Title :	The relationship between risk management and financial performance of commercial banks in Nepal: a comparative study of public banks, joint venture banks and private banks
Material Type:	printed text
Authors:	Suresh Karki, Author
Publication Date:	2016
Pagination:	115p.
Size:	GRP/Thesis
Accompanying material:	8/B
Languages :	English
Descriptors:	Credit-Management
Class number:	332.7
Abstract:	Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, it is constantly facing different types of risk. The risky lending increases the profitability in one hand while on the other hand, it can lead to the bank failure too if cannot be managed properly. In such circumstances, credit character, credit monitoring, repayment capacity of borrower, liquidity, operating expense, interest rate spread, debt to equity ratio, capital adequacy ratio and the concept of prudent lending plays a great role for analyzing the impact of risk management on the financial performance in the context of commercial banks of Nepal. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001). There are differences in public sector banks, joint venture banks and domestic private banks in terms of profitability, capital adequacy, asset quality, riskiness, size, liquidity and management effectiveness. Matthew & Esther (2012) revealed foreign banks have more liquidity, capital adequacy, size, and asset quality than domestic banks.Francis (2007) revealed that capital adequacy and credit risk have positive effect on bank profitability. However, operational efficiency and liquidity ratio were negatively and significantly related to bank profitability.Gaur & Gupta (2011) supported the positive relationship arguing that experience through age helps the business to perform better. Ngetich&Wanjau (2011) argued banks which perform well manage to keep interest spread wide. The major objective of the study is to assess the relationship between risk management and financial performance of the Nepalese commercial banks. The study is based on secondary data of 23 commercial banks with 138 observations for the period of 2009/10 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship between risk management and financial performance of Nepalese commercial banks. The result shows that NBBL has highest average ROA, and NABIL has the highest average ROE among the selected commercial banks throughout the study period.Similarly, the average debt to equity ratio is highest for NSBI (14.12 times), average liquidity ratio is highest for NCC (35.11 times), average operating expense ratio is highest for NBL (90.15 percent), average interest rate spread is highest for NBL (6.84 percent) and average capital adequacy ratio is highest for JBL (14.33 percent). The descriptive statistics for the public banks reveals that the average return on assets, return on equity, debt to equity ratio,liquidity ratio, operating expense ratio, inflation rate, interest rate spread, capital adequacy ratiois 1.92 percent, -6.12 percent, -13.23 times, 3.06 times, 72.62 percent, 8.95 percent, 5.95 percent, 2.57 percent and is 56.39 years respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, debt to equity ratio,liquidity ratio, operating expense ratio, inflation rate,interest rate spread, capital adequacy ratio and age is 2.15 percent, 23.47 percent, 10.77 times, 10.58 times, 34.88 percent, 8.95 percent, 4.46 percent, 11.84 percent and 22.67 years respectively. Likewise, the descriptive statistics for the private bank reveals that the average return on assets, return on equity, debt to equity ratio, liquidity ratio, operating expense ratio, inflation rate, interest rate spread, capital adequacy ratio and age is 1.38 percent, 13.45 percent, 8.91 times, 17.73 times, 40.03 percent, 8.95 percent, 3.96 percent, 14.40 percent and 11.71 years respectively. In the case of public banks, the study found that liquidity ratio, operating expense ratio, and age have negative relationship with return on assets.Results also show that capital adequacy ratio and debt to equity ratio is positively related to the return on assets. Similarly, in the case of joint venture banks, debt to equity ratio and operating expense ratio are negatively related to return on assets and return on equity. On the other hand, results also show that interest rate spread is positively related to the return on assets .The results show that operating expense ratio, capital adequacy ratio and liquidity ratio are negatively related to the performance of private banks. However, results show that interest rate spread and age have positive relationship with performance of the private banks. The regression results show that age, operating expense ratio and liquidity ratio have negative and significant impact on return on assets in the case of public banks. However, results show that age have positive and significant impact on banks performance in the case of private banks. Likewise, results show that beta coefficients are positive and significant for capital adequacy ratio for public and joint venture banks whereas beta coefficients are negative in the context of private banks. However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are positive for interest rate spread and capital adequacy ratio, where beta coefficients are significant at 5 percent level of significance. Thus, operating expense ratio, interest rate spread, debt to equity ratio, capital adequacy ratio and liquidity are the major factors affecting the profitability of Nepalese commercial banks.

The relationship between risk management and financial performance of commercial banks in Nepal: a comparative study of public banks, joint venture banks and private banks [printed text] / Suresh Karki, Author . - 2016 . - 115p. ; GRP/Thesis + 8/B.
Languages : English

Descriptors:	Credit-Management
Class number:	332.7
Abstract:	Commercial banks play an important role for economic development and foster economic growth by providing number of financial services. One of the important functions of the commercial banks is the financial intermediation functions and thus it transfers the fund from surplus units to the deficit units. It accepts deposits and provides loan and advances to the needed people, institutions and investors. It also invests in several short term and long term projects. Thus, it is constantly facing different types of risk. The risky lending increases the profitability in one hand while on the other hand, it can lead to the bank failure too if cannot be managed properly. In such circumstances, credit character, credit monitoring, repayment capacity of borrower, liquidity, operating expense, interest rate spread, debt to equity ratio, capital adequacy ratio and the concept of prudent lending plays a great role for analyzing the impact of risk management on the financial performance in the context of commercial banks of Nepal. The survival and success of a financial organization depends critically on the efficiency of managing these risks (Khan & Ahmed, 2001). There are differences in public sector banks, joint venture banks and domestic private banks in terms of profitability, capital adequacy, asset quality, riskiness, size, liquidity and management effectiveness. Matthew & Esther (2012) revealed foreign banks have more liquidity, capital adequacy, size, and asset quality than domestic banks.Francis (2007) revealed that capital adequacy and credit risk have positive effect on bank profitability. However, operational efficiency and liquidity ratio were negatively and significantly related to bank profitability.Gaur & Gupta (2011) supported the positive relationship arguing that experience through age helps the business to perform better. Ngetich&Wanjau (2011) argued banks which perform well manage to keep interest spread wide. The major objective of the study is to assess the relationship between risk management and financial performance of the Nepalese commercial banks. The study is based on secondary data of 23 commercial banks with 138 observations for the period of 2009/10 to 2014/15. The main source of data include various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross sectional data analysis has been undertaken in the study. The research design adopted in this study is descriptive and causal comparative research design as it deals with the relationship between risk management and financial performance of Nepalese commercial banks. The result shows that NBBL has highest average ROA, and NABIL has the highest average ROE among the selected commercial banks throughout the study period.Similarly, the average debt to equity ratio is highest for NSBI (14.12 times), average liquidity ratio is highest for NCC (35.11 times), average operating expense ratio is highest for NBL (90.15 percent), average interest rate spread is highest for NBL (6.84 percent) and average capital adequacy ratio is highest for JBL (14.33 percent). The descriptive statistics for the public banks reveals that the average return on assets, return on equity, debt to equity ratio,liquidity ratio, operating expense ratio, inflation rate, interest rate spread, capital adequacy ratiois 1.92 percent, -6.12 percent, -13.23 times, 3.06 times, 72.62 percent, 8.95 percent, 5.95 percent, 2.57 percent and is 56.39 years respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average return on assets, return on equity, debt to equity ratio,liquidity ratio, operating expense ratio, inflation rate,interest rate spread, capital adequacy ratio and age is 2.15 percent, 23.47 percent, 10.77 times, 10.58 times, 34.88 percent, 8.95 percent, 4.46 percent, 11.84 percent and 22.67 years respectively. Likewise, the descriptive statistics for the private bank reveals that the average return on assets, return on equity, debt to equity ratio, liquidity ratio, operating expense ratio, inflation rate, interest rate spread, capital adequacy ratio and age is 1.38 percent, 13.45 percent, 8.91 times, 17.73 times, 40.03 percent, 8.95 percent, 3.96 percent, 14.40 percent and 11.71 years respectively. In the case of public banks, the study found that liquidity ratio, operating expense ratio, and age have negative relationship with return on assets.Results also show that capital adequacy ratio and debt to equity ratio is positively related to the return on assets. Similarly, in the case of joint venture banks, debt to equity ratio and operating expense ratio are negatively related to return on assets and return on equity. On the other hand, results also show that interest rate spread is positively related to the return on assets .The results show that operating expense ratio, capital adequacy ratio and liquidity ratio are negatively related to the performance of private banks. However, results show that interest rate spread and age have positive relationship with performance of the private banks. The regression results show that age, operating expense ratio and liquidity ratio have negative and significant impact on return on assets in the case of public banks. However, results show that age have positive and significant impact on banks performance in the case of private banks. Likewise, results show that beta coefficients are positive and significant for capital adequacy ratio for public and joint venture banks whereas beta coefficients are negative in the context of private banks. However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are positive for interest rate spread and capital adequacy ratio, where beta coefficients are significant at 5 percent level of significance. Thus, operating expense ratio, interest rate spread, debt to equity ratio, capital adequacy ratio and liquidity are the major factors affecting the profitability of Nepalese commercial banks.