| Title : | Impact of monetary policy on financial performance of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Kavita Joshi, Author | | Publication Date: | 2015 | | Pagination: | 75p. | | Size: | GRP/Thesis | | Accompanying material: | 5/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Bank reserves
Banks
Banks and banking
Monetary policy
| | Keywords: | 'monetary policy bank performance banks bank and banking return on equity return on assets' | | Class number: | 332.460 | | Abstract: | Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the bank. There are two major control mechanisms of monetary policy used by central banks at any point in time and this control mechanism are usually referred to as tools/instruments of monetary policy and they have effects on the proximate targets. Monetary instruments can be direct or indirect. The direct instruments include aggregate credit ceilings, deposit ceiling, exchange control, restriction on the placement of public deposit, special deposits and stabilization securities while indirect instruments include open market operation, cash reserve requirement, liquidity ratio, minimum discount rate and selective credit policies. Monetary policy has vital roles in the short-run i.e. it is used for counter-cyclical output stabilization, while in the long run; it is used to achieve the macro-economic goals of full employment, price stability, rapid economic growth and balance of payments equilibrium.
The changes in the monetary policy channel give an idea to regulate and strengthen the banking industry. The instruments of monetary policy used by the central bank depend on the level of development of the economy, especially its financial sector. The financial system of Nepal is dominated by the commercial banks. Therefore, it is important to make such studies that can propose clear picture of monetary policy practice in Nepalese banking sectors. The major objective of the study is to examine the “Impact of Monetary Policy on Financial Performance of Nepalese Commercial Banks” by analyzing the quantitative tools and instruments of monetary policy.
A sound and well-functioning banking sector can positively contribute to promote performance and leads to provide sustained economic growth. Hence, this study is focused on the impact of quantitative tools of Monetary Policy on financial performance of Nepalese commercial banks. This study used cash reserve ratio, bank discount rate, investment on Treasury bills as independent variable and exchange rate and money supply as macroeconomic variables. The measures of profitability that have been used in the study are the return on equity, return on assets and net interest margin.
This study uses two research designs namely, descriptive research design and causal comparative research design. Descriptive research design is used to analyze the tools and mechanism and practices of monetary policy along with bank performance indicators like ROA, ROE, NIM and other variables and causal comparative research design is used to analyze cause and effect relationship between quantitative instruments of monetary policy and bank performance. The study covers twenty four commercial banks out of all the commercial banks in Nepal from 2008 to 2013. This research used stratified sampling technique as it takes the bank in three strata namely public bank, joint venture bank and private bank and convenient sampling. To accomplish the objectives of the study, this study has utilized both primary and secondary sources of data. The secondary source of data has employed to understand the impact of monetary policy and profitability of Nepalese commercial banks. The primary source of data has been used to examine the opinion of respondents with respect to the practice of tools of monetary policy among Nepalese commercial banks. The study used different tools and techniques to analyze the secondary and primary data.
Monetary policy is the key tool for the overall functionary of the banks. The major conclusion of the study is that the indirect tools of monetary policy has significant impact on financial performance of commercial banks. Thecash reserve ratio, bank rate and exchange rate and has positive and significant impact on return on assets. The ROE is demonstrated to be negative for cash reserve ratio and lag of CRR and positivefor bank rate, investment on t-bill, exchange rate and broad money supply with.The NIM has been observed to be positve for investment on t-bill and exchange rate and is statistically significant for exchange rate and negative for CRR, BR and M2.
The investment on t-bill has positive and significant impact on net interest margin.There is huge effect of these tools of monetary policy on commercial bank's performance as majority of the respondents of the study feels that there is effect of tools of monetary policy on their bank's performance. Nepalese financial sector is soundly familiar with the three tools of monetary policy: Open market Operation, discount lending and reserve requirement.And it also concludes thatcommercial banks of Nepal perceive cash reserve ratio as an effective tool of monetary policy having impact on financial performance to a considerable extent. It is also concluded that the broad money supply has effect on commercial banks loan and advance growth rather exchange rate. This study also concludes that in context of Nepal, return on assets, return on equity and net interest margin are reliable tools to measure the financial performance. |
Impact of monetary policy on financial performance of Nepalese commercial banks [printed text] / Kavita Joshi, Author . - 2015 . - 75p. ; GRP/Thesis + 5/B. Including bibilography Languages : English | Descriptors: | Bank reserves
Banks
Banks and banking
Monetary policy
| | Keywords: | 'monetary policy bank performance banks bank and banking return on equity return on assets' | | Class number: | 332.460 | | Abstract: | Monetary policy has the significant contribution to sustainable economic development by enhancing the performance of the bank. There are two major control mechanisms of monetary policy used by central banks at any point in time and this control mechanism are usually referred to as tools/instruments of monetary policy and they have effects on the proximate targets. Monetary instruments can be direct or indirect. The direct instruments include aggregate credit ceilings, deposit ceiling, exchange control, restriction on the placement of public deposit, special deposits and stabilization securities while indirect instruments include open market operation, cash reserve requirement, liquidity ratio, minimum discount rate and selective credit policies. Monetary policy has vital roles in the short-run i.e. it is used for counter-cyclical output stabilization, while in the long run; it is used to achieve the macro-economic goals of full employment, price stability, rapid economic growth and balance of payments equilibrium.
The changes in the monetary policy channel give an idea to regulate and strengthen the banking industry. The instruments of monetary policy used by the central bank depend on the level of development of the economy, especially its financial sector. The financial system of Nepal is dominated by the commercial banks. Therefore, it is important to make such studies that can propose clear picture of monetary policy practice in Nepalese banking sectors. The major objective of the study is to examine the “Impact of Monetary Policy on Financial Performance of Nepalese Commercial Banks” by analyzing the quantitative tools and instruments of monetary policy.
A sound and well-functioning banking sector can positively contribute to promote performance and leads to provide sustained economic growth. Hence, this study is focused on the impact of quantitative tools of Monetary Policy on financial performance of Nepalese commercial banks. This study used cash reserve ratio, bank discount rate, investment on Treasury bills as independent variable and exchange rate and money supply as macroeconomic variables. The measures of profitability that have been used in the study are the return on equity, return on assets and net interest margin.
This study uses two research designs namely, descriptive research design and causal comparative research design. Descriptive research design is used to analyze the tools and mechanism and practices of monetary policy along with bank performance indicators like ROA, ROE, NIM and other variables and causal comparative research design is used to analyze cause and effect relationship between quantitative instruments of monetary policy and bank performance. The study covers twenty four commercial banks out of all the commercial banks in Nepal from 2008 to 2013. This research used stratified sampling technique as it takes the bank in three strata namely public bank, joint venture bank and private bank and convenient sampling. To accomplish the objectives of the study, this study has utilized both primary and secondary sources of data. The secondary source of data has employed to understand the impact of monetary policy and profitability of Nepalese commercial banks. The primary source of data has been used to examine the opinion of respondents with respect to the practice of tools of monetary policy among Nepalese commercial banks. The study used different tools and techniques to analyze the secondary and primary data.
Monetary policy is the key tool for the overall functionary of the banks. The major conclusion of the study is that the indirect tools of monetary policy has significant impact on financial performance of commercial banks. Thecash reserve ratio, bank rate and exchange rate and has positive and significant impact on return on assets. The ROE is demonstrated to be negative for cash reserve ratio and lag of CRR and positivefor bank rate, investment on t-bill, exchange rate and broad money supply with.The NIM has been observed to be positve for investment on t-bill and exchange rate and is statistically significant for exchange rate and negative for CRR, BR and M2.
The investment on t-bill has positive and significant impact on net interest margin.There is huge effect of these tools of monetary policy on commercial bank's performance as majority of the respondents of the study feels that there is effect of tools of monetary policy on their bank's performance. Nepalese financial sector is soundly familiar with the three tools of monetary policy: Open market Operation, discount lending and reserve requirement.And it also concludes thatcommercial banks of Nepal perceive cash reserve ratio as an effective tool of monetary policy having impact on financial performance to a considerable extent. It is also concluded that the broad money supply has effect on commercial banks loan and advance growth rather exchange rate. This study also concludes that in context of Nepal, return on assets, return on equity and net interest margin are reliable tools to measure the financial performance. |
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