Title :	Determinants of profitability of Nepalese commercial banks
Material Type:	printed text
Authors:	Pradeep Maharjan, Author
Publication Date:	2016
Pagination:	94p.
Size:	GRP/Thesis
Accompanying material:	7/B
Languages :	English
Descriptors:	Business enterprises
Class number:	338.709
Abstract:	A bank is financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities. In the process of taking deposits and lending, the interest rate is discovered by paying lower interest rate to depositors and receiving higher interest rate from borrower in order to retain profitability. Banks are such types of business where deposits are considered as liabilities and issuing debt securities are considered as assets on the other part (Fama, 1980). The primary function of bank taking deposits and providing loan are always run with main motive to generate profitability. Banks make a profit by intermediating between depositors and borrowers (Acaravci and Calim, 2013). Profitability is simply the difference between total revenues and total cost. Therefore, the factors which affect the bank profitability would be those that affect the bank’s revenue and cost. Hence, the impact of internal and external determinants of commercial bank profitability is analyzed with view to show their impact on bank profitability. This study focuses on the dependent variable namely bank profitability which has been measured in term of return on assets, return on equity and net interest margin. This study examines the determinants of profitability of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of capital adequacy, credit risk, liquidity position, bank size, inflation and gross domestic product growth rate on bank profitability. The study has selected 19 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis. The study results show that Lumbini bank has the highest average return on assets. Similarly, average return on equity is largest for Nabil bank. Agricultural development ban has the highest average net interest margin. There is positive relationship of capital adequacy and credit risk with Nepalese commercial banks profit in term of return of assets, return on equity and net interest margin. It indicates higher the capital adequacy ratio, higher would be Nepalese commercials banks profit. Similarly, increase in credit risk will increase the bank profit. Similarly, bank size is positively related with bank profitability. It reveals that higher the bank size, higher would be bank profitability. Likewise, liquidity position has negative relationship with Nepalese commercial bank’s profit. It indicates higher holding of liquidity position leads to lower profit and vice-versa. Inflation and gross domestic product growth rate have positive relationship with both return on assets and return on equity. It indicates higher the inflation, higher would be would be return on assets and return on equity. It also reveals that increase in gross domestic product growth rate increases the return on assets and return on equity. However, there is negative relationship of inflation and gross domestic product growth rate with net interest margin which indicates lower inflation leads to higher net interest margin and vice-versa. It also indicates that higher the gross domestic product, lower would be net interest margin.

Determinants of profitability of Nepalese commercial banks [printed text] / Pradeep Maharjan, Author . - 2016 . - 94p. ; GRP/Thesis + 7/B.
Languages : English

Descriptors:	Business enterprises
Class number:	338.709
Abstract:	A bank is financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities. In the process of taking deposits and lending, the interest rate is discovered by paying lower interest rate to depositors and receiving higher interest rate from borrower in order to retain profitability. Banks are such types of business where deposits are considered as liabilities and issuing debt securities are considered as assets on the other part (Fama, 1980). The primary function of bank taking deposits and providing loan are always run with main motive to generate profitability. Banks make a profit by intermediating between depositors and borrowers (Acaravci and Calim, 2013). Profitability is simply the difference between total revenues and total cost. Therefore, the factors which affect the bank profitability would be those that affect the bank’s revenue and cost. Hence, the impact of internal and external determinants of commercial bank profitability is analyzed with view to show their impact on bank profitability. This study focuses on the dependent variable namely bank profitability which has been measured in term of return on assets, return on equity and net interest margin. This study examines the determinants of profitability of Nepalese commercial banks with respect to banks specific variables and macroeconomic variables. The specific objectives of this study is to analyze the relationship and impact of capital adequacy, credit risk, liquidity position, bank size, inflation and gross domestic product growth rate on bank profitability. The study has selected 19 Nepalese commercial banks. The research is based on secondary data and the data were collected from bank supervision report published by Nepal rastra bank and annual report of banks. The methods used for secondary data analysis included descriptive analysis, correlation analysis and regression analysis. The study results show that Lumbini bank has the highest average return on assets. Similarly, average return on equity is largest for Nabil bank. Agricultural development ban has the highest average net interest margin. There is positive relationship of capital adequacy and credit risk with Nepalese commercial banks profit in term of return of assets, return on equity and net interest margin. It indicates higher the capital adequacy ratio, higher would be Nepalese commercials banks profit. Similarly, increase in credit risk will increase the bank profit. Similarly, bank size is positively related with bank profitability. It reveals that higher the bank size, higher would be bank profitability. Likewise, liquidity position has negative relationship with Nepalese commercial bank’s profit. It indicates higher holding of liquidity position leads to lower profit and vice-versa. Inflation and gross domestic product growth rate have positive relationship with both return on assets and return on equity. It indicates higher the inflation, higher would be would be return on assets and return on equity. It also reveals that increase in gross domestic product growth rate increases the return on assets and return on equity. However, there is negative relationship of inflation and gross domestic product growth rate with net interest margin which indicates lower inflation leads to higher net interest margin and vice-versa. It also indicates that higher the gross domestic product, lower would be net interest margin.