| Title : | Determinants of off balance sheet activities in commercial banks of Nepal | | Material Type: | printed text | | Authors: | Chadani Pandey, Author | | Publication Date: | 2018 | | Pagination: | 101p. | | Size: | GRP/Thesis | | Accompanying material: | 11/B | | Languages : | English | | Abstract: | Executive summary
In the last few decades the banking system, across the globe, has witnessed an increasing usage of OBS activities as it is witnessed in banking area literatures. Since OBS activities offers several benefits in comparison to traditional banking activities (deposit collection and extending loan), there have been many hypotheses raised by researchers and policy analysts to justify the existence of these activities. These hypotheses include, generating of fee income, avoiding regulatory taxes, more flexibility at breakdown points, and risk management tool (Middi, 2016).
Off balance sheet activities have become an issue of global significance and have received attention for being a source of fee income that is beyond a bank’s balance sheet activities and avoiding regulatory costs (kasa,2013). Although much literature is available on off-balance sheet (OBS) activities in banking system, this is the first paper that investigates the off-balance sheet activities in Nepalese banking industry. As we know that private banks basically interested to earn profit from their business. In case of loss or a negative trend of profit or in case the rate of increasing profit is low, they want to neutralize these problems by entering into certain fee based activities. As a result of which they go for Forward exchange contracts, endorsements and acceptances and other fee based income (Swain and Panda, 2017).
It aims to test the variables that determine the OBS activities of Nepalese commercial banks using panel data set during the period of ten years from 2007/08 to 2016/17, with a sample of fifteen commercial banks. To answer research questions and test the hypotheses the study adopted the quantitative research approach. The model considers the impact of return on assets, net interest margin, capital adequacy ratio, net non- performing assets and liquidity on off balance sheet activities of banks. The variables were analyzed using various descriptive and inferential statistics. The descriptive statistical tool like minimum, maximum, mean, standard deviation, Coefficient of variation along with trend analysis were done on the variables under the study.
The result revealed that beta coefficients are negative for liquiditywith acceptance and endorsement. It indicates that liquidity has negative impact on acceptance and endorsement. The result also shows that non-performing loan has negative beta coefficients. It indicates that non-performing loan has negative impact on off-balance sheet activities.
The result shows that beta coefficients are positive for capital adequacy ratio. It indicates that capital adequacy ratio has positive impact on acceptance and endorsement. This means when commercial banks have an adequate CAR ratio they can go for more OBS activities and avoid OBS activities in the reverse case. Similarly, the study shows that beta coefficients are positive for net interest margin. It indicates that net interest margin has positive impact on acceptance and endorsement. Likewise, the beta coefficients are positive for return on assets with acceptance and endorsement. It indicates that return on assets has positive impact on acceptance and endorsement.
The regression results indicates that beta coefficient are positive for capital adequacy ratio, liquid to total assets, net interest margin and return on assets with forward exchange contract. It indicates that capital adequacy ratio has positive impact on forward exchange contract. Likewise, the result shows that the positive beta coefficient for liquidity. It indicates that the liquidity has positive impact on forward exchange contract. Similarly, the positive beta coefficient for net interest margin with forward exchange contract. It indicates that the net interest margin has positive impact on forward exchange contract. Also positive beta coefficient for return on assets with forward exchange contract that indicates that the return on assets has positive impact on forward exchange contract. However, the beta coefficients are negative for net non-performing assets with forward exchange contract. It indicate that non-performing assets has negative impact on forward exchange contract.
Since, the study was conducted for the first time in context of Nepal, hence no literature or empirical evidence were found which limits the scope of study of determinants of Off-balance sheet activities of commercial banks of Nepal. Therefore, this research provides a basis of conducting further research on the field of off balance sheet activities of commercial banks of Nepal.
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Determinants of off balance sheet activities in commercial banks of Nepal [printed text] / Chadani Pandey, Author . - 2018 . - 101p. ; GRP/Thesis + 11/B. Languages : English | Abstract: | Executive summary
In the last few decades the banking system, across the globe, has witnessed an increasing usage of OBS activities as it is witnessed in banking area literatures. Since OBS activities offers several benefits in comparison to traditional banking activities (deposit collection and extending loan), there have been many hypotheses raised by researchers and policy analysts to justify the existence of these activities. These hypotheses include, generating of fee income, avoiding regulatory taxes, more flexibility at breakdown points, and risk management tool (Middi, 2016).
Off balance sheet activities have become an issue of global significance and have received attention for being a source of fee income that is beyond a bank’s balance sheet activities and avoiding regulatory costs (kasa,2013). Although much literature is available on off-balance sheet (OBS) activities in banking system, this is the first paper that investigates the off-balance sheet activities in Nepalese banking industry. As we know that private banks basically interested to earn profit from their business. In case of loss or a negative trend of profit or in case the rate of increasing profit is low, they want to neutralize these problems by entering into certain fee based activities. As a result of which they go for Forward exchange contracts, endorsements and acceptances and other fee based income (Swain and Panda, 2017).
It aims to test the variables that determine the OBS activities of Nepalese commercial banks using panel data set during the period of ten years from 2007/08 to 2016/17, with a sample of fifteen commercial banks. To answer research questions and test the hypotheses the study adopted the quantitative research approach. The model considers the impact of return on assets, net interest margin, capital adequacy ratio, net non- performing assets and liquidity on off balance sheet activities of banks. The variables were analyzed using various descriptive and inferential statistics. The descriptive statistical tool like minimum, maximum, mean, standard deviation, Coefficient of variation along with trend analysis were done on the variables under the study.
The result revealed that beta coefficients are negative for liquiditywith acceptance and endorsement. It indicates that liquidity has negative impact on acceptance and endorsement. The result also shows that non-performing loan has negative beta coefficients. It indicates that non-performing loan has negative impact on off-balance sheet activities.
The result shows that beta coefficients are positive for capital adequacy ratio. It indicates that capital adequacy ratio has positive impact on acceptance and endorsement. This means when commercial banks have an adequate CAR ratio they can go for more OBS activities and avoid OBS activities in the reverse case. Similarly, the study shows that beta coefficients are positive for net interest margin. It indicates that net interest margin has positive impact on acceptance and endorsement. Likewise, the beta coefficients are positive for return on assets with acceptance and endorsement. It indicates that return on assets has positive impact on acceptance and endorsement.
The regression results indicates that beta coefficient are positive for capital adequacy ratio, liquid to total assets, net interest margin and return on assets with forward exchange contract. It indicates that capital adequacy ratio has positive impact on forward exchange contract. Likewise, the result shows that the positive beta coefficient for liquidity. It indicates that the liquidity has positive impact on forward exchange contract. Similarly, the positive beta coefficient for net interest margin with forward exchange contract. It indicates that the net interest margin has positive impact on forward exchange contract. Also positive beta coefficient for return on assets with forward exchange contract that indicates that the return on assets has positive impact on forward exchange contract. However, the beta coefficients are negative for net non-performing assets with forward exchange contract. It indicate that non-performing assets has negative impact on forward exchange contract.
Since, the study was conducted for the first time in context of Nepal, hence no literature or empirical evidence were found which limits the scope of study of determinants of Off-balance sheet activities of commercial banks of Nepal. Therefore, this research provides a basis of conducting further research on the field of off balance sheet activities of commercial banks of Nepal.
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