| Title : | Impact of internal and external factors on profitability of Nepalese commercial banks | | Material Type: | printed text | | Authors: | NIrajan Bam, Author | | Publication Date: | 2018 | | Pagination: | 90p. | | Size: | GRP/Thesis | | Accompanying material: | 13/B | | Languages : | English | | Abstract: | Commercial banks play an important role in worldwide economies and their employees are best sources of delivering good services to their customers. The financial services industry is one of the most competitive and highly globalized sectors due to the extensive use of information technology system by firms operating in the sectors. The financial sector plays an important role in the development process of the country through financial intermediation. Strong financial institutions are critical for increased investment, economic growth, employment and poverty alleviation, (Kyalo, 2002). As banking industry is an essential part of the economy, it plays an important role as intermediary to serve the economy. A sound and profitable banking system in a better position endures negative distress and contributes more significantly to the growth of the financial system (Aburime, 2009).
The impact of profitability by the internal and external factors is vital .This study along with the bank managers equally valuable for other stakeholders such as public, government, Nepal Rastra Bank and other financial institutions. This extensive study of determinants of profitability of commercial banks is most important from point of view of managerial together with regulatory views. From the managerial view it is important to investigate the determinants associated with success to figure out the actions that can push up the performance of banks. Regulators of banks are interested in protection along with soundness of the banking system and they are protecting the confidence of public. Other stakeholder can also get benefit from this study to know that how banks are performing. Whether they should put their money in banks or invest in other business and what factors that can affect
There are many aspects of the performance of banks that can be analyzed. Flamini et al. (2009) noted that bank profits provide an important source of equity if re-invested into business. This could lead to safe banks, high profits and financial stability. Therefore, profitability of banking sector is important in both individual and macroeconomic level. It is the expression of how banks run in the environment where they operate. Furthermore, Gottard et al. (2004) stated that profitability is vital in maintaining the stability of the banking system and contributes to the state of the financial system. But on the other hand, a high profitability is not very good.
This study was designed to analyze the impact of internal and external factors in the profitability of Nepalese commercial banks. The study has employed descriptive and causal-comparative research designs to deal with the issue associate with the banks internal factors, external factors and performance of Nepalese commercial banks. It explains the real and actual condition, and facts.
This study is also based on causal comparative research design. This design has been adopted to ascertain and understand the directions, magnitudes and forms of observed relationship between explanatory variables and explained variables. A causal-comparative research design has also seeks to find cause and effect relationships between independent and dependent variables after an action or event has already occurred. More specifically, the study analyzes the relationship between the internal factors like bank size, capital adequacy ratio, liquidity, credit risk and external factors like GDP, inflation of the Nepalese commercial banks during the time period of 2008/09 to 2016/17.
The correlation matrix shows that capital adequacy ratio has a positive relationship with return on assets. Similarly, bank size has a positive relationship with return on assets. However, liquidity ratio has a negative relationship with return on assets. It reveals that the higher the liquidity ratio, lower would be the return on assets. Likewise, credit risk has a negative relationship with return on assets. It indicates that higher the credit risk, lower would be the return on assets. Similarly, gross domestic product has a positive relationship with return on assets. The result also shows that inflation has a negative relationship with return on assets. Similarly, the result also shows that capital adequacy ratio has a positive relationship with return on equity. It indicates that higher the capital adequacy ratio, higher would be the return on equity. Similarly, bank size has a positive relationship with return on equity. It indicates that the larger the bank size in term of assets, higher would be the return on equity. However, liquidity ratio has a positive relationship with return on equity. It reveals that the higher the liquidity ratio, higher would be the return on equity. Likewise, credit risk has a negative relationship with return on equity. It indicates that higher the credit risk, lower would be the return on equity. Similarly, gross domestic product has a positive relationship with return on equity. It means that higher the gross domestic product, higher would be the return on equity. The result also shows that inflation has a positive relationship with return on equity.
The regression result indicates that the beta coefficients for bank size are positive with return on assets. It indicates that bank size has a positive impact on return on assets. This finding is consistent with the findings of Sufian and Habibullah (2009). However, the beta coefficients for credit risk are negative with return on assets. It states that credit risk has a positive impact on return on assets. This finding is similar to the findings of Jiménez et al. (2014). Additionally, the beta coefficients for liquidity are negative with return on assets. It indicates that liquidity has a negative impact on return on assets. The result is similar to the findings of Molyneux and Thorton (1992). Similarly, the beta coefficients for gross domestic product are also positive with return on assets. It indicates that gross domestic product has a positive impact on return on assets. The result is similar to the findings of the Azam and Siddhiqui (2012). The beta coefficients for bank size and capital adequacy ratio are significant at 1 percent level of significance. The results also show that the beta coefficients for liquidity are significant at 5 percent level of significance.
The regression result indicates that beta coefficients for bank size are positive with return on equity. It indicates that bank size has a positive impact on return on equity. This finding is consistent with the findings of Jonsson (2008). However, the beta coefficients for credit risk are negative with return on equity. It states that credit risk has a positive impact on return on equity. This finding is similar to the findings of Syahru (2006). The result also shows that the beta coefficients for liquidity are positive with return on equity. It indicates that liquidity has a positive impact on return on equity. The result is similar to the findings of Bourke (1989). Similarly, the beta coefficients for gross domestic product are also positive with return on equity. It indicates that gross domestic product has a positive impact on return on equity. The result is similar to the findings of the Goddard et al. (2004). The beta coefficients for bank size are significant at 1 percent level of significance. The results also show that the beta coefficients for liquidity and credit risk are significant at 5 percent level of significance.
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Impact of internal and external factors on profitability of Nepalese commercial banks [printed text] / NIrajan Bam, Author . - 2018 . - 90p. ; GRP/Thesis + 13/B. Languages : English | Abstract: | Commercial banks play an important role in worldwide economies and their employees are best sources of delivering good services to their customers. The financial services industry is one of the most competitive and highly globalized sectors due to the extensive use of information technology system by firms operating in the sectors. The financial sector plays an important role in the development process of the country through financial intermediation. Strong financial institutions are critical for increased investment, economic growth, employment and poverty alleviation, (Kyalo, 2002). As banking industry is an essential part of the economy, it plays an important role as intermediary to serve the economy. A sound and profitable banking system in a better position endures negative distress and contributes more significantly to the growth of the financial system (Aburime, 2009).
The impact of profitability by the internal and external factors is vital .This study along with the bank managers equally valuable for other stakeholders such as public, government, Nepal Rastra Bank and other financial institutions. This extensive study of determinants of profitability of commercial banks is most important from point of view of managerial together with regulatory views. From the managerial view it is important to investigate the determinants associated with success to figure out the actions that can push up the performance of banks. Regulators of banks are interested in protection along with soundness of the banking system and they are protecting the confidence of public. Other stakeholder can also get benefit from this study to know that how banks are performing. Whether they should put their money in banks or invest in other business and what factors that can affect
There are many aspects of the performance of banks that can be analyzed. Flamini et al. (2009) noted that bank profits provide an important source of equity if re-invested into business. This could lead to safe banks, high profits and financial stability. Therefore, profitability of banking sector is important in both individual and macroeconomic level. It is the expression of how banks run in the environment where they operate. Furthermore, Gottard et al. (2004) stated that profitability is vital in maintaining the stability of the banking system and contributes to the state of the financial system. But on the other hand, a high profitability is not very good.
This study was designed to analyze the impact of internal and external factors in the profitability of Nepalese commercial banks. The study has employed descriptive and causal-comparative research designs to deal with the issue associate with the banks internal factors, external factors and performance of Nepalese commercial banks. It explains the real and actual condition, and facts.
This study is also based on causal comparative research design. This design has been adopted to ascertain and understand the directions, magnitudes and forms of observed relationship between explanatory variables and explained variables. A causal-comparative research design has also seeks to find cause and effect relationships between independent and dependent variables after an action or event has already occurred. More specifically, the study analyzes the relationship between the internal factors like bank size, capital adequacy ratio, liquidity, credit risk and external factors like GDP, inflation of the Nepalese commercial banks during the time period of 2008/09 to 2016/17.
The correlation matrix shows that capital adequacy ratio has a positive relationship with return on assets. Similarly, bank size has a positive relationship with return on assets. However, liquidity ratio has a negative relationship with return on assets. It reveals that the higher the liquidity ratio, lower would be the return on assets. Likewise, credit risk has a negative relationship with return on assets. It indicates that higher the credit risk, lower would be the return on assets. Similarly, gross domestic product has a positive relationship with return on assets. The result also shows that inflation has a negative relationship with return on assets. Similarly, the result also shows that capital adequacy ratio has a positive relationship with return on equity. It indicates that higher the capital adequacy ratio, higher would be the return on equity. Similarly, bank size has a positive relationship with return on equity. It indicates that the larger the bank size in term of assets, higher would be the return on equity. However, liquidity ratio has a positive relationship with return on equity. It reveals that the higher the liquidity ratio, higher would be the return on equity. Likewise, credit risk has a negative relationship with return on equity. It indicates that higher the credit risk, lower would be the return on equity. Similarly, gross domestic product has a positive relationship with return on equity. It means that higher the gross domestic product, higher would be the return on equity. The result also shows that inflation has a positive relationship with return on equity.
The regression result indicates that the beta coefficients for bank size are positive with return on assets. It indicates that bank size has a positive impact on return on assets. This finding is consistent with the findings of Sufian and Habibullah (2009). However, the beta coefficients for credit risk are negative with return on assets. It states that credit risk has a positive impact on return on assets. This finding is similar to the findings of Jiménez et al. (2014). Additionally, the beta coefficients for liquidity are negative with return on assets. It indicates that liquidity has a negative impact on return on assets. The result is similar to the findings of Molyneux and Thorton (1992). Similarly, the beta coefficients for gross domestic product are also positive with return on assets. It indicates that gross domestic product has a positive impact on return on assets. The result is similar to the findings of the Azam and Siddhiqui (2012). The beta coefficients for bank size and capital adequacy ratio are significant at 1 percent level of significance. The results also show that the beta coefficients for liquidity are significant at 5 percent level of significance.
The regression result indicates that beta coefficients for bank size are positive with return on equity. It indicates that bank size has a positive impact on return on equity. This finding is consistent with the findings of Jonsson (2008). However, the beta coefficients for credit risk are negative with return on equity. It states that credit risk has a positive impact on return on equity. This finding is similar to the findings of Syahru (2006). The result also shows that the beta coefficients for liquidity are positive with return on equity. It indicates that liquidity has a positive impact on return on equity. The result is similar to the findings of Bourke (1989). Similarly, the beta coefficients for gross domestic product are also positive with return on equity. It indicates that gross domestic product has a positive impact on return on equity. The result is similar to the findings of the Goddard et al. (2004). The beta coefficients for bank size are significant at 1 percent level of significance. The results also show that the beta coefficients for liquidity and credit risk are significant at 5 percent level of significance.
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