| Title : | Effects of bank capital adequacy on profitability and risk Nepalese commercial banks | | Material Type: | printed text | | Authors: | Sulochana Rijal, Author | | Publication Date: | 2016 | | Pagination: | 99p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Capital adequacy
| | Class number: | 332.120 | | Abstract: | Banking sector plays an important role in economic development of the country. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk that banks are exposed to. Banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' profit and risk taking behavior, as well as it impacts on competitiveness of banks (Dahl, 1992). Bank capital and risk positioning are simultaneously determined and are affected by both exogenous and endogenous factors. In general, management tends to balance increases in capital with increases in risk, but these tradeoffs are affected by regulatory pressure. Kwan & Eisenbeis (1996) indicate that there is significant relationship of bank capital with profitability and risk.
The major purpose of this study is to identify the firm-specific and macroeconomic effects of bank capital adequacy on profitability and risk of Nepalese commercial banks. The study has the following specific objectives is to analyze the structure and pattern on return on assets, return on equity and loan loss provision, to analyze the impact of capital adequacy ratio, liquidity, deposit to total assets and loan to total assets on the profitability, to evaluate the effect of deposit to total assets and loan to total assets on risk and to evaluate the impact of GDP and inflation on profitability and risk.
This study based on the secondary sources of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank Bulletin published by central bank of Nepal, annual reports of the selected commercial banks. The research design adopted in this study is causal comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, liquidity, deposit to total assets and loan to total assets and macroeconomic variables GDP and inflation with dependent variable such as return on assets, return on equity and loan loss provision. The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows that capital adequacy, loan to total assets, deposit to total assets and GDP are positively related to return on assets. This indicates that higher the capital adequacy, loan to total assets, deposit to total assets and GDP, higher would be return on assets. Likewise, Capital adequacy ratio, loan to total assets, deposit to total assets and GDP are positively related to return on equity indicating that higher the capital adequacy, loan to total assets, deposit to total assets and GDP, higher would be return on equity. However, liquidity and inflation are negatively related to ROA and ROE. This indicates that higher the liquidity in the banks, lower would be return on equity and return on assets. However, liquidity, capital adequacy ratio, loan to total assets, deposits to total assets, GDP and inflation are positively related to loan loss provision. This indicates that higher the liquidity, capital adequacy, loan to total assets, deposit to total assets, GDP and inflation, higher would be loan loss provision. The beta coefficient is positive for capital adequacy ratio, loan to total assets ratio, deposit to total assets and GDP with return on assets and return on equity whereas the beta coefficient is negative for liquidity and inflation with return on assets and return on equity. Likewise, the beta coefficient for capital adequacy ratio, loan to total assets, deposit to total assets, liquidity, inflation and GDP are positively related with loan loss provision. The beta coefficient is significant at 5 percent level of significance.
The major conclusion of the study is that higher the capital adequacy ratio, higher would be return on assets and return on equity of banks. Similarly, higher the deposit to total assets, higher would be return on assets and return on equity. The study also concludes that increase in loan to total assets rate leads to increase in loan loss provision.
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Effects of bank capital adequacy on profitability and risk Nepalese commercial banks [printed text] / Sulochana Rijal, Author . - 2016 . - 99p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Capital adequacy
| | Class number: | 332.120 | | Abstract: | Banking sector plays an important role in economic development of the country. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk that banks are exposed to. Banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' profit and risk taking behavior, as well as it impacts on competitiveness of banks (Dahl, 1992). Bank capital and risk positioning are simultaneously determined and are affected by both exogenous and endogenous factors. In general, management tends to balance increases in capital with increases in risk, but these tradeoffs are affected by regulatory pressure. Kwan & Eisenbeis (1996) indicate that there is significant relationship of bank capital with profitability and risk.
The major purpose of this study is to identify the firm-specific and macroeconomic effects of bank capital adequacy on profitability and risk of Nepalese commercial banks. The study has the following specific objectives is to analyze the structure and pattern on return on assets, return on equity and loan loss provision, to analyze the impact of capital adequacy ratio, liquidity, deposit to total assets and loan to total assets on the profitability, to evaluate the effect of deposit to total assets and loan to total assets on risk and to evaluate the impact of GDP and inflation on profitability and risk.
This study based on the secondary sources of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank Bulletin published by central bank of Nepal, annual reports of the selected commercial banks. The research design adopted in this study is causal comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, liquidity, deposit to total assets and loan to total assets and macroeconomic variables GDP and inflation with dependent variable such as return on assets, return on equity and loan loss provision. The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows that capital adequacy, loan to total assets, deposit to total assets and GDP are positively related to return on assets. This indicates that higher the capital adequacy, loan to total assets, deposit to total assets and GDP, higher would be return on assets. Likewise, Capital adequacy ratio, loan to total assets, deposit to total assets and GDP are positively related to return on equity indicating that higher the capital adequacy, loan to total assets, deposit to total assets and GDP, higher would be return on equity. However, liquidity and inflation are negatively related to ROA and ROE. This indicates that higher the liquidity in the banks, lower would be return on equity and return on assets. However, liquidity, capital adequacy ratio, loan to total assets, deposits to total assets, GDP and inflation are positively related to loan loss provision. This indicates that higher the liquidity, capital adequacy, loan to total assets, deposit to total assets, GDP and inflation, higher would be loan loss provision. The beta coefficient is positive for capital adequacy ratio, loan to total assets ratio, deposit to total assets and GDP with return on assets and return on equity whereas the beta coefficient is negative for liquidity and inflation with return on assets and return on equity. Likewise, the beta coefficient for capital adequacy ratio, loan to total assets, deposit to total assets, liquidity, inflation and GDP are positively related with loan loss provision. The beta coefficient is significant at 5 percent level of significance.
The major conclusion of the study is that higher the capital adequacy ratio, higher would be return on assets and return on equity of banks. Similarly, higher the deposit to total assets, higher would be return on assets and return on equity. The study also concludes that increase in loan to total assets rate leads to increase in loan loss provision.
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