| Title : | The impact of credit risk management on profitability of commercial banks in Nepal | | Material Type: | printed text | | Authors: | Divash Shakya, Author | | Publication Date: | 2016 | | Pagination: | 81p. | | Size: | GRP/Thesis | | Accompanying material: | 5/B | | General note: | Including bibilography | | Languages : | English | | Descriptors: | Bank loans-Management
Banks
Banks and banking
Commercial banks
Consumer credit-Management
Credit-Management
Financial risk management
Risk management
| | Keywords: | 'credit risk management commercial banks return on equity return on assets banks loan' | | Class number: | 332.7 | | Abstract: | Commercial banks are the major financial intermediaries in any economy and they are the major providers of credits to the household and corporate sector and operate the payment mechanism (Magnifique, 2011). In today’s fast-moving business environment, banks are exposed to a large number of risks such as credit risk, liquidity risk, market risk, operational risk, interest rate exchange risk etc For instance, commercial banks hold deposits, bundling them together as loans, operating payments mechanism etc. Particularly, banks make profits by selling liabilities with one set of characteristics (a particular combination of liquidity risk and return) and using the proceeds to buy assets with different set of characteristics i.e. asset transformation. Credit risk management should be at the centre of banks operations in order to maintain financial sustainability and reaching more clients. Nzuve (2016) stated credit risk management models included the systems, procedures and control which a company has in place to ensure the efficient collection of customer payments and the risk of non-payment.
The major purpose of this study is to identify the relationship between credit risk and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA and ROE) and independent variables (NPL, cost per loan assets, capital adequacy, cash reserve ratio, leverage and assets growth ratio), to examine the relationship between non-performing loan ratio and bank performance, to identify the effect of cost per loan assets, cash reserve ratio, leverage, assets growth ratio and capital adequacy ratio on bank performance and to determine the major variable influencing the performance of Nepalese commercial banks.
This study based on the secondary of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations. The secondary data have been obtain from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is causal comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, non-performing loan ratio, cost per loan assets, cash reserve ratio, assets growth ratio and leverage ratio with dependent variable such as: ROA (return on assets) and ROE (return on equity). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows that capital adequacy ratio, cost per loan assets and assets growth ratio are positively related with return on assets and return on equity. It indicates that higher the capital adequacy ratio, higher would be the return on assets and return on equity. Similarly, increase in cost per loan assets leads to an increase in return on assets and return on equity. Likewise, higher the assets growth ratio, higher would be the return on assets and return on equity. The results also shows that non-performing loan ratio, cash reserve ratio and leverage ratio are negatively related with return on assets and return on equity which reveals that increase in non-performing loan ratio leads to decrease in return on assets and return on equity. Similarly, higher the cash reserve ratio, lower would be the return on assets and return on equity. Likewise, increase in leverage ratio leads to a decrease in return on assets and return on equity. The beta coefficient is positive for capital adequacy ratio, cost per loan assets and assets growth ratio and bank performance whereas the beta coefficient is negative for non-performing loan ratio, cash reserve ratio and leverage ratio and bank performance. The beta coefficient is significant for capital adequacy ratio, non-performing loan ratio, assets growth ratio and leverage ratio at 5 percent level of significance.
The major conclusion of this study is that bank performance of Nepalese commercial banks is affected by credit risk factors and its management. Capital adequacy ratio, cost per loan assets and assets growth ratio is an internal factor which have significant positive effect on return on assets of Nepalese commercial banks. It indicates higher the capital adequacy ratio, cost per loan assets and assets growth ratio, higher would be the return on assets. However, non-performing loan ratio, cash reserve ratio and leverage ratio have significant negative effect on return on assets. It indicates that higher the non-performing loan, cash reserve ratio and leverage ratio, lower would be the return on assets. The study also concludes that capital adequacy ratio, cost per loan assets and assets growth ratio have significant positive effect on return on equity of Nepalese commercial banks |
The impact of credit risk management on profitability of commercial banks in Nepal [printed text] / Divash Shakya, Author . - 2016 . - 81p. ; GRP/Thesis + 5/B. Including bibilography Languages : English | Descriptors: | Bank loans-Management
Banks
Banks and banking
Commercial banks
Consumer credit-Management
Credit-Management
Financial risk management
Risk management
| | Keywords: | 'credit risk management commercial banks return on equity return on assets banks loan' | | Class number: | 332.7 | | Abstract: | Commercial banks are the major financial intermediaries in any economy and they are the major providers of credits to the household and corporate sector and operate the payment mechanism (Magnifique, 2011). In today’s fast-moving business environment, banks are exposed to a large number of risks such as credit risk, liquidity risk, market risk, operational risk, interest rate exchange risk etc For instance, commercial banks hold deposits, bundling them together as loans, operating payments mechanism etc. Particularly, banks make profits by selling liabilities with one set of characteristics (a particular combination of liquidity risk and return) and using the proceeds to buy assets with different set of characteristics i.e. asset transformation. Credit risk management should be at the centre of banks operations in order to maintain financial sustainability and reaching more clients. Nzuve (2016) stated credit risk management models included the systems, procedures and control which a company has in place to ensure the efficient collection of customer payments and the risk of non-payment.
The major purpose of this study is to identify the relationship between credit risk and bank performance in Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of dependent (ROA and ROE) and independent variables (NPL, cost per loan assets, capital adequacy, cash reserve ratio, leverage and assets growth ratio), to examine the relationship between non-performing loan ratio and bank performance, to identify the effect of cost per loan assets, cash reserve ratio, leverage, assets growth ratio and capital adequacy ratio on bank performance and to determine the major variable influencing the performance of Nepalese commercial banks.
This study based on the secondary of data which were gather for a sample of 18 commercial banks of Nepal within the time period from 2007/08 to 2013/14, leading to the total of 126 observations. The secondary data have been obtain from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is causal comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, non-performing loan ratio, cost per loan assets, cash reserve ratio, assets growth ratio and leverage ratio with dependent variable such as: ROA (return on assets) and ROE (return on equity). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis.
The result shows that capital adequacy ratio, cost per loan assets and assets growth ratio are positively related with return on assets and return on equity. It indicates that higher the capital adequacy ratio, higher would be the return on assets and return on equity. Similarly, increase in cost per loan assets leads to an increase in return on assets and return on equity. Likewise, higher the assets growth ratio, higher would be the return on assets and return on equity. The results also shows that non-performing loan ratio, cash reserve ratio and leverage ratio are negatively related with return on assets and return on equity which reveals that increase in non-performing loan ratio leads to decrease in return on assets and return on equity. Similarly, higher the cash reserve ratio, lower would be the return on assets and return on equity. Likewise, increase in leverage ratio leads to a decrease in return on assets and return on equity. The beta coefficient is positive for capital adequacy ratio, cost per loan assets and assets growth ratio and bank performance whereas the beta coefficient is negative for non-performing loan ratio, cash reserve ratio and leverage ratio and bank performance. The beta coefficient is significant for capital adequacy ratio, non-performing loan ratio, assets growth ratio and leverage ratio at 5 percent level of significance.
The major conclusion of this study is that bank performance of Nepalese commercial banks is affected by credit risk factors and its management. Capital adequacy ratio, cost per loan assets and assets growth ratio is an internal factor which have significant positive effect on return on assets of Nepalese commercial banks. It indicates higher the capital adequacy ratio, cost per loan assets and assets growth ratio, higher would be the return on assets. However, non-performing loan ratio, cash reserve ratio and leverage ratio have significant negative effect on return on assets. It indicates that higher the non-performing loan, cash reserve ratio and leverage ratio, lower would be the return on assets. The study also concludes that capital adequacy ratio, cost per loan assets and assets growth ratio have significant positive effect on return on equity of Nepalese commercial banks |
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