity, capital adequacy ratio and inflation. However, the beta coefficients are significant for bank size, return on assets and capital adequacy ratio and loan loss provision only.
The major conclusion of the study is that bank size, return on assets, capital adequacy ratio, loan loss provisions plays a significant role in determining the non-performing loan of Nepalese commercial banks.
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Bank-specific and macroeconomic determinants of non-performing loans of Nepalese commercial banks [printed text] / Prerana Singh, Author . - 2016 . - 100p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Banking sectors play a key role in the development of an economy. The stability of banking sector is important for the development of an economy. The primary function of bank is to mobilize deposits from surplus units to deficit units in the form of loan and advances in various sectors such as agricultural, industry, personal and governments. However, in recent times, the banks have become very cautious in extending loans due to increasing volume of non-performing loans (Sontakke and Tiwari, 2013). A non-performing loan is one in which the maturity date has passed but the least part of the loan is still outstanding. This implies that the principal or interest on these loans have been left unpaid for at least 90 days (Caprio and Klingebiel, 1996). The success of commercial banks depends on profitability. Loan is the major component of earning assets of commercial banks. However, the profitability will be more if the bank have less non-performing loan. On the other hand, if the non-performing loan is high, the banks may not be able to reap profit. Instead, they may be in loss because the banks need to put reserves for the amount of non-performing loans (Farhan et al., 2012). This study focus on dependent variable non-performing loans which consists of three proxies: Non-performing loans, credit risk and non-performing loan to total assets.
The major purpose of the study is to examine the bank-specific and macroeconomic determinants of non-performing loans of Nepalese commercial banks. The specific objectives of this study are (a) to analyze the structure and pattern of dependent variables and independent variables. (b) to assess the affect of bank specific variables and macroeconomic variables on non-performing loans of the commercial banks. (c) to evaluate the factors affecting credit risk of Nepalese commercial banks. (d) to examine the possible factors affecting the non-performing loans to total assets of Nepalese commercial banks.
The study is based on descriptive and causal-comparative research designs. The descriptive research design has been adopted to undertake fact-finding operation searching for adequate information about the impact of bank size, return on assets, return on equity, capital adequacy ratio, loan loss provision, gross domestic product and inflation on non-performing loans of Nepalese commercial banks. Moreover, this study also emphasizes on cause and effect relationship between non-performing loans and its determinants in Nepalese context. This study is based on the secondary data which are gathered from 20 commercial banks in Nepal with 140 total number of observations for the study period 2008-2014. The main sources of data are official website of concern commercial banks, annual reports of commercial banks, Supervision Reports published by NRB, annual reports of respective banks and published journals along with the publications of the World Bank.
The result shows that average non-performing loan is highest for RBBL and lowest for LXBL. The average credit risk is highest for RBBL and lowest for EBL. Similarly, the capital adequacy ratio is highest for NMB and lowest for RBBL. The study reveals that bank size and loan loss provision have positive relationship with non-performing loan. Return on assets and return on equity are negatively related to the non-performing loan. It indicates that increase in return on assets and return on equity lead to decrease in nonperforming loan. Regarding the macroeconomic variable, the study found that non-performing loan is negatively related to inflation. The regression result shows that beta coefficients are positive for bank size and loan loss provision with non-performing loans; whereas beta coefficients are negative for return on assets, return on equity, capital adequacy ratio and inflation. However, the beta coefficients are significant for bank size, return on assets and capital adequacy ratio and loan loss provision only.
The major conclusion of the study is that bank size, return on assets, capital adequacy ratio, loan loss provisions plays a significant role in determining the non-performing loan of Nepalese commercial banks.
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