| Title : | Impact of monetary policy instruments on profitability : a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Dilli Raj Pandey, Author | | Publication Date: | 2016 | | Pagination: | 120p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Monetary policy
| | Class number: | 332.46 | | Abstract: | Monetary policy is the monetary authority’s policy to manage the supply of money with a view to achieve predetermined macroeconomic goals. Monetary policy helps in influencing the performance of the economy through as factors such as inflation, national output, and employment through its control on bank credit, quantity of money, bank deposit, interest rate etc. Monetary policy is one of the tools of controlling money supply in an economy of a nation by the monetary authorities in order to achieve a desirable economic growth (Isisaila andImoughele, 2015).
Monetary policy regulates the supply of money by frequently targeting a rate of interest and inflation aiming to promote economic growth and stability. Monetary policy can be expansionary and contractionary policy. Expansionary policy increases the total supply of money in the economy more rapidly than usual whereas the contractionary policy decrease the total money supply in the economy (Mankiw, 2013)
In the context of Nepal, Khatiwada (1994) stated that monetary policy is mainly a tool for management of money supply. Its role in the Nepalese economy should also be primarily sought in economic stabilization rather than in economic growth.Pokharel (2009) stated that the primary tool of monetary policy is open market operations. Sigdel (2006) revealed that the historical development of the Nepalese monetary policy focusing on their features, goals and instruments
The major purpose of the study is to analyze the impact of monetary policy instruments on firm profitability in the context of Nepalese commercial banks whereas the specific objectives includes to investigate the impact of monetary policy instruments on firm’s profitability, to measure the relationship between cash reserve ratio, bank rate and investment on Treasury bills on the firm’s profitability, to identify the major monetary policy instruments that plays key role in influencing the profitability of commercial banks.
The secondary data are used for the purpose of the study which was collected from annual reports of the sample banks respectively. To examine the impact of monetary policy instruments on profitability of Nepalese commercial banks data were mainly collected from the website of Nepal Rastra bank and each banks annual reports for the period of 2004/05 to 2013/14. This study entirely based on 170 observations of 17 commercial banks.
The result revealed that there is abeta coefficients are negative for investment on treasury bills, statutory liquidity ratio and cash reserve ratio with return on equity. The negative coefficient for investment on treasury bills with return on equity indicate that higher the investment on treasury bills lower would be the return on equity.Similarly, negative coefficient of statutory liquidity ratio with return on equity.Likewise, the negative coefficient of cash reserve ratio with return on equity these indicates that higher the cash reserve ratio lower would be the return on equity. The positive beta coefficients have been observed for broad money supply with return on equity.Similarly, the negative beta coefficient for statutory liquidity ratio indicate that increase in statutory liquidity ratio would lead to decrease in net interest margin.Overall, regression results indicates that beta coefficient are positive for investment on treasury bills, broad money supply and cash reserve ratio. This results reveal that higher the investment on Treasury bill higher would be the return on assets.However, the beta coefficient are negative for bank rate and statutory liquidity ratio.
The major conclusion of the study is that the cash reserve ratio, bank rate and investment on treasury bills are the most dominant variables in the monetary policy instruments to analyze it impact on the profitability of Nepalese commercial banks. Cash reserve ratio has found to have negative relationship with return on equity which indicate that higher the cash reserve ratio lower could be the bank profitability. Likewise, bank rate has found to be negative relationship with return on assets. Similarly, investment on treasury bills has found to be negative relationship with the return on equity whereas the positive relationship has found with return on assets and net interest margin. The study also conclude that positive relationship with investment on treasury bills, broad money supply and cash reserve ratio. Similarly, the positive beta coefficient for cash reserve ratio indicate that higher the cash reserve ratio higher would be the return on assets.
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Impact of monetary policy instruments on profitability : a case of Nepalese commercial banks [printed text] / Dilli Raj Pandey, Author . - 2016 . - 120p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Monetary policy
| | Class number: | 332.46 | | Abstract: | Monetary policy is the monetary authority’s policy to manage the supply of money with a view to achieve predetermined macroeconomic goals. Monetary policy helps in influencing the performance of the economy through as factors such as inflation, national output, and employment through its control on bank credit, quantity of money, bank deposit, interest rate etc. Monetary policy is one of the tools of controlling money supply in an economy of a nation by the monetary authorities in order to achieve a desirable economic growth (Isisaila andImoughele, 2015).
Monetary policy regulates the supply of money by frequently targeting a rate of interest and inflation aiming to promote economic growth and stability. Monetary policy can be expansionary and contractionary policy. Expansionary policy increases the total supply of money in the economy more rapidly than usual whereas the contractionary policy decrease the total money supply in the economy (Mankiw, 2013)
In the context of Nepal, Khatiwada (1994) stated that monetary policy is mainly a tool for management of money supply. Its role in the Nepalese economy should also be primarily sought in economic stabilization rather than in economic growth.Pokharel (2009) stated that the primary tool of monetary policy is open market operations. Sigdel (2006) revealed that the historical development of the Nepalese monetary policy focusing on their features, goals and instruments
The major purpose of the study is to analyze the impact of monetary policy instruments on firm profitability in the context of Nepalese commercial banks whereas the specific objectives includes to investigate the impact of monetary policy instruments on firm’s profitability, to measure the relationship between cash reserve ratio, bank rate and investment on Treasury bills on the firm’s profitability, to identify the major monetary policy instruments that plays key role in influencing the profitability of commercial banks.
The secondary data are used for the purpose of the study which was collected from annual reports of the sample banks respectively. To examine the impact of monetary policy instruments on profitability of Nepalese commercial banks data were mainly collected from the website of Nepal Rastra bank and each banks annual reports for the period of 2004/05 to 2013/14. This study entirely based on 170 observations of 17 commercial banks.
The result revealed that there is abeta coefficients are negative for investment on treasury bills, statutory liquidity ratio and cash reserve ratio with return on equity. The negative coefficient for investment on treasury bills with return on equity indicate that higher the investment on treasury bills lower would be the return on equity.Similarly, negative coefficient of statutory liquidity ratio with return on equity.Likewise, the negative coefficient of cash reserve ratio with return on equity these indicates that higher the cash reserve ratio lower would be the return on equity. The positive beta coefficients have been observed for broad money supply with return on equity.Similarly, the negative beta coefficient for statutory liquidity ratio indicate that increase in statutory liquidity ratio would lead to decrease in net interest margin.Overall, regression results indicates that beta coefficient are positive for investment on treasury bills, broad money supply and cash reserve ratio. This results reveal that higher the investment on Treasury bill higher would be the return on assets.However, the beta coefficient are negative for bank rate and statutory liquidity ratio.
The major conclusion of the study is that the cash reserve ratio, bank rate and investment on treasury bills are the most dominant variables in the monetary policy instruments to analyze it impact on the profitability of Nepalese commercial banks. Cash reserve ratio has found to have negative relationship with return on equity which indicate that higher the cash reserve ratio lower could be the bank profitability. Likewise, bank rate has found to be negative relationship with return on assets. Similarly, investment on treasury bills has found to be negative relationship with the return on equity whereas the positive relationship has found with return on assets and net interest margin. The study also conclude that positive relationship with investment on treasury bills, broad money supply and cash reserve ratio. Similarly, the positive beta coefficient for cash reserve ratio indicate that higher the cash reserve ratio higher would be the return on assets.
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