Title :	The impact of credit risk on the performance of Nepalese commercial Bank
Material Type:	printed text
Authors:	Laxmi Karki, Author
Publication Date:	2016
Pagination:	128p.
Size:	GRP/Thesis
Accompanying material:	6/B
Languages :	English
Descriptors:	Credit-Management
Class number:	332.7
Abstract:	Commercial banks play an important role for economic development, and foster economic growth of any country through their intermediation role and financial services that they provide to community and nations. Commercial banks are the major sources of credit for business firms and households in many countries. Among risks in banking operation credit risk which is related to substantial amount of income generating assets is found to be important determinant of bank performance (Rose & Hudgins, 2005). Credit risk plays an important role on banks profitability since a large chunk of banks revenue accrues from loans from which interest is derived. Adequately managing credit risk in financial institutions is critical for the survival and growth of the financial institutions (Oke et al., 2012). The default of loans and advances poses serious setbacks not only for borrowers and lenders but also to the entire economy of a country. The long term success of any banking institution depended on effective system that ensures repayments of loans by borrowers which were critical in dealing with asymmetric information problems, thus, reduced the level of loan losses (Kargi, 2011). Prakash & Poudel (2012) state that credit risk management is important predictor of financial performance of commercial banks. The success of bank performance depends on effectiveness of credit risk management. The factor affecting Nepalese commercial bank performance for the period of 2011 to 2012 are followed by the linear regression techniques Poudel (2012). The study revealed a significant inverse relationship between commercial bank performance measured by ROA and credit risk measured by default and capital adequacy ratio. The study basically aims at evaluating the impact of credit risk on profitability of Nepalese commercial banks. The specific objectives are to investigate the impact of loan loss provisions ratio, capital adequacy ratio, loans and advances to deposit ratio and nonperforming loan ratio on banks profitability; to find out the relationship between performances and liquidity, leverage, deposit, growth of net interest income and bank size. Ochei (2013), Dang (2011), Zaman (2011), Zoubi, (2007) and Agbada, (2013) found that there is positive relationship between credit risk and performance. Godlewski (2004), Bourke (1989), Amato (2007) and Rostami, (2011) stated that there is negative association between credit risk variable ad performance. In the context of Nepal, some studies have been done on the credit risk and performance such as Dhungana (2011), Jha (2012) and Poudel (2012). Still there is a gap in the financial literature concerning the effect of credit risk on the performance of Nepalese commercial bank. The research design adopted in this study consists of descriptive and causal comparative research designs to deal with the various issues raised in this study. The study is based on pooled cross-sectional analysis of data of 18 commercial banks for the period 2007/08 to 2013/14. The necessary financial data are collected from the official websites of respected commercial banks and from the websites of Nepal Rastra Bank. Data were collected from annual reports of sample banks. The study found that capital adequacy ratio, loan loss provision ratio and liquidity have positive and significant impact on ROA. Similarly loans and advance to total deposit ratio and leverage has positive and insignificant impact on ROA. Nonperforming loan ratio and bank size has negative and significant impact on ROA. This indicates that when there is higher nonperforming loan ratio and bank size then there would be lower return on assets. Similarly growth of net interest income and deposit has negative and insignificant impact on ROA. Loan loss provision ratio has positive and significant impact on ROE. This indicates that when there is higher loan loss provision ratio then there would be higher return on equity. Similarly capital adequacy ratio, loans and advance to total deposit ratio, liquidity, growth of net interest income and leverage has positive and insignificant impact on ROE. Nonperforming loan ratio has negative and significant impact on ROE. This indicates that when there is higher nonperforming loan ratio then there would be lower return on equity. Similarly bank size and deposit has negative and insignificant impact on ROE. Capital adequacy ratio and deposit has positive and significant impact on NIM. This indicates that when there is higher capital adequacy ratio and deposit then there would be higher net interest margin. Similarly loans and advance to total deposit ratio, loan loss provision ratio, liquidity and bank size has positive and insignificant impact on NIM. Similarly nonperforming loan ratio, leverage and growth of net interest income have negative and insignificant impact on NIM.

The impact of credit risk on the performance of Nepalese commercial Bank [printed text] / Laxmi Karki, Author . - 2016 . - 128p. ; GRP/Thesis + 6/B.
Languages : English

Descriptors:	Credit-Management
Class number:	332.7
Abstract:	Commercial banks play an important role for economic development, and foster economic growth of any country through their intermediation role and financial services that they provide to community and nations. Commercial banks are the major sources of credit for business firms and households in many countries. Among risks in banking operation credit risk which is related to substantial amount of income generating assets is found to be important determinant of bank performance (Rose & Hudgins, 2005). Credit risk plays an important role on banks profitability since a large chunk of banks revenue accrues from loans from which interest is derived. Adequately managing credit risk in financial institutions is critical for the survival and growth of the financial institutions (Oke et al., 2012). The default of loans and advances poses serious setbacks not only for borrowers and lenders but also to the entire economy of a country. The long term success of any banking institution depended on effective system that ensures repayments of loans by borrowers which were critical in dealing with asymmetric information problems, thus, reduced the level of loan losses (Kargi, 2011). Prakash & Poudel (2012) state that credit risk management is important predictor of financial performance of commercial banks. The success of bank performance depends on effectiveness of credit risk management. The factor affecting Nepalese commercial bank performance for the period of 2011 to 2012 are followed by the linear regression techniques Poudel (2012). The study revealed a significant inverse relationship between commercial bank performance measured by ROA and credit risk measured by default and capital adequacy ratio. The study basically aims at evaluating the impact of credit risk on profitability of Nepalese commercial banks. The specific objectives are to investigate the impact of loan loss provisions ratio, capital adequacy ratio, loans and advances to deposit ratio and nonperforming loan ratio on banks profitability; to find out the relationship between performances and liquidity, leverage, deposit, growth of net interest income and bank size. Ochei (2013), Dang (2011), Zaman (2011), Zoubi, (2007) and Agbada, (2013) found that there is positive relationship between credit risk and performance. Godlewski (2004), Bourke (1989), Amato (2007) and Rostami, (2011) stated that there is negative association between credit risk variable ad performance. In the context of Nepal, some studies have been done on the credit risk and performance such as Dhungana (2011), Jha (2012) and Poudel (2012). Still there is a gap in the financial literature concerning the effect of credit risk on the performance of Nepalese commercial bank. The research design adopted in this study consists of descriptive and causal comparative research designs to deal with the various issues raised in this study. The study is based on pooled cross-sectional analysis of data of 18 commercial banks for the period 2007/08 to 2013/14. The necessary financial data are collected from the official websites of respected commercial banks and from the websites of Nepal Rastra Bank. Data were collected from annual reports of sample banks. The study found that capital adequacy ratio, loan loss provision ratio and liquidity have positive and significant impact on ROA. Similarly loans and advance to total deposit ratio and leverage has positive and insignificant impact on ROA. Nonperforming loan ratio and bank size has negative and significant impact on ROA. This indicates that when there is higher nonperforming loan ratio and bank size then there would be lower return on assets. Similarly growth of net interest income and deposit has negative and insignificant impact on ROA. Loan loss provision ratio has positive and significant impact on ROE. This indicates that when there is higher loan loss provision ratio then there would be higher return on equity. Similarly capital adequacy ratio, loans and advance to total deposit ratio, liquidity, growth of net interest income and leverage has positive and insignificant impact on ROE. Nonperforming loan ratio has negative and significant impact on ROE. This indicates that when there is higher nonperforming loan ratio then there would be lower return on equity. Similarly bank size and deposit has negative and insignificant impact on ROE. Capital adequacy ratio and deposit has positive and significant impact on NIM. This indicates that when there is higher capital adequacy ratio and deposit then there would be higher net interest margin. Similarly loans and advance to total deposit ratio, loan loss provision ratio, liquidity and bank size has positive and insignificant impact on NIM. Similarly nonperforming loan ratio, leverage and growth of net interest income have negative and insignificant impact on NIM.