Determinants of capital adequacy ratio in Nepalese context: a comparative study of public banks,joint venture banks and private banks / Sujata Adhikari 

Public ISBD Title : Determinants of capital adequacy ratio in Nepalese context: a comparative study of public banks,joint venture banks and private banks Material Type: printed text Authors: Sujata Adhikari, Author Publication Date: 2017 Pagination: 91p. Size: GRP/Thesis Accompanying material: 8/B Languages : English Descriptors: Bank capital Class number: 332.1206 Abstract: Capital adequacy ratio is a major financing decision for the effective and smooth operations of the financial system of the country. Every bank should have to maintain its capital adequacy ratio to handle losses and fulfill its obligations to account holders without ceasing. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. Therefore, regulatory authorities used capital adequacy ratio as a significant indicator of “safety and stability” for banks and depository institutions because they view capital as a guard or cushion for absorbing losses. Banks must maintain a capital adequacy at specific minimum level in order to avoid risks and bankruptcy. There are differences in public sector banks, joint venture banks and domestic private banks in terms of capital adequacy, core capital, return on equity, nonperforming loan, total loan, bank size and deposit. Matthew & Esther (2012) revealed foreign banks have more capital adequacy and bank size than domestic banks. Francis (2007) revealed that capital adequacy has positive effect on return on assets and return on equity. However, total assets and total loan were negatively and significantly related to capital adequacy ratio.Martynova (2015) argued the effect of higher capital requirements on economic growth will lead current level of capital ratio low. The major objective of the study is to examine the determinants of capital adequacy ratio of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 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 determinants of capital adequacy ratio of Nepalese commercial banks. The result shows that LBL has the highest average CAR, and LBL has the highest average TC among the selected commercial banks throughout the study period. Similarly, the average return on assets is highest for NCCB (5.52 percent), average return on equity is highest for NABIL (28.53 times), average nonperforming loan is highest for ADB (7.53 times), average total loan is highest for ADB (50.41 rupees in billions), average total deposit is highest NABIL (61.67 rupees in billions) and average total assets is highest for ADB (71.47 rupees in billions. The descriptive statistics for the public banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is -1.71 percent, 4.50 percent, 2.04 percent, 3.03 percent, 6.30 times, 39.45 rupees in billions, 53.14 rupees in billions, 67.09 rupees in billions, 10.17 percent and 4.22 percent respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.12 percent, 9.88 percent, 2.49 percent, 23.58 percent, 2.37 times, 30.24 rupees in billions, 44.49 rupees in billions, 51.18 rupees in billions, 0.10 percent and 0.04 percent respectively. Likewise, the descriptive statistics for the private bank reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.13 percent, 11.37 percent, 1.71 percent, 14.04 percent, 1.75 times, 20.12 rupees in billions, 25.03 rupees in billions, 39.93 rupees in billions, 0.11 percent and 0.05 percent respectively. In the case of public banks, the study found that inflation and economic growth have negative relationship with capital adequacy ratio and core capital ratio. Results also show that return on assets, nonperforming loan, total loan, total assets and total deposits are positively related to the capital adequacy ratio and core capital ratio. Similarly, in the case of joint venture banks, return on assets, nonperforming loan, total loan, economic growth and inflation are negatively related to capital adequacy ratio and core capital ratio. On the other hand, results also show that total deposit and total assets are positively correlated to the capital adequacy ratio. The results show that return on equity, total assets and economic growth are negatively related to the capital adequacy ratio of private banks. However, results show that return on assets, nonperforming loan and inflation have positive relationship with capital adequacy ratio of the private banks. The regression results show that return on assets, nonperforming loan, total deposit and inflation have positive impact on capital adequacy ratio in the case of public banks. However, results show that total deposit has negative and significant impact on capital adequacy ratio and core capital ratio of private banks. Likewise, results show that beta coefficients are positive and significant for total assets for public and private banks whereas beta coefficients are negative in the context of joint venture banks.However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are negative for return on assets and nonperforming loan, where beta coefficients are significant at 5 percent level of significance. Thus, nonperforming loan, return on assets, return on equity, total assets, total deposit and inflation are the major factors affecting the capital adequacy ratio of Nepalese commercial banks. Determinants of capital adequacy ratio in Nepalese context: a comparative study of public banks,joint venture banks and private banks [printed text] / Sujata Adhikari, Author . - 2017 . - 91p. ; GRP/Thesis + 8/B. Languages : English Descriptors: Bank capital Class number: 332.1206 Abstract: Capital adequacy ratio is a major financing decision for the effective and smooth operations of the financial system of the country. Every bank should have to maintain its capital adequacy ratio to handle losses and fulfill its obligations to account holders without ceasing. It is used to protect depositors and promote the stability and efficiency of financial systems around the world. Therefore, regulatory authorities used capital adequacy ratio as a significant indicator of “safety and stability” for banks and depository institutions because they view capital as a guard or cushion for absorbing losses. Banks must maintain a capital adequacy at specific minimum level in order to avoid risks and bankruptcy. There are differences in public sector banks, joint venture banks and domestic private banks in terms of capital adequacy, core capital, return on equity, nonperforming loan, total loan, bank size and deposit. Matthew & Esther (2012) revealed foreign banks have more capital adequacy and bank size than domestic banks. Francis (2007) revealed that capital adequacy has positive effect on return on assets and return on equity. However, total assets and total loan were negatively and significantly related to capital adequacy ratio.Martynova (2015) argued the effect of higher capital requirements on economic growth will lead current level of capital ratio low. The major objective of the study is to examine the determinants of capital adequacy ratio of the Nepalese commercial banks. The study is based on secondary data of 20 commercial banks with 140 observations for the period of 2008/09 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 determinants of capital adequacy ratio of Nepalese commercial banks. The result shows that LBL has the highest average CAR, and LBL has the highest average TC among the selected commercial banks throughout the study period. Similarly, the average return on assets is highest for NCCB (5.52 percent), average return on equity is highest for NABIL (28.53 times), average nonperforming loan is highest for ADB (7.53 times), average total loan is highest for ADB (50.41 rupees in billions), average total deposit is highest NABIL (61.67 rupees in billions) and average total assets is highest for ADB (71.47 rupees in billions. The descriptive statistics for the public banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is -1.71 percent, 4.50 percent, 2.04 percent, 3.03 percent, 6.30 times, 39.45 rupees in billions, 53.14 rupees in billions, 67.09 rupees in billions, 10.17 percent and 4.22 percent respectively. Similarly, the descriptive statistics for the joint venture banks reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.12 percent, 9.88 percent, 2.49 percent, 23.58 percent, 2.37 times, 30.24 rupees in billions, 44.49 rupees in billions, 51.18 rupees in billions, 0.10 percent and 0.04 percent respectively. Likewise, the descriptive statistics for the private bank reveals that the average capital adequacy ratio, core capital ratio, return on assets, return on equity, nonperforming loan, total loan, total deposit, total assets, economic growth and inflation rate is 0.13 percent, 11.37 percent, 1.71 percent, 14.04 percent, 1.75 times, 20.12 rupees in billions, 25.03 rupees in billions, 39.93 rupees in billions, 0.11 percent and 0.05 percent respectively. In the case of public banks, the study found that inflation and economic growth have negative relationship with capital adequacy ratio and core capital ratio. Results also show that return on assets, nonperforming loan, total loan, total assets and total deposits are positively related to the capital adequacy ratio and core capital ratio. Similarly, in the case of joint venture banks, return on assets, nonperforming loan, total loan, economic growth and inflation are negatively related to capital adequacy ratio and core capital ratio. On the other hand, results also show that total deposit and total assets are positively correlated to the capital adequacy ratio. The results show that return on equity, total assets and economic growth are negatively related to the capital adequacy ratio of private banks. However, results show that return on assets, nonperforming loan and inflation have positive relationship with capital adequacy ratio of the private banks. The regression results show that return on assets, nonperforming loan, total deposit and inflation have positive impact on capital adequacy ratio in the case of public banks. However, results show that total deposit has negative and significant impact on capital adequacy ratio and core capital ratio of private banks. Likewise, results show that beta coefficients are positive and significant for total assets for public and private banks whereas beta coefficients are negative in the context of joint venture banks.However, coefficients are not significant. Likewise, the results in the case of joint venture banks show that beta coefficients are negative for return on assets and nonperforming loan, where beta coefficients are significant at 5 percent level of significance. Thus, nonperforming loan, return on assets, return on equity, total assets, total deposit and inflation are the major factors affecting the capital adequacy ratio of Nepalese commercial banks.

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Impact of capital regulation on bank risk taking behavior: a case of Nepalese commercial banks / Dinika Karmacharya 

Public ISBD Title : Impact of capital regulation on bank risk taking behavior: a case of Nepalese commercial banks Material Type: printed text Authors: Dinika Karmacharya, Author Publication Date: 2018 Pagination: 94p. Size: GRP/Thesis Accompanying material: 11/B Languages : English Descriptors: Bank capital Class number: 332.1 Abstract: The banking industry is one of the most regulated industries. Among various regulatory measures, the regulation of bank capital is crucial due to the important role it plays in banks’ soundness and risk taking behavior, and its influence on the profitability of banks. Capital regulation, in particular, play a major role in supervision of the banking industries and mandates that banks should hold minimum amounts of capital which serve as a cushion against unexpected losses or adverse shocks that could lead to bank failure. This study attempts to observe the impact of capital regulations on the risk of Nepalese commercial banks. This study is based on secondary data of 16 commercial banks of Nepal for the time period of 2008/09 to 2015/16, leading to a total of 128 observations. Data and information have been collected from the Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. This study has employed descriptive research design and casual comparative research design as it deals with the relationship between bank regulations and competition with the performance of Nepalese commercial banks. The result reveals that average loan loss provision is highest for NBBL (Rs. 1.42 billion) and lowest for SANBL (Rs. 0.13 billion). The average non-performing loan is highest for HBL (Rs. 0.95 billion) and lowest for SANBL (Rs. 0.01 billion). The average capital adequacy ratio is highest for SABL (16.94 percent) and lowest for the NCC (10.04 percent). The average cash reserve ratio is highest for NMBBL (17.59 percent) and lowest for NIBL (9.82 percent). NIBL has the highest average deposit (Rs. 58.16 billion) and lowest for SANBL (Rs. 13.41 billion). GDP is highest in the year 2013/14 (6 percent) and lowest in 2015/16 (0.77 percent). Inflation is highest in the year 2009/10 (12.6 percent) and lowest in 2008/09 (6.7 percent). NIBL has the highest average firm size (Rs. 78.49 billion) and lowest for NCCBL (Rs. 22.33 billion). SANBL has the highest average liquidity (88.01 percent) and lowest for SCBL (50.85 percent). The descriptive statistics for selected commercial bank shows that the loan loss provision is 0.59 billion rupees, average non-performing loan is 0.38 billion rupees, average capital adequacy ratio is 6.95 percent, average gross domestic product is 30.57 percent, average inflation rate is 3.89 percent, average deposit is 41.99 billion rupees, average firm size is 74.95 billion rupees and average Liquidity ratio is 9.13 percent. The correlation matrix shows that capital adequacy ratio, firm size, inflation and liquidity ratio are negatively correlated with loan loss provision. However, gross domestic product and deposit have positive relationship with loan loss provision. However, capital adequacy ratio, firm size, inflation and liquidity ratio has negative relationship with non-performing loan. Likewise, deposit and gross domestic product have positive relationship with non- performing loan. The regression reveals that deposit and firm size has positive and significant impact on loan loss provision. It indicates that higher the deposit and firm size, higher would be the loan loss provision. However, capital adequacy ratio, gross domestic product, inflation and liquidity ratio has negative impact loan loss provision. It indicates that higher the capital adequacy ratio, gross domestic product, inflation and liquidity ratio, lower would be the loan loss provision. The study also reveals deposit and firm size have positive and significant impact on non performing loan. It indicates that higher the deposit and firm size, higher would be the non performing loan. However, capital adequacy ratio, gross domestic product, inflation and liquidity ratio has negative impact non performing loan. It indicates that higher the capital adequacy ratio, gross domestic product, inflation and liquidity ratio, lower would be the loan loss provision. The study also reveals gross domestic product has positive relationship with loan loss provision and non-performing loan. It indicates that higher the GDP growth, higher would be the loan loss provision and non-performing loan. However, the study reveals that there is negative relationship of capital adequacy ratio, firm size and liquidity ratio with loan loss provision and non-performing loan. It indicates that increase in capital adequacy ratio, firm size and liquidity ratio leads to increase in loan loss provision and non-performing loan. The result also shows that inflation is negatively related to the loan loss provision and non-performing loan. It indicates that increase in inflation leads to increase in loan loss provision and non-performing loan. The results also show that deposit and firm size have positive and capital adequacy ratio, gross domestic product, inflation and liquidity ratio have negative impact on loan loss provision and non-performing loan. Impact of capital regulation on bank risk taking behavior: a case of Nepalese commercial banks [printed text] / Dinika Karmacharya, Author . - 2018 . - 94p. ; GRP/Thesis + 11/B. Languages : English Descriptors: Bank capital Class number: 332.1 Abstract: The banking industry is one of the most regulated industries. Among various regulatory measures, the regulation of bank capital is crucial due to the important role it plays in banks’ soundness and risk taking behavior, and its influence on the profitability of banks. Capital regulation, in particular, play a major role in supervision of the banking industries and mandates that banks should hold minimum amounts of capital which serve as a cushion against unexpected losses or adverse shocks that could lead to bank failure. This study attempts to observe the impact of capital regulations on the risk of Nepalese commercial banks. This study is based on secondary data of 16 commercial banks of Nepal for the time period of 2008/09 to 2015/16, leading to a total of 128 observations. Data and information have been collected from the Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. This study has employed descriptive research design and casual comparative research design as it deals with the relationship between bank regulations and competition with the performance of Nepalese commercial banks. The result reveals that average loan loss provision is highest for NBBL (Rs. 1.42 billion) and lowest for SANBL (Rs. 0.13 billion). The average non-performing loan is highest for HBL (Rs. 0.95 billion) and lowest for SANBL (Rs. 0.01 billion). The average capital adequacy ratio is highest for SABL (16.94 percent) and lowest for the NCC (10.04 percent). The average cash reserve ratio is highest for NMBBL (17.59 percent) and lowest for NIBL (9.82 percent). NIBL has the highest average deposit (Rs. 58.16 billion) and lowest for SANBL (Rs. 13.41 billion). GDP is highest in the year 2013/14 (6 percent) and lowest in 2015/16 (0.77 percent). Inflation is highest in the year 2009/10 (12.6 percent) and lowest in 2008/09 (6.7 percent). NIBL has the highest average firm size (Rs. 78.49 billion) and lowest for NCCBL (Rs. 22.33 billion). SANBL has the highest average liquidity (88.01 percent) and lowest for SCBL (50.85 percent). The descriptive statistics for selected commercial bank shows that the loan loss provision is 0.59 billion rupees, average non-performing loan is 0.38 billion rupees, average capital adequacy ratio is 6.95 percent, average gross domestic product is 30.57 percent, average inflation rate is 3.89 percent, average deposit is 41.99 billion rupees, average firm size is 74.95 billion rupees and average Liquidity ratio is 9.13 percent. The correlation matrix shows that capital adequacy ratio, firm size, inflation and liquidity ratio are negatively correlated with loan loss provision. However, gross domestic product and deposit have positive relationship with loan loss provision. However, capital adequacy ratio, firm size, inflation and liquidity ratio has negative relationship with non-performing loan. Likewise, deposit and gross domestic product have positive relationship with non- performing loan. The regression reveals that deposit and firm size has positive and significant impact on loan loss provision. It indicates that higher the deposit and firm size, higher would be the loan loss provision. However, capital adequacy ratio, gross domestic product, inflation and liquidity ratio has negative impact loan loss provision. It indicates that higher the capital adequacy ratio, gross domestic product, inflation and liquidity ratio, lower would be the loan loss provision. The study also reveals deposit and firm size have positive and significant impact on non performing loan. It indicates that higher the deposit and firm size, higher would be the non performing loan. However, capital adequacy ratio, gross domestic product, inflation and liquidity ratio has negative impact non performing loan. It indicates that higher the capital adequacy ratio, gross domestic product, inflation and liquidity ratio, lower would be the loan loss provision. The study also reveals gross domestic product has positive relationship with loan loss provision and non-performing loan. It indicates that higher the GDP growth, higher would be the loan loss provision and non-performing loan. However, the study reveals that there is negative relationship of capital adequacy ratio, firm size and liquidity ratio with loan loss provision and non-performing loan. It indicates that increase in capital adequacy ratio, firm size and liquidity ratio leads to increase in loan loss provision and non-performing loan. The result also shows that inflation is negatively related to the loan loss provision and non-performing loan. It indicates that increase in inflation leads to increase in loan loss provision and non-performing loan. The results also show that deposit and firm size have positive and capital adequacy ratio, gross domestic product, inflation and liquidity ratio have negative impact on loan loss provision and non-performing loan.

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Relationship between capital and risk: evidence from Nepalese commercial banks / Krishna Kumar Rokka 

Public ISBD Title : Relationship between capital and risk: evidence from Nepalese commercial banks Material Type: printed text Authors: Krishna Kumar Rokka, Author Publication Date: 2014 Pagination: 80p. Size: GRP/Thesis Accompanying material: 1/B General note: Including bibliography Languages : English Descriptors: Bank capital Banks and banking Commercial banks Nepal Risk Keywords: 'bank  bank and banking  commercial banks  nepal  risk  nepal' Class number: 332.106 Abstract: Banking is the most regulated industry in the world. Apart from the product and its service, banking regulation also cover its institution. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk bank are exposed to. Furthermore, bank is also very important to the economy as the failure of banking will inhibit economic crisis. This motivation is known as systemic risk reduction motivation. In general, banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' health and risk taking behavior, and its impact on competitiveness banks. This states that there is somehow relationship between banking capital and the risk taking behavior of commercial banks. There is far less researches on the empirical side. All work investigating the relationship between capital and risk relationship between banking capital and risk taking has focused on the developing countries. This study investigates the relationship between capital and banks if selected commercial banks of Nepal. The objectives of the study were to examine the relationship between the capital and risk with other bank specific variables viz. bank size, ROA and net lending to total assets, and to examine the opinion of banking practitioner on the capital and risk. This study is guided by M.M. theory to capital, Markowitz portfolio theory and managers incentive theory. M.M. theory states that that valuation of the firm is irrelevant to the capital structure of a company whether it is highly leverage or has lower debt component. Markowitz portfolio theory states that a single assets may be very risky when held in isolation, but not much risky when held in combination with other assets in a portfolio. Managers’ incentive theory states that manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, it is in the manager's own best interest to maximize his own wealth. So there is conflict of interest and as a result agency cost problem arises. There are several studies conducted on the relationship between capital and risk. Some of the review showed positive relationship between capital and risk, large size banks hold less capital than small banks, profit and capital are positively related, net lending is inversely related with risk. Capital regulation has played important role in preventing commercial banks from failures by restricting them in involving excessive risk taking. This study has used both qualitative and quantitative approach by using descriptive research design. Data were collected from 14 commercial banks out of 31 commercial banks which existed and had the required data during the entire study period. The study used secondary data, which was retrieved from bank and financial statistics published by NRB and the individual bank’s financial statement. The primary source of data was collected through the questionnaire survey from the bank officers. The collected data was analyzed using SPSS software. Descriptive statistics, correlation analysis, portfolio analysis and regression analysis were carried out to analyze the secondary data. The result of the study showed that bank size and capital is significantly and negatively related with banking risk which implies that large size bank tens to be less risky and larger capital banks tend to reduce the risk taking behavior. Similarly, capital is negatively related to bank size indicating that larger banks tend to hold less capital due to their economies of scale and lower transaction cost. Profitability is positively related to capital but not statistically insignificant. The study also finds that regulators plays important role in controlling the risk taking activity of the commercial bank and it has helped banks in maintaining positive relationship between capital and risk. The study reveals that out of many factors, credit risk is more responsible for banking risk and market discipline and regulations have contributed a lot for capital base requirement. The major conclusion of the study is that there is inverse relationship between capital and banking risk. Similarly, the inverse relationship between bank size and risk indicates that large banks tend to have lower risk. Overall the results suggest that regulators should monitor closely bank loan expansion, and capital adequacy requirement on risk-taking activities so as to ensure a safer operating environment for banks in Nepal. And further studies are suggested with wide coverage of banks and financial system.   Relationship between capital and risk: evidence from Nepalese commercial banks [printed text] / Krishna Kumar Rokka, Author . - 2014 . - 80p. ; GRP/Thesis + 1/B. Including bibliography Languages : English Descriptors: Bank capital Banks and banking Commercial banks Nepal Risk Keywords: 'bank  bank and banking  commercial banks  nepal  risk  nepal' Class number: 332.106 Abstract: Banking is the most regulated industry in the world. Apart from the product and its service, banking regulation also cover its institution. The aim of the bank regulation is to increase prudential practices that will reduce the level of risk bank are exposed to. Furthermore, bank is also very important to the economy as the failure of banking will inhibit economic crisis. This motivation is known as systemic risk reduction motivation. In general, banking regulation is for the interest of depositors. In general capital regulation is very important because it plays an important role in banks' health and risk taking behavior, and its impact on competitiveness banks. This states that there is somehow relationship between banking capital and the risk taking behavior of commercial banks. There is far less researches on the empirical side. All work investigating the relationship between capital and risk relationship between banking capital and risk taking has focused on the developing countries. This study investigates the relationship between capital and banks if selected commercial banks of Nepal. The objectives of the study were to examine the relationship between the capital and risk with other bank specific variables viz. bank size, ROA and net lending to total assets, and to examine the opinion of banking practitioner on the capital and risk. This study is guided by M.M. theory to capital, Markowitz portfolio theory and managers incentive theory. M.M. theory states that that valuation of the firm is irrelevant to the capital structure of a company whether it is highly leverage or has lower debt component. Markowitz portfolio theory states that a single assets may be very risky when held in isolation, but not much risky when held in combination with other assets in a portfolio. Managers’ incentive theory states that manager, acting as the agent for the shareholders, or principals, is supposed to make decisions that will maximize shareholder wealth. However, it is in the manager's own best interest to maximize his own wealth. So there is conflict of interest and as a result agency cost problem arises. There are several studies conducted on the relationship between capital and risk. Some of the review showed positive relationship between capital and risk, large size banks hold less capital than small banks, profit and capital are positively related, net lending is inversely related with risk. Capital regulation has played important role in preventing commercial banks from failures by restricting them in involving excessive risk taking. This study has used both qualitative and quantitative approach by using descriptive research design. Data were collected from 14 commercial banks out of 31 commercial banks which existed and had the required data during the entire study period. The study used secondary data, which was retrieved from bank and financial statistics published by NRB and the individual bank’s financial statement. The primary source of data was collected through the questionnaire survey from the bank officers. The collected data was analyzed using SPSS software. Descriptive statistics, correlation analysis, portfolio analysis and regression analysis were carried out to analyze the secondary data. The result of the study showed that bank size and capital is significantly and negatively related with banking risk which implies that large size bank tens to be less risky and larger capital banks tend to reduce the risk taking behavior. Similarly, capital is negatively related to bank size indicating that larger banks tend to hold less capital due to their economies of scale and lower transaction cost. Profitability is positively related to capital but not statistically insignificant. The study also finds that regulators plays important role in controlling the risk taking activity of the commercial bank and it has helped banks in maintaining positive relationship between capital and risk. The study reveals that out of many factors, credit risk is more responsible for banking risk and market discipline and regulations have contributed a lot for capital base requirement. The major conclusion of the study is that there is inverse relationship between capital and banking risk. Similarly, the inverse relationship between bank size and risk indicates that large banks tend to have lower risk. Overall the results suggest that regulators should monitor closely bank loan expansion, and capital adequacy requirement on risk-taking activities so as to ensure a safer operating environment for banks in Nepal. And further studies are suggested with wide coverage of banks and financial system.

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The impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks / Amrit K. Shrestha 

Public ISBD Title : The impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks Material Type: printed text Authors: Amrit K. Shrestha, Author Publication Date: 2016 Pagination: 78p. Size: GRP/Thesis Accompanying material: 4/B General note: Including bibliography Languages : English Descriptors: Bank and banking Bank capital Bank investments Bank loans Bank management Keywords: 'capital adequacy  bank capital  financial performance' Class number: 332.120 Abstract: Banks primary role is to ensure the growth and development of an economy. To ensure availability of funds at any point in time (in meeting with customers’ needs and demands), statutory requirements must be in place to regulate and measure banks’ capital. Capital plays an important role in enhancing banks’ performance. The major concern of the study here is to understand how the capital adequacy and bank operating efficiency influences the overall financial performance of the bank. The importance of the capital is to finance the assets as well as to protect the long term and short term creditors who make the fund available to the business. The review of the literature reveals the existence of many gaps of knowledge in respect of the factors affecting bank profitability, particularly in the context of Nepal. The review showed that sound operating efficiency and capital adequacy impacted positively on bank’s financial performance with the exception of loans and advances which was found to have a negative impact on banks’ profitability in the period under study. As per the review of the literature most of the empirical studies that have been conducted with the aim of identifying factors affecting bank profitability belong to European Union and some emerging markets such as Philippines, Malaysia and Tunisia. Moreover, the literature review also reveals the existence of controversial conclusions that results from different studies made so far. The major purpose of the study is to investigate the impact of capital adequacy and bank operating efficiency on financial performance in Nepalese commercial banks. Secondary data have been used for the purpose of the study which is collected from annual reports of the sample banks. The secondary data of the sample banks while 8 years data from 2005/06 to 2012/13 has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, correlation analysis, stepwise regressions have been carried out to examine the secondary data. Based on the secondary analysis of data, the study showed that there is a significant relationship between financial performance and capital adequacy. Better capital adequacy results in better financial performance. This study revealed that core capital ratio, risk based capital ratio and total capital ratio has negative significant relationship with ROA where as bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity have positive and significant relation with ROA. In case of ROE, loan loss provision to total loan has negative and significant relation with ROE whereas, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity has positive relation with ROE. It is theoretically acceptable that banks with good capital adequacy ratio have a good profitability. A bank with a strong capital adequacy is also able to absorb possible loan losses and thus avoids bank ‘run’, insolvency and failure. This study result indicates that, capital adequacy ratio is positive with both the dependent variable ROA and ROE but it is only significant with ROA and insignificant with ROE. Finally, most of the studies were all based on quantitative analysis this study somehow presents some analyze related with qualitative analysis. Many more unanswered questions are still hovering in the Nepalese banking field. Thus, to address such unanswered question there is requirement of the fresh research to be conducted on above mentioned various issues. Further studies can extend and provide more in-depth result on capital adequacy and bank operating efficiency on financial performances of Nepal. The results indicate that the major effect of higher capital adequacy, better the financial performances of banks followed by degrade in banking image. The major conclusion of this study is that bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity are positively correlated with return on assets. Loan loss provision to total loan, core capital ratio, risk based capital ratio and total capital ratio are negatively correlated with return on assets. Likewise, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity, core capital ratio, risk based capital, total capital ratio are positively correlated with return on equity loan loss provision to total and loan loss reserve to equity are negatively correlated with return on equity. The impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks [printed text] / Amrit K. Shrestha, Author . - 2016 . - 78p. ; GRP/Thesis + 4/B. Including bibliography Languages : English Descriptors: Bank and banking Bank capital Bank investments Bank loans Bank management Keywords: 'capital adequacy  bank capital  financial performance' Class number: 332.120 Abstract: Banks primary role is to ensure the growth and development of an economy. To ensure availability of funds at any point in time (in meeting with customers’ needs and demands), statutory requirements must be in place to regulate and measure banks’ capital. Capital plays an important role in enhancing banks’ performance. The major concern of the study here is to understand how the capital adequacy and bank operating efficiency influences the overall financial performance of the bank. The importance of the capital is to finance the assets as well as to protect the long term and short term creditors who make the fund available to the business. The review of the literature reveals the existence of many gaps of knowledge in respect of the factors affecting bank profitability, particularly in the context of Nepal. The review showed that sound operating efficiency and capital adequacy impacted positively on bank’s financial performance with the exception of loans and advances which was found to have a negative impact on banks’ profitability in the period under study. As per the review of the literature most of the empirical studies that have been conducted with the aim of identifying factors affecting bank profitability belong to European Union and some emerging markets such as Philippines, Malaysia and Tunisia. Moreover, the literature review also reveals the existence of controversial conclusions that results from different studies made so far. The major purpose of the study is to investigate the impact of capital adequacy and bank operating efficiency on financial performance in Nepalese commercial banks. Secondary data have been used for the purpose of the study which is collected from annual reports of the sample banks. The secondary data of the sample banks while 8 years data from 2005/06 to 2012/13 has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, correlation analysis, stepwise regressions have been carried out to examine the secondary data. Based on the secondary analysis of data, the study showed that there is a significant relationship between financial performance and capital adequacy. Better capital adequacy results in better financial performance. This study revealed that core capital ratio, risk based capital ratio and total capital ratio has negative significant relationship with ROA where as bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity have positive and significant relation with ROA. In case of ROE, loan loss provision to total loan has negative and significant relation with ROE whereas, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity has positive relation with ROE. It is theoretically acceptable that banks with good capital adequacy ratio have a good profitability. A bank with a strong capital adequacy is also able to absorb possible loan losses and thus avoids bank ‘run’, insolvency and failure. This study result indicates that, capital adequacy ratio is positive with both the dependent variable ROA and ROE but it is only significant with ROA and insignificant with ROE. Finally, most of the studies were all based on quantitative analysis this study somehow presents some analyze related with qualitative analysis. Many more unanswered questions are still hovering in the Nepalese banking field. Thus, to address such unanswered question there is requirement of the fresh research to be conducted on above mentioned various issues. Further studies can extend and provide more in-depth result on capital adequacy and bank operating efficiency on financial performances of Nepal. The results indicate that the major effect of higher capital adequacy, better the financial performances of banks followed by degrade in banking image. The major conclusion of this study is that bank operating efficiency, total deposit assets, loan ratio and loan loss provision to total equity are positively correlated with return on assets. Loan loss provision to total loan, core capital ratio, risk based capital ratio and total capital ratio are negatively correlated with return on assets. Likewise, bank operating efficiency, loan ratio, total deposit assets, loan loss provision to total equity, core capital ratio, risk based capital, total capital ratio are positively correlated with return on equity loan loss provision to total and loan loss reserve to equity are negatively correlated with return on equity.

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The impact of capital adequacy and credit risk on performance of Nepalese commercial banks / Kohinoor Thapaliya 

Public ISBD Title : The impact of capital adequacy and credit risk on performance of Nepalese commercial banks Material Type: printed text Authors: Kohinoor Thapaliya, Author Publication Date: 2015 Pagination: 85p. Size: GRP/Thesis Accompanying material: 4/B General note: Including bibilography Languages : English Descriptors: Bank capital Banks Banks and banking Capital adequacy Commercial banks Keywords: 'capital adequacy  capital adequacy  bank capital  financial performance' Class number: 332.120 The impact of capital adequacy and credit risk on performance of Nepalese commercial banks [printed text] / Kohinoor Thapaliya, Author . - 2015 . - 85p. ; GRP/Thesis + 4/B. Including bibilography Languages : English Descriptors: Bank capital Banks Banks and banking Capital adequacy Commercial banks Keywords: 'capital adequacy  capital adequacy  bank capital  financial performance' Class number: 332.120

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