| Title : | Credit smoothing and determinants of loan provision: a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Rajiv Shrestha, Author | | Publication Date: | 2016 | | Pagination: | 100p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Credit
| | Class number: | 332.7 | | Abstract: | In commercial banking business, loan loss provision has a significant role to protect against the banks from failure. A loan loss provision is a charge to commercial banks’ profit and loss statements, which creates a reserve on the balance sheet of the banks. It can be viewed as a cushioning mechanism which ensures that commercial banks do not lose the entire loan balance outstanding unexpectedly. Without the adjustment for loan losses, the amount of funds lent on the balance sheet would include possible future losses (Craigwell and Elliott, 2011). Thus, the loan loss provision is a mechanism created in the banking system to get out of the financial instability resulted from high non performing loan ratio. This study focuses on the dependent variable namely loan loss provision which has been measured in terms of log of loan loss provision and loan loss provision to total loan.
This study examines the determinants of loan loss provision of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of non-performing loan, capital adequacy ratio, return on assets, loan to assets ratio, earnings before tax and provision, loan growth, GDP and inflation on bank’s loan loss provision. The study has selected 18 Nepalese commercial banks for the period 2008-2014. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The study results show that the average loan loss provision is highest for Agricultural development bank limited and lowest for Prime bank limited. Similarly, the average loan loss provision to total loan is highest for Agricultural development bank limited and lowest for Laxmi bank limited. Non-performing loans show positive relationship with loan loss provision of Nepalese commercial banks. This explains that the firms with higher non-performing loan will have higher loan loss provision. Capital adequacy ratio show negative relationship with loan loss provision of Nepalese commercial banks. This demonstrates that the firms with higher capital adequacy ratio will have lower loan loss provision. Return on assets show positive relationship
with loan loss provision of Nepalese commercial banks. This indicates that higher the firms return on assets, higher will be the loan loss provision.
Loan growth rate shows negative relationship with loan loss provision of Nepalese commercial banks. This reveals that the firms with higher loan growth rate will have lower loan loss provision. Also, earnings before tax and provision show positive relationship with natural logarithm of loan loss provision of Nepalese commercial banks. This explains that higher the firms earning before tax and provision, higher will be the loan loss provision. Loan to assets ratio is found to be positively correlated with loan loss provision, whereas, GDP growth rate and inflation were found to be negatively correlated with loan loss provision of Nepalese commercial banks.
|
Credit smoothing and determinants of loan provision: a case of Nepalese commercial banks [printed text] / Rajiv Shrestha, Author . - 2016 . - 100p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Credit
| | Class number: | 332.7 | | Abstract: | In commercial banking business, loan loss provision has a significant role to protect against the banks from failure. A loan loss provision is a charge to commercial banks’ profit and loss statements, which creates a reserve on the balance sheet of the banks. It can be viewed as a cushioning mechanism which ensures that commercial banks do not lose the entire loan balance outstanding unexpectedly. Without the adjustment for loan losses, the amount of funds lent on the balance sheet would include possible future losses (Craigwell and Elliott, 2011). Thus, the loan loss provision is a mechanism created in the banking system to get out of the financial instability resulted from high non performing loan ratio. This study focuses on the dependent variable namely loan loss provision which has been measured in terms of log of loan loss provision and loan loss provision to total loan.
This study examines the determinants of loan loss provision of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of non-performing loan, capital adequacy ratio, return on assets, loan to assets ratio, earnings before tax and provision, loan growth, GDP and inflation on bank’s loan loss provision. The study has selected 18 Nepalese commercial banks for the period 2008-2014. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis.
The study results show that the average loan loss provision is highest for Agricultural development bank limited and lowest for Prime bank limited. Similarly, the average loan loss provision to total loan is highest for Agricultural development bank limited and lowest for Laxmi bank limited. Non-performing loans show positive relationship with loan loss provision of Nepalese commercial banks. This explains that the firms with higher non-performing loan will have higher loan loss provision. Capital adequacy ratio show negative relationship with loan loss provision of Nepalese commercial banks. This demonstrates that the firms with higher capital adequacy ratio will have lower loan loss provision. Return on assets show positive relationship
with loan loss provision of Nepalese commercial banks. This indicates that higher the firms return on assets, higher will be the loan loss provision.
Loan growth rate shows negative relationship with loan loss provision of Nepalese commercial banks. This reveals that the firms with higher loan growth rate will have lower loan loss provision. Also, earnings before tax and provision show positive relationship with natural logarithm of loan loss provision of Nepalese commercial banks. This explains that higher the firms earning before tax and provision, higher will be the loan loss provision. Loan to assets ratio is found to be positively correlated with loan loss provision, whereas, GDP growth rate and inflation were found to be negatively correlated with loan loss provision of Nepalese commercial banks.
|
|
Refine your search Apply to external sourcesCredit smoothing and determinants of loan provision: a case of Nepalese commercial banks / Rajiv Shrestha
