Title :	The relationship between capital structure on financial performance of commercial banks in Nepal: a comparative study of public banks, joint venture banks and private banks
Material Type:	printed text
Authors:	Mohan Prasad Pandey, Author
Publication Date:	2016
Pagination:	102p,
Size:	GRP/Thesis
Accompanying material:	9/B
Languages :	English
Descriptors:	Capital structure
Class number:	658.1522
Abstract:	During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of capital structure is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between capital structure and performance are studied extensively in different period of time. In regards to the relationship between capital structure and profitability, different results are found. Some of the studies state that, there is a country where capital structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of capital structure and bank profitability. Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on capital structure and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of capital structure and some bank specific variables on performance of Nepalese banks. The results in the prior studies on capital structure and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the capital structure and performance of Nepalese commercial banks. For this, the sample of 23commercial banks with data of 6 years from 2009/10 to 2014/15 has been taken. Data has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data. The performance measures like return on assets (ROA), Return on equity (ROE) have been used as the dependent variable. Capital structure variables like total debt to total assets ratio, long term debt to total assets ratio and capital adequacy ratio, debt equity ratio and inflation have been considered as independent variables. Based on the results, total debt to total assets ratio, capital adequacy ratio and debt equity ratio in Nepal are important capital structure variables. The study reveals that the capital adequacy ratio is negatively correlated to return on assets and return on equity of private sector banks. It indicates that increase in the capital adequacy ratio leads to decrease in return on assets and return on equity. However, the capital adequacy ratio is positively correlated to return on assets and return on equity of joint venture banks and Nepalese public commercial banks. It indicates that increase in the capital adequacy ratio leads to increase in the return on assets and return on equity. The results also show that debt equity ratio is negatively correlated to return on assets and return on equity of public sector banks indicating that increase in the debt equity ratio leads to decrease in the ROA and ROE. However, the debt equity ratio is positively correlated to return on assets and return on equity of joint venture banks. It indicates that increase in the debt equity ratio leads to increase in the ROA and ROE. The results of the regression analysis show that debt equity ratio has negative impact on the financial performance in the case of public sector banks. However, debt equity ratio has positive impact on the financial performance in case of joint venture banks. Likewise, results show that beta coefficient is negative for capital adequacy ratio with the financial performance of public sector bank. However, beta coefficient is positive for capital adequacy ratio with return on assets and ROE in case of joint venture banks and private commercial banks of Nepal. The recommendation put forward by this study is that banks are suggested to decrease the proportion of debt in capital mix to have better performance but peaking order theory and tradeoff theory of capital structure should be analyzed. On the other hand, the study found positive impact of capital adequacy ratio on return on assets of joint venture banks. Hence, the joint venture banks are suggested to increase capital adequacy ratio to increase return on assets. The size has positive relation with performance variable shows that bigger organization has better performance. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks performance evaluation.

The relationship between capital structure on financial performance of commercial banks in Nepal: a comparative study of public banks, joint venture banks and private banks [printed text] / Mohan Prasad Pandey, Author . - 2016 . - 102p, ; GRP/Thesis + 9/B.
Languages : English

Descriptors:	Capital structure
Class number:	658.1522
Abstract:	During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of capital structure is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between capital structure and performance are studied extensively in different period of time. In regards to the relationship between capital structure and profitability, different results are found. Some of the studies state that, there is a country where capital structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of capital structure and bank profitability. Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on capital structure and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of capital structure and some bank specific variables on performance of Nepalese banks. The results in the prior studies on capital structure and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the capital structure and performance of Nepalese commercial banks. For this, the sample of 23commercial banks with data of 6 years from 2009/10 to 2014/15 has been taken. Data has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data. The performance measures like return on assets (ROA), Return on equity (ROE) have been used as the dependent variable. Capital structure variables like total debt to total assets ratio, long term debt to total assets ratio and capital adequacy ratio, debt equity ratio and inflation have been considered as independent variables. Based on the results, total debt to total assets ratio, capital adequacy ratio and debt equity ratio in Nepal are important capital structure variables. The study reveals that the capital adequacy ratio is negatively correlated to return on assets and return on equity of private sector banks. It indicates that increase in the capital adequacy ratio leads to decrease in return on assets and return on equity. However, the capital adequacy ratio is positively correlated to return on assets and return on equity of joint venture banks and Nepalese public commercial banks. It indicates that increase in the capital adequacy ratio leads to increase in the return on assets and return on equity. The results also show that debt equity ratio is negatively correlated to return on assets and return on equity of public sector banks indicating that increase in the debt equity ratio leads to decrease in the ROA and ROE. However, the debt equity ratio is positively correlated to return on assets and return on equity of joint venture banks. It indicates that increase in the debt equity ratio leads to increase in the ROA and ROE. The results of the regression analysis show that debt equity ratio has negative impact on the financial performance in the case of public sector banks. However, debt equity ratio has positive impact on the financial performance in case of joint venture banks. Likewise, results show that beta coefficient is negative for capital adequacy ratio with the financial performance of public sector bank. However, beta coefficient is positive for capital adequacy ratio with return on assets and ROE in case of joint venture banks and private commercial banks of Nepal. The recommendation put forward by this study is that banks are suggested to decrease the proportion of debt in capital mix to have better performance but peaking order theory and tradeoff theory of capital structure should be analyzed. On the other hand, the study found positive impact of capital adequacy ratio on return on assets of joint venture banks. Hence, the joint venture banks are suggested to increase capital adequacy ratio to increase return on assets. The size has positive relation with performance variable shows that bigger organization has better performance. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks performance evaluation.