Title :	Impact of banks deposit mobilization and credit financing on capital formation: a case of Nepal
Material Type:	printed text
Authors:	Prativa Poudel, Author
Publication Date:	2018
Pagination:	109p.
Size:	GRP/Thesis
Accompanying material:	11/B
Languages :	English
Descriptors:	Bank and banking Deposit banking
Class number:	332.175
Abstract:	Capital formation is often suggested as the most important factor of economic growth. Jhigan (1998) stated capital formation as the backbone for real economic growth and development of developed as well as developing economies. According to Ugwuegbe and Uruakpa (2013), capital formation is equivalent to an increase in physical capital stock of a nation with investment in social and economic infrastructure. Bendix (1915) stated that capital formation indeed plays a deceive role in determining the level and growth of national income and economic development. According to Jhinghan (2006), capital formation involves three interrelated conditions; (a) the existence of real savings and rise in them; (b) the existence of credit and financial institutions to mobilize savings and to direct them to desired channels; and (c) to use these savings for investment in capital goods. Aurangzeb(2012) stated that country can develop its economic growth quickly if the country has good financial system. Akani et al. (2016) concluded that that banking sector development has significant effect on Nigerian capital formation. Bencivenga and Smith (1991) argued that the absence of intermediary sector (i.e. banking institutions) results in a composition of savings that is unfavourable to capital formation. Hao (2006) found that financial intermediation has a causal effect and positive impact on capital formation through the channels of house-holds’ savings mobilization and loans for private sector. Capital formation is considered as important pillar for the economic development of nation. Capital formation plays an essential role in acceleration of the economic growth of nations, which in turn, is basically determined among others by saving and investment propensities (Brennan, 1970). According to Ainabor and Shuaib (2014), the growth rate of national income is directly related to saving ratio and capital formation. In the context of Nepal, financial sector reform programs started taking place since 1990’s, which resulted in several positive changes in the financial sector of Nepal (Bhetuwal, 2007). Bist (2017) revealed that economic growth, market capitalization, gross capital formation and inflation shared a stable long-run relationship in Nepal. Tandukar (2010) found that the deposits mobilization plays vital role in economic development of country. Voung (2013) suggested that financial market can be expand and improve through better credit and investment system with appropriate regulatory and policy reforms practices in order to support the higher economic growth of Nepal. The major objective of this study is to examine the impact banks deposit mobilization and credit financing on capital formation of Nepal. Besides, the study is conducted to ascertain the co-integration among banks deposit mobilization, credit financing and capital formation of Nepal. The major source of data are Quarterly Economic Bulletin published by Nepal Rastra Bank, Economic Survey published by Ministry of Finance of Nepal, and World Development Indicators of World Bank for the period of 1975-2015 AD. Gross capital formation growth and gross fixed capital formation growth are used as indicator of capital formation. Likewise, bank deposit and bank credit are taken as explanatory variable and economic growth, gross domestic saving and inflation are used as control variable. The Augmented Dickey Fuller (ADF) test reveals that bank deposit and bank credit are stationary at first difference, whereas economic growth, gross domestic saving, inflation, growth in gross capital formation and growth in gross fixed capital formation are stationary at level. This test also shows that none of the variables are integrated at second difference or above. The ARDL bound test reveals that there is co-integration relationship amongst banks deposit mobilization, credit financing and capital formation. The study reveals that bank deposit mobilization, credit financing, and capital formation shared a long-run co-integrating relationship throughout the study period. The estimates of ARDL model show that long-run beta coefficients are positive for bank deposit. This indicates that higher the bank deposit, higher would be the capital formation in long run. The result also shows that bank credit has positive impact on capital formation of Nepal in long-run. It indicates that higher the bank credit, higher would be the capital formation in Nepal. Likewise, the result reveals positive impact of inflation on capital formation of Nepal in long-run. The estimates of error correction model also show that beta coefficients are positive for bank deposit, bank credit and gross domestic savings, whereas, the beta coefficients are negative for inflation and economic growth. However, the coefficients are significant only for gross domestic saving and inflation at 5 percent level of significance.

Impact of banks deposit mobilization and credit financing on capital formation: a case of Nepal [printed text] / Prativa Poudel, Author . - 2018 . - 109p. ; GRP/Thesis + 11/B.
Languages : English

Descriptors:	Bank and banking Deposit banking
Class number:	332.175
Abstract:	Capital formation is often suggested as the most important factor of economic growth. Jhigan (1998) stated capital formation as the backbone for real economic growth and development of developed as well as developing economies. According to Ugwuegbe and Uruakpa (2013), capital formation is equivalent to an increase in physical capital stock of a nation with investment in social and economic infrastructure. Bendix (1915) stated that capital formation indeed plays a deceive role in determining the level and growth of national income and economic development. According to Jhinghan (2006), capital formation involves three interrelated conditions; (a) the existence of real savings and rise in them; (b) the existence of credit and financial institutions to mobilize savings and to direct them to desired channels; and (c) to use these savings for investment in capital goods. Aurangzeb(2012) stated that country can develop its economic growth quickly if the country has good financial system. Akani et al. (2016) concluded that that banking sector development has significant effect on Nigerian capital formation. Bencivenga and Smith (1991) argued that the absence of intermediary sector (i.e. banking institutions) results in a composition of savings that is unfavourable to capital formation. Hao (2006) found that financial intermediation has a causal effect and positive impact on capital formation through the channels of house-holds’ savings mobilization and loans for private sector. Capital formation is considered as important pillar for the economic development of nation. Capital formation plays an essential role in acceleration of the economic growth of nations, which in turn, is basically determined among others by saving and investment propensities (Brennan, 1970). According to Ainabor and Shuaib (2014), the growth rate of national income is directly related to saving ratio and capital formation. In the context of Nepal, financial sector reform programs started taking place since 1990’s, which resulted in several positive changes in the financial sector of Nepal (Bhetuwal, 2007). Bist (2017) revealed that economic growth, market capitalization, gross capital formation and inflation shared a stable long-run relationship in Nepal. Tandukar (2010) found that the deposits mobilization plays vital role in economic development of country. Voung (2013) suggested that financial market can be expand and improve through better credit and investment system with appropriate regulatory and policy reforms practices in order to support the higher economic growth of Nepal. The major objective of this study is to examine the impact banks deposit mobilization and credit financing on capital formation of Nepal. Besides, the study is conducted to ascertain the co-integration among banks deposit mobilization, credit financing and capital formation of Nepal. The major source of data are Quarterly Economic Bulletin published by Nepal Rastra Bank, Economic Survey published by Ministry of Finance of Nepal, and World Development Indicators of World Bank for the period of 1975-2015 AD. Gross capital formation growth and gross fixed capital formation growth are used as indicator of capital formation. Likewise, bank deposit and bank credit are taken as explanatory variable and economic growth, gross domestic saving and inflation are used as control variable. The Augmented Dickey Fuller (ADF) test reveals that bank deposit and bank credit are stationary at first difference, whereas economic growth, gross domestic saving, inflation, growth in gross capital formation and growth in gross fixed capital formation are stationary at level. This test also shows that none of the variables are integrated at second difference or above. The ARDL bound test reveals that there is co-integration relationship amongst banks deposit mobilization, credit financing and capital formation. The study reveals that bank deposit mobilization, credit financing, and capital formation shared a long-run co-integrating relationship throughout the study period. The estimates of ARDL model show that long-run beta coefficients are positive for bank deposit. This indicates that higher the bank deposit, higher would be the capital formation in long run. The result also shows that bank credit has positive impact on capital formation of Nepal in long-run. It indicates that higher the bank credit, higher would be the capital formation in Nepal. Likewise, the result reveals positive impact of inflation on capital formation of Nepal in long-run. The estimates of error correction model also show that beta coefficients are positive for bank deposit, bank credit and gross domestic savings, whereas, the beta coefficients are negative for inflation and economic growth. However, the coefficients are significant only for gross domestic saving and inflation at 5 percent level of significance.