Determinants of loan loss provision in Nepalese commercial banks / Deepa Bhusal 

Public ISBD Title : Determinants of loan loss provision in Nepalese commercial banks Material Type: printed text Authors: Deepa Bhusal, Author Publication Date: 2018 Pagination: 96p. Size: GRP/Thesis Accompanying material: 11/B Languages : English Descriptors: Bank loans Loan loss provision Keywords: loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: In today’s fast-moving business environment, banks are exposed to a large number of risks: credit risk, liquidity risk, market risk, operational risk, interest rate exchange risk, etc. Due to such exposure to various risks, efficient risk management is required. Managing risk is one of the basic tasks to be done, once it has been identified and known. Shafiq& Nasr (2010) argued that managing a risk in advance is far better than waiting for its occurrence. The focus of good risk management is the identification and treatment of risks. Its objective is to add maximum sustainable value to all the activities of the organization. The loan loss provision increase with the riskiness that bank makes on the loan. A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks. The high quality loan requires low loan loss provision, whereas bad loan requires high loan loss provision. A loan loss provision is considered as an adjustment of the bank value of a loan which regards future changes in the loan’s value due to default events (Hlawatch&Ostrowski, 2010). Managerial discretion in the use of loan loss provision (LLP) has attracted considerable attention from both regulators and academics for a long time. Earlier studies focused on the use of LLP for capital management (Ahmed et al., 1999). More recently, the study focuses on the timeliness of LLP over the business cycle and the associated effects on banks' lending behavior and financial stability (Laeven&Majnoni, 2003; Bikker&Metzemakers, 2005 and Beatty & Liao, 2011). If banks account for the fact that the latent credit risk in their loan portfolios rises during upswings when competition between banks increases and monitoring efforts decrease, they should increase their provisioning level during upswings and lower it during downturns as losses occur, thus build and release provisions in a countercyclical fashion. The major purpose of this study is to analyze the impact of bank specific and macroeconomic factors on loan loss provisions in Nepalese commercial banks. The specific objectives of this study are: a) To analyze the structure and pattern of dependent (LLP1 and LLP2) and independent variables (capital adequacy ratio, loan growth, bank size and non-performing loan), b) To examine the relationship between macroeconomic variable like GDP growth rate, inflation rate and interest rate with loan loss provision, c) To identify the effect of capital adequacy ratio, loan growth and bank size on loan loss provision, d) To examine the relationship between non-performing loan and loan loss provision of the bank. The study is based on the secondary data which were gathered for a sample of 18 commercial banks of Nepal within the time period from 2008 to 2015, leading to the total of 144 observations. This study employs descriptive and causal comparative research design to deal with bank specific and macroeconomic determinants of loan loss provision of Nepalese commercial banks. More specifically, the study examines the effect of capital adequacy ratio, loan growth, bank size, non-performing loan, GDP growth rate, inflation rate and interest rate on loan loss provision. The main sources of data are various issues of banking and financial statistics, World Bank, bank supervision reports of NRB and various annual reports of selected commercial banks. The average loan loss provision to total loan is highest for NBB (9.88 percent) and lowest for SCBL (1.34 percent).CZBL has the highest average loan loss provision to non-performing loan of 7.29 times and HBL has lowest of 1.25 times.The average capital adequacy ratio is highest for SCBL (15.18 percent) and lowest for SBL (10.76 percent).The analysis of loan growth indicates that average loan growth is highest for GBIME (38.33 percent) and lowest for SCBL (11.73 percent).The average bank size is highest for NABIL (83695.83 million) and lowest for NCC (22907.86 million).NBB has the highest average non-performing loan of 6.39 percent and EBL has lowest of 0.51 percent. The descriptive statistics for the variables are used in this study. Clearly, The average loan loss provisions to total loan and loan loss provision to non-performing loan for 18 sample banks is 2.62 percent and 2.85 times respectively. Similarly, average capital adequacy ratio is 12.31 percent; loan growth is 23.71 percent. Similarly, the mean proportion of bank size is 45266.58 million, non-performing loan is 1.73 percent, GDP growth rate is 3.86 percent and inflation rate is 9.53 percent. Furthermore, the average interest rate is of 3.25 percent. From the analysis, non-performing loan, inflation rate and interest rate are positively correlated with loan loss provision to total loan. This study reveals that capital adequacy ratio, loan growth, bank size and GDP growth rate are negatively correlated with loan loss provision to total loan. It indicates that higher the capital adequacy ratio, loan growth, bank size and GDP growth rate, lower would be loan loss provision to total loan. The result also shows that loan growth, inflation rate and interest rate are positively correlated to loan loss provision to non-performing loan. Also, this study reveals that capital adequacy ratio, non-performing loan, bank size and GDP growth rate are negatively correlated to loan loss provision to non-performing loan. The regression result found beta coefficient of capital adequacy ratio is negative with loan loss provision to total loan and loan loss provision to non-performing loan which indicates that banks having higher capital adequacy ratio have lower loan loss provision to total loan and loan loss provision to non-performing loan. The beta coefficient is significant at 1 percent level of significance for loan loss provision to total loan and significant at 5 percent level of significance for loan loss provision to non-performing loan. The beta coefficient for loan growth is negative for loan loss provision to total loan and positive for loan loss provision to non-performing loan. The beta coefficient for loan growth is insignificant for both loan loss provision to total loan and loan loss provision to non-performing loan. The result found negative beta coefficient for the bank size with loan loss provision to total loan and loan loss provision to non-performing loan. The coefficient is significant at 5 percent level of significance for bank size with loan loss provision to total loan. The result shows positive beta coefficient for non-performing loan with loan loss provision to total loan. However, beta coefficient for non-performing loan is negative with loan loss provision to non-performing loan. The beta coefficient for non-performing loan is significant at 1 percent level of significance. The beta coefficient for GDP growth rate is negative and insignificant for all proxy of loan loss provision i.e. loan loss provision to total loan and loan loss provision to non-performing loan which means that with an increase in GDP growth rate leads to decrease in loan loss provision. The positive beta coefficient is observed for inflation rate with loan loss provision to total loan and loan loss provision to non-performing loan which indicates that higher the inflation rate; higher would be loan loss provision to total loan and loan loss provision to non-performing loan. The beta coefficient is insignificant for inflation rate. The result found positive beta coefficient for the interest rate with loan loss provision to total loan and loan loss provision to non-performing loan. The coefficient is significant at 1 percent level of significance for interest rate with loan loss provision to non-performing loan and insignificant for loan loss provision to total loan. Determinants of loan loss provision in Nepalese commercial banks [printed text] / Deepa Bhusal, Author . - 2018 . - 96p. ; GRP/Thesis + 11/B. Languages : English Descriptors: Bank loans Loan loss provision Keywords: loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: In today’s fast-moving business environment, banks are exposed to a large number of risks: credit risk, liquidity risk, market risk, operational risk, interest rate exchange risk, etc. Due to such exposure to various risks, efficient risk management is required. Managing risk is one of the basic tasks to be done, once it has been identified and known. Shafiq& Nasr (2010) argued that managing a risk in advance is far better than waiting for its occurrence. The focus of good risk management is the identification and treatment of risks. Its objective is to add maximum sustainable value to all the activities of the organization. The loan loss provision increase with the riskiness that bank makes on the loan. A bank making a small number of risky loans will have a low loan loss provision compared to a bank taking higher risks. The high quality loan requires low loan loss provision, whereas bad loan requires high loan loss provision. A loan loss provision is considered as an adjustment of the bank value of a loan which regards future changes in the loan’s value due to default events (Hlawatch&Ostrowski, 2010). Managerial discretion in the use of loan loss provision (LLP) has attracted considerable attention from both regulators and academics for a long time. Earlier studies focused on the use of LLP for capital management (Ahmed et al., 1999). More recently, the study focuses on the timeliness of LLP over the business cycle and the associated effects on banks' lending behavior and financial stability (Laeven&Majnoni, 2003; Bikker&Metzemakers, 2005 and Beatty & Liao, 2011). If banks account for the fact that the latent credit risk in their loan portfolios rises during upswings when competition between banks increases and monitoring efforts decrease, they should increase their provisioning level during upswings and lower it during downturns as losses occur, thus build and release provisions in a countercyclical fashion. The major purpose of this study is to analyze the impact of bank specific and macroeconomic factors on loan loss provisions in Nepalese commercial banks. The specific objectives of this study are: a) To analyze the structure and pattern of dependent (LLP1 and LLP2) and independent variables (capital adequacy ratio, loan growth, bank size and non-performing loan), b) To examine the relationship between macroeconomic variable like GDP growth rate, inflation rate and interest rate with loan loss provision, c) To identify the effect of capital adequacy ratio, loan growth and bank size on loan loss provision, d) To examine the relationship between non-performing loan and loan loss provision of the bank. The study is based on the secondary data which were gathered for a sample of 18 commercial banks of Nepal within the time period from 2008 to 2015, leading to the total of 144 observations. This study employs descriptive and causal comparative research design to deal with bank specific and macroeconomic determinants of loan loss provision of Nepalese commercial banks. More specifically, the study examines the effect of capital adequacy ratio, loan growth, bank size, non-performing loan, GDP growth rate, inflation rate and interest rate on loan loss provision. The main sources of data are various issues of banking and financial statistics, World Bank, bank supervision reports of NRB and various annual reports of selected commercial banks. The average loan loss provision to total loan is highest for NBB (9.88 percent) and lowest for SCBL (1.34 percent).CZBL has the highest average loan loss provision to non-performing loan of 7.29 times and HBL has lowest of 1.25 times.The average capital adequacy ratio is highest for SCBL (15.18 percent) and lowest for SBL (10.76 percent).The analysis of loan growth indicates that average loan growth is highest for GBIME (38.33 percent) and lowest for SCBL (11.73 percent).The average bank size is highest for NABIL (83695.83 million) and lowest for NCC (22907.86 million).NBB has the highest average non-performing loan of 6.39 percent and EBL has lowest of 0.51 percent. The descriptive statistics for the variables are used in this study. Clearly, The average loan loss provisions to total loan and loan loss provision to non-performing loan for 18 sample banks is 2.62 percent and 2.85 times respectively. Similarly, average capital adequacy ratio is 12.31 percent; loan growth is 23.71 percent. Similarly, the mean proportion of bank size is 45266.58 million, non-performing loan is 1.73 percent, GDP growth rate is 3.86 percent and inflation rate is 9.53 percent. Furthermore, the average interest rate is of 3.25 percent. From the analysis, non-performing loan, inflation rate and interest rate are positively correlated with loan loss provision to total loan. This study reveals that capital adequacy ratio, loan growth, bank size and GDP growth rate are negatively correlated with loan loss provision to total loan. It indicates that higher the capital adequacy ratio, loan growth, bank size and GDP growth rate, lower would be loan loss provision to total loan. The result also shows that loan growth, inflation rate and interest rate are positively correlated to loan loss provision to non-performing loan. Also, this study reveals that capital adequacy ratio, non-performing loan, bank size and GDP growth rate are negatively correlated to loan loss provision to non-performing loan. The regression result found beta coefficient of capital adequacy ratio is negative with loan loss provision to total loan and loan loss provision to non-performing loan which indicates that banks having higher capital adequacy ratio have lower loan loss provision to total loan and loan loss provision to non-performing loan. The beta coefficient is significant at 1 percent level of significance for loan loss provision to total loan and significant at 5 percent level of significance for loan loss provision to non-performing loan. The beta coefficient for loan growth is negative for loan loss provision to total loan and positive for loan loss provision to non-performing loan. The beta coefficient for loan growth is insignificant for both loan loss provision to total loan and loan loss provision to non-performing loan. The result found negative beta coefficient for the bank size with loan loss provision to total loan and loan loss provision to non-performing loan. The coefficient is significant at 5 percent level of significance for bank size with loan loss provision to total loan. The result shows positive beta coefficient for non-performing loan with loan loss provision to total loan. However, beta coefficient for non-performing loan is negative with loan loss provision to non-performing loan. The beta coefficient for non-performing loan is significant at 1 percent level of significance. The beta coefficient for GDP growth rate is negative and insignificant for all proxy of loan loss provision i.e. loan loss provision to total loan and loan loss provision to non-performing loan which means that with an increase in GDP growth rate leads to decrease in loan loss provision. The positive beta coefficient is observed for inflation rate with loan loss provision to total loan and loan loss provision to non-performing loan which indicates that higher the inflation rate; higher would be loan loss provision to total loan and loan loss provision to non-performing loan. The beta coefficient is insignificant for inflation rate. The result found positive beta coefficient for the interest rate with loan loss provision to total loan and loan loss provision to non-performing loan. The coefficient is significant at 1 percent level of significance for interest rate with loan loss provision to non-performing loan and insignificant for loan loss provision to total loan.

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Impact of loan loss provision on financial performance of Nepalese commercial banks / Archana Shrestha 

Public ISBD Title : Impact of loan loss provision on financial performance of Nepalese commercial banks Material Type: printed text Authors: Archana Shrestha, Author Publication Date: 2017 Pagination: 96p. Size: GRP/Thesis Accompanying material: 11/B Languages : English Descriptors: Loan loss provision Keywords: 'loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: This study entitled “Impact of loan loss provision on financial performance of Nepalese commercial banks” has been conducted to satisfy the partial requirements for the degree of Masters of Business Administration (Finance) of Pokhara University. Every project big or small is successful largely due to the effort of a number of wonderful people who have always given their valuable advice or lent a helping hand. I sincerely appreciate the inspiration; support and guidance of all those people who have been instrumental in making this study a success. First of all, I would like to extend my immense gratitude to my honorable supervisor, Prof. Dr. Radhe Shyam Pradhan who accepted me as his GRP student without any hesitation. His valuable supervision and guidance have been the major boost in completing this study. I am highly indebted and very thankful for his continuous support and constructive suggestions that have enabled this research project to achieve its present form. Moreover, I am also indebted and thankful to him for his motivation, support and instruction in completing my overall MBA degree. Similar, profound gratitude goes to Dr. Nar Bahadur Bista (Principal) and Mr. Dipkar Thapa, (Program Director) for their constant faith, guidance, and for the support they provided when it mattered. Special mention goes to Mr. Jagadish Prasad Bist (Research Assistant) for his timely and continuous guidance throughout the study. He not only reviewed my work but also suggested valuable advices and insights. I also highly appreciate the efforts, supervision, guidance and inspirations of all the faculties of Uniglobe College not only throughout this study but throughout the whole MBA course. I would like to acknowledge all Uniglobe College staffs and my friends. Last but not the least, I would like to express my warm respect to my parents and my siblings for their affection and emotional support that has inspired me to achieve every success including this study. I would also like to take full responsibility of any kind of deficiency presented in this study. Impact of loan loss provision on financial performance of Nepalese commercial banks [printed text] / Archana Shrestha, Author . - 2017 . - 96p. ; GRP/Thesis + 11/B. Languages : English Descriptors: Loan loss provision Keywords: 'loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: This study entitled “Impact of loan loss provision on financial performance of Nepalese commercial banks” has been conducted to satisfy the partial requirements for the degree of Masters of Business Administration (Finance) of Pokhara University. Every project big or small is successful largely due to the effort of a number of wonderful people who have always given their valuable advice or lent a helping hand. I sincerely appreciate the inspiration; support and guidance of all those people who have been instrumental in making this study a success. First of all, I would like to extend my immense gratitude to my honorable supervisor, Prof. Dr. Radhe Shyam Pradhan who accepted me as his GRP student without any hesitation. His valuable supervision and guidance have been the major boost in completing this study. I am highly indebted and very thankful for his continuous support and constructive suggestions that have enabled this research project to achieve its present form. Moreover, I am also indebted and thankful to him for his motivation, support and instruction in completing my overall MBA degree. Similar, profound gratitude goes to Dr. Nar Bahadur Bista (Principal) and Mr. Dipkar Thapa, (Program Director) for their constant faith, guidance, and for the support they provided when it mattered. Special mention goes to Mr. Jagadish Prasad Bist (Research Assistant) for his timely and continuous guidance throughout the study. He not only reviewed my work but also suggested valuable advices and insights. I also highly appreciate the efforts, supervision, guidance and inspirations of all the faculties of Uniglobe College not only throughout this study but throughout the whole MBA course. I would like to acknowledge all Uniglobe College staffs and my friends. Last but not the least, I would like to express my warm respect to my parents and my siblings for their affection and emotional support that has inspired me to achieve every success including this study. I would also like to take full responsibility of any kind of deficiency presented in this study.

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Loan loss provision practices of Nepalese commercial banks / Sajana Dangol 

Public ISBD Title : Loan loss provision practices of Nepalese commercial banks Material Type: printed text Authors: Sajana Dangol, Author Publication Date: 2013 Pagination: 88p. Size: GRP/Thesis Accompanying material: 1/B General note: Including bibliography Languages : English Descriptors: Banks Banks and banking Commercial banks Loan loss provision Loans Nepal Sajana Dangol Keywords: 'sajana Dangol  nepal  loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: Loan loss provisions ensure level of protection for expected credit losses. The intention of a loan loss provision is the anticipation of the loan's expected losses by adjusting the book value of the loan. Loan loss provisions reflect not only the probability of default, but also the amount the lender can recover in case of default. This study investigates the determinants of loan loss provisions of commercial banks in Nepal with respect to firm specific and macroeconomic variables. The specific objectives of this study were to analyze the relationship and impact of credit quality, earnings, capital adequacy ratio, bank size and GDP on loan loss provision. The research was based on primary and secondary data. The methods used for secondary data analysis included descriptive statistics, and analysis by forming portfolios and regression analysis. The methods used for primary data analysis included percentage frequency distribution, mean scores and standard deviation of responses to Likert scale items. The major conclusion of this study is that nonperforming loans, growth of loan, earnings before tax and provision, capital adequacy ratio and total assets explain loan loss provision in the context of Nepal. The determinants of LLP are not equally applicable for all types of ownership of banks. Some determinants like CAR and TA are common to all banks while other determinants like NPL, LAR, GL, ROA, EBTPTA, ME and GDP are not equally significant for all banks. The results also indicate strong role of capital adequacy ratio and nonperforming loan to explain loan loss provision except for state owned banks. However, total assets also has consistent significant negative with loan loss provision in all case. This study also concluded that provisioning tends to be low when there is rapid growth in loan. This study also concluded that banks have provisioning for loan loss by setting aside extra buffers in high earning years and banks use loan loss provisions to smooth income over the period. Loan loss provision practices of Nepalese commercial banks [printed text] / Sajana Dangol, Author . - 2013 . - 88p. ; GRP/Thesis + 1/B. Including bibliography Languages : English Descriptors: Banks Banks and banking Commercial banks Loan loss provision Loans Nepal Sajana Dangol Keywords: 'sajana Dangol  nepal  loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 Abstract: Loan loss provisions ensure level of protection for expected credit losses. The intention of a loan loss provision is the anticipation of the loan's expected losses by adjusting the book value of the loan. Loan loss provisions reflect not only the probability of default, but also the amount the lender can recover in case of default. This study investigates the determinants of loan loss provisions of commercial banks in Nepal with respect to firm specific and macroeconomic variables. The specific objectives of this study were to analyze the relationship and impact of credit quality, earnings, capital adequacy ratio, bank size and GDP on loan loss provision. The research was based on primary and secondary data. The methods used for secondary data analysis included descriptive statistics, and analysis by forming portfolios and regression analysis. The methods used for primary data analysis included percentage frequency distribution, mean scores and standard deviation of responses to Likert scale items. The major conclusion of this study is that nonperforming loans, growth of loan, earnings before tax and provision, capital adequacy ratio and total assets explain loan loss provision in the context of Nepal. The determinants of LLP are not equally applicable for all types of ownership of banks. Some determinants like CAR and TA are common to all banks while other determinants like NPL, LAR, GL, ROA, EBTPTA, ME and GDP are not equally significant for all banks. The results also indicate strong role of capital adequacy ratio and nonperforming loan to explain loan loss provision except for state owned banks. However, total assets also has consistent significant negative with loan loss provision in all case. This study also concluded that provisioning tends to be low when there is rapid growth in loan. This study also concluded that banks have provisioning for loan loss by setting aside extra buffers in high earning years and banks use loan loss provisions to smooth income over the period.

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Loan loss provisioning and relationship banking in Nepalese commercial banks / Roshan Sedhain 

Public ISBD Title : Loan loss provisioning and relationship banking in Nepalese commercial banks Material Type: printed text Authors: Roshan Sedhain, Author Publication Date: 2016 Pagination: 104p. Size: GRP/Thesis Accompanying material: 8/B Languages : English Descriptors: Bank reserves Loan loss provision Class number: 332.1095 Abstract: The banking system is disposed to credit risk accompanying with the problem loans and complications in loan recoveries particularly during monetary and economic volatility. However, the instability of the financial institutions is suppressed by the loan loss provisions and stronger capital adequacy ratio. The loan loss provision is an instrument created in the banking system to evade the financial instability resulted from high non-performing loan ratio. In practice, the level of provisioning had a factually pro-cyclical bias, as it is basically linked to concurrent problem assets, so that provisions mainly rise during a financial depression, when credit risk has already materialized (Borio and Lowe, 2001; Naceur & Kandil, 2013; Bikker and Hu, 2002; Laeven and Majnoni, 2003). In banking business, loan loss provision has a significant role to protect bank from unprecedented risks and failures. A loan loss provision is a charge to profit and loss statements, and it creates a reserve on the balance sheet. It can be viewed as a cushioning mechanism, which ensures commercial banks to avoid lose from the entire outstanding loan balance. Loan loss provisions are widely used by commercial bank managers when managing risk exposure in their lending activities. Loan loss provisions are expected when anticipated losses occur as a result of lending and financing activities (Anandarajan et al. 2007). The major objective of this study is to examine the determinants of loan loss provisions of commercial banks in Nepal. The specific objectives are i) to determine the structure and pattern of capital adequacy ratio, non-performing loan, leverage ratio, loan loss provision and credit interest to credit facilities. ii) To find out the relation of capital adequacy ratio, bad loan secured loan and firm size with loan loss provision of Nepalese commercial banks. iii) To investigate the impact of loan to assets, earning before loan loss provision and tax, real GDP growth and inflation to loan loss provision of Nepalese commercial banks. iv) To identify the most important variable affecting loan loss provision of Nepalese commercial banks. This study is based on descriptive and causal comparative research designs to deal with the various issues raised. The descriptive research design has been adopted for fact-finding and operation searching for adequate information of firm characteristics in Nepalese banks. Beside, an effort has also been made to describe the nature of panel data of the commercials banks by using descriptive statistics with respect to bank specific variables and macro-economic variables such as bad loans, capital adequacy ratios, loan to assets ratio, secured loan, earnings before tax and provision, GDP growth rate and inflation. The study examines the effect of bad loan, secured loan, ratio of loan to assets, capital adequacy ratio, earning before loan loss provision and tax, GDP growth and inflation with loan loss provision and ratio of non-performing loan to total loan. This study has utilized secondary source of data. The main sources of data include Annual Reports of banks, Banking and Financial Statistics published by Nepal Rastra Bank. In addition to these, Annual Supervision Reports published by NRB have also been used to obtain the information regarding the bad loans, capital adequacy ratios, loan to assets ratio, earnings before tax and provision, secured loan and macro-economic variable like GDP growth rate and inflation. The average loan loss provision is highest for ADBL and lowest for LBL. The average non-performing loan to total loan is highest for NBB and lowest for EBL. The average bad loan is highest for RBBL and lowest for SCB. The average capital adequacy ratio is highest for NMB and lowest for RBBL. The average secured loan is highest for ADBL and lowest for LBL. The average firm size is highest for RBBL and lowest for LBL. The average earning before tax and provision is highest for SCB and lowest for NBL. The average loan to assets ratio is highest for PBL and lowest for RBBL. The GDP is highest in 2008 whereas, inflation rate is highest in 2009. The descriptive statistics for the variables used in this study. Clearly, the average loan loss provision loan loss provision of Rs. 786.95 Million. The average non-performing loan to total loans is noticed to be to 2.1 percent. The average bad loan of selected banks during the study period is noticed to be Rs. 728.88. The average capital adequacy ratio of selected banks is 10.63 percent. Firm size has the average of Rs. 42536.73 Million. The average secured loan is observed to be 24670.95.Earnings before tax and has an average of 2.39 percent. Similarly, the average loan to assets ratio of selected banks during the study period is noticed to be 60.88 percent. Likewise, the average inflation rate during the study period is 9.78 percent. The study observed a positive relation of ratio of total loan to total assets, capital adequacy ratio, earnings before interest tax and LLP, inflation and bad loan with loan loss provision. Whereas, GDP, secured loan and firm size have a negative relationship with loan loss provision. Furthermore, capital adequacy ratio, ratio of total loan to total assets, secured loan firm size and inflation rate are negatively correlated to non-performing loan to total loans. The regression results found negative and significant relationship between firm size and loan loss provision. On the other hand, the beta coefficient of bad loan, capital adequacy ratio, ratio of loan to assets, inflation and earning before loan loss provision are positive with loan loss provision. Similarly, positive beta coefficients of capital adequacy ratio indicate that higher the capital adequacy ratio, higher would be the loan loss provision. On the other hand, the regression shows that a beta coefficient is positive for bad loan with the ratio of non-performing loan to total loan. Whereas, the beta coefficients of ratio of loan to assets, firm size, and GDP growth are negative with ratio of non-performing loan to total loan. The beta coefficient of firm size is significant at 1 percent level of significant. Therefore, the study concluded that bank specific variables are the major affecting factors on loan loss provision and the ratio of non-performing loan to total loan. Moreover, this study reveals bad loan as the most dominant factors for loan loss provision in Nepalese commercial banks. Loan loss provisioning and relationship banking in Nepalese commercial banks [printed text] / Roshan Sedhain, Author . - 2016 . - 104p. ; GRP/Thesis + 8/B. Languages : English Descriptors: Bank reserves Loan loss provision Class number: 332.1095 Abstract: The banking system is disposed to credit risk accompanying with the problem loans and complications in loan recoveries particularly during monetary and economic volatility. However, the instability of the financial institutions is suppressed by the loan loss provisions and stronger capital adequacy ratio. The loan loss provision is an instrument created in the banking system to evade the financial instability resulted from high non-performing loan ratio. In practice, the level of provisioning had a factually pro-cyclical bias, as it is basically linked to concurrent problem assets, so that provisions mainly rise during a financial depression, when credit risk has already materialized (Borio and Lowe, 2001; Naceur & Kandil, 2013; Bikker and Hu, 2002; Laeven and Majnoni, 2003). In banking business, loan loss provision has a significant role to protect bank from unprecedented risks and failures. A loan loss provision is a charge to profit and loss statements, and it creates a reserve on the balance sheet. It can be viewed as a cushioning mechanism, which ensures commercial banks to avoid lose from the entire outstanding loan balance. Loan loss provisions are widely used by commercial bank managers when managing risk exposure in their lending activities. Loan loss provisions are expected when anticipated losses occur as a result of lending and financing activities (Anandarajan et al. 2007). The major objective of this study is to examine the determinants of loan loss provisions of commercial banks in Nepal. The specific objectives are i) to determine the structure and pattern of capital adequacy ratio, non-performing loan, leverage ratio, loan loss provision and credit interest to credit facilities. ii) To find out the relation of capital adequacy ratio, bad loan secured loan and firm size with loan loss provision of Nepalese commercial banks. iii) To investigate the impact of loan to assets, earning before loan loss provision and tax, real GDP growth and inflation to loan loss provision of Nepalese commercial banks. iv) To identify the most important variable affecting loan loss provision of Nepalese commercial banks. This study is based on descriptive and causal comparative research designs to deal with the various issues raised. The descriptive research design has been adopted for fact-finding and operation searching for adequate information of firm characteristics in Nepalese banks. Beside, an effort has also been made to describe the nature of panel data of the commercials banks by using descriptive statistics with respect to bank specific variables and macro-economic variables such as bad loans, capital adequacy ratios, loan to assets ratio, secured loan, earnings before tax and provision, GDP growth rate and inflation. The study examines the effect of bad loan, secured loan, ratio of loan to assets, capital adequacy ratio, earning before loan loss provision and tax, GDP growth and inflation with loan loss provision and ratio of non-performing loan to total loan. This study has utilized secondary source of data. The main sources of data include Annual Reports of banks, Banking and Financial Statistics published by Nepal Rastra Bank. In addition to these, Annual Supervision Reports published by NRB have also been used to obtain the information regarding the bad loans, capital adequacy ratios, loan to assets ratio, earnings before tax and provision, secured loan and macro-economic variable like GDP growth rate and inflation. The average loan loss provision is highest for ADBL and lowest for LBL. The average non-performing loan to total loan is highest for NBB and lowest for EBL. The average bad loan is highest for RBBL and lowest for SCB. The average capital adequacy ratio is highest for NMB and lowest for RBBL. The average secured loan is highest for ADBL and lowest for LBL. The average firm size is highest for RBBL and lowest for LBL. The average earning before tax and provision is highest for SCB and lowest for NBL. The average loan to assets ratio is highest for PBL and lowest for RBBL. The GDP is highest in 2008 whereas, inflation rate is highest in 2009. The descriptive statistics for the variables used in this study. Clearly, the average loan loss provision loan loss provision of Rs. 786.95 Million. The average non-performing loan to total loans is noticed to be to 2.1 percent. The average bad loan of selected banks during the study period is noticed to be Rs. 728.88. The average capital adequacy ratio of selected banks is 10.63 percent. Firm size has the average of Rs. 42536.73 Million. The average secured loan is observed to be 24670.95.Earnings before tax and has an average of 2.39 percent. Similarly, the average loan to assets ratio of selected banks during the study period is noticed to be 60.88 percent. Likewise, the average inflation rate during the study period is 9.78 percent. The study observed a positive relation of ratio of total loan to total assets, capital adequacy ratio, earnings before interest tax and LLP, inflation and bad loan with loan loss provision. Whereas, GDP, secured loan and firm size have a negative relationship with loan loss provision. Furthermore, capital adequacy ratio, ratio of total loan to total assets, secured loan firm size and inflation rate are negatively correlated to non-performing loan to total loans. The regression results found negative and significant relationship between firm size and loan loss provision. On the other hand, the beta coefficient of bad loan, capital adequacy ratio, ratio of loan to assets, inflation and earning before loan loss provision are positive with loan loss provision. Similarly, positive beta coefficients of capital adequacy ratio indicate that higher the capital adequacy ratio, higher would be the loan loss provision. On the other hand, the regression shows that a beta coefficient is positive for bad loan with the ratio of non-performing loan to total loan. Whereas, the beta coefficients of ratio of loan to assets, firm size, and GDP growth are negative with ratio of non-performing loan to total loan. The beta coefficient of firm size is significant at 1 percent level of significant. Therefore, the study concluded that bank specific variables are the major affecting factors on loan loss provision and the ratio of non-performing loan to total loan. Moreover, this study reveals bad loan as the most dominant factors for loan loss provision in Nepalese commercial banks.

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The determinants of loan loss provision in Nepalese commercial banks / Binita Dhakal 

Public ISBD Title : The determinants of loan loss provision in Nepalese commercial banks Material Type: printed text Authors: Binita Dhakal, Author Publication Date: 2015 Pagination: 75p. Size: GRP/Thesis Accompanying material: 5/B General note: Including bibilography Languages : English Descriptors: Bank loans Loan loss provision Loans Keywords: 'loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12 The determinants of loan loss provision in Nepalese commercial banks [printed text] / Binita Dhakal, Author . - 2015 . - 75p. ; GRP/Thesis + 5/B. Including bibilography Languages : English Descriptors: Bank loans Loan loss provision Loans Keywords: 'loans  loan loss  banks  banking  management  financial institutions  commercial banks' Class number: 332.12

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