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The impact of financial position on risk asset ratios of Nepalese commercial banks / Ranju Acharya
Title : The impact of financial position on risk asset ratios of Nepalese commercial banks Material Type: printed text Authors: Ranju Acharya, Author Publication Date: 2018 Pagination: 98p. Size: GRP/Thesis Accompanying material: 11/B Languages : English Abstract: Banks primarily involve in financial intermediation activities in an economy. Increasing returns and minimizing risk simultaneously has always been a challenge for the banks as well as the regulatory bodies in the banking industry. Capital regulation framework is the tool that is used to measure of its financial strength and stability. Risk assets ratio is the tool for the capital regulation and risk management which include capital adequacy ratio and core capital ratio. Risky assets are defined as all assets except liquid assets like; cash in hand and cash deposits at the central bank and cash at other banks and financial institutions, such as credits with and without guarantees besides other financial papers and long-term investments (Khraiwesh et al., 2004). Capital adequacy ratio explains the relationship between banks capital sources, risks surrounding the bank and any other operations. Therefore, the financial positions, in terms of profitability, assets quality, solvency and liquidity, of the banks do have stake in the capital adequacy and core capital ratios.
This study attempts to examine the impact of financial position on risk asset ratios of Nepalese commercial banks. The study also identifies the practitioner’s preference towards capital adequacy and core capital ratio. The study is based on secondary data of 18 commercial banks with 162 observations for the period of 2007/08 to 2015/16. Data and information have been collected from Banking and Financial Statistics of NRB and annual reports of the selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of financial position on risk asset ratios of Nepalese commercial banks.
The analysis of structure and pattern of capital adequacy ratio shows that average capital adequacy is highest for SABL (17.03 percent) and lowest for NBBL (7.46 percent). It has been found that the average capital adequacy ratio of commercial banks computed across the year is in decreasing trend. The average core capital ratio is highest for SABL (16 percent) and lowest for NBBL (6.70 percent). It has been found that the average core capital ratio of commercial banks computed across the year is in decreasing trend. The average return on assets is highest for NBBL (5.24 percent) and lowest for MBL (0.79 percent). It has been found that the average return on assets of commercial banks computed across the year is in decreasing trend. The average net interest margin is highest for ADBL (5.97 percent) and lowest for
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NCBIBL (2.42 percent). It has been found that the average net interest margin of commercial banks computed across the year is in decreasing trend. NIBL has highest average deposit (Rs. -63.77 billion) and SABL has lowest average deposit (Rs. -17.08 billion). It has been found that the average deposit of commercial banks computed across the year is in increasing trend.
The average non-performing loan is highest for NBBL (9.52 percent) and lowest for SABL (0.26 percent). It has been found that the average non-performing loan of commercial banks computed across the year is in decreasing trend. The average leverage is highest for EBL (92.95 percent) and lowest for ADBL (82.42 percent). It has been found that the average leverage of commercial banks computed across the year is in decreasing trend. SUBL has highest average liquidity (27.71 percent) and HBL has lowest average liquidity (7.03 percent). It has been found that the average liquidity of commercial banks computed across the year is in increasing trend.
The descriptive analysis shows that the average capital adequacy ratio is 12.42 percent and average core capital ratio is 10.68 percent of selected commercial banks. The analysis also indicated that the average return on assets is 1.84 percent, net interest margin is 1.25 percent, deposit is Rs.22.46 billion, non-performing loan is 2.41 percent, leverage is 90.33 percent, liquidity is 14.01 percent and size is Rs.41.09 billion for selected commercial banks.
The correlation analysis reveals that return on assets is negatively correlated to capital adequacy ratio. However, net interest margin has positive relationship with capital adequacy ratio. The result also shows that deposit and non-performing loan is negatively correlated to capital adequacy ratio. Similarly, leverage is negatively related to capital adequacy ratio. On the other hand, liquidity is positively related to capital adequacy ratio.
The result also shows that return on assets is negatively correlated to core capital ratio. However, net interest margin has positive relationship with core capital ratio. The result shows that deposit and non-performing loan is negatively correlated to core capital ratio. Similarly, leverage is negatively related to core capital ratio. On the other hand, liquidity is positively related to core capital ratio. It means that higher the liquidity, higher would be the core capital ratio.
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The regression analysis shows that the beta coefficients for return on assets are negative and significant with capital adequacy ratio for commercial banks. It indicates that there is negative impact of return on assets on capital adequacy ratio. However, the beta coefficients for net interest margin are positive and significant with capital adequacy ratio. This indicates that higher the net interest margin, higher would be the capital adequacy ratio. Additionally, the beta coefficients for deposit are negative with capital adequacy ratio. Likewise, the beta coefficients for non-performing loan are negative and significant with capital adequacy ratio. The result is significant at 5 percent level of significance. Similarly, the beta coefficients for leverage are negative and significant with capital adequacy ratio. However, the beta coefficients for liquidity are positive with capital adequacy ratio. It indicates that higher the liquidity, higher would be the capital adequacy ratio.
The regression result shows that beta coefficients for return on assets are negative and significant with core capital ratio. However, the beta coefficients for net interest margin are positive with core capital ratio. Additionally, the beta coefficients for deposit are negative with core capital adequacy ratio. Likewise, the beta coefficients for non-performing loan are negative and significant with core capital ratio. The result denotes that lower the non-performing loan, higher would be the core capital ratio. Similarly, the beta coefficients for leverage are negative and significant with core capital ratio. However, the beta coefficients for liquidity are positive and significant with core capital ratio. Therefore, the study concludes that leverage followed by non-performing loan, deposits and liquidity are the major factors affecting risk assets ratio of the Nepalese commercial banks.The impact of financial position on risk asset ratios of Nepalese commercial banks [printed text] / Ranju Acharya, Author . - 2018 . - 98p. ; GRP/Thesis + 11/B.
Languages : English
Abstract: Banks primarily involve in financial intermediation activities in an economy. Increasing returns and minimizing risk simultaneously has always been a challenge for the banks as well as the regulatory bodies in the banking industry. Capital regulation framework is the tool that is used to measure of its financial strength and stability. Risk assets ratio is the tool for the capital regulation and risk management which include capital adequacy ratio and core capital ratio. Risky assets are defined as all assets except liquid assets like; cash in hand and cash deposits at the central bank and cash at other banks and financial institutions, such as credits with and without guarantees besides other financial papers and long-term investments (Khraiwesh et al., 2004). Capital adequacy ratio explains the relationship between banks capital sources, risks surrounding the bank and any other operations. Therefore, the financial positions, in terms of profitability, assets quality, solvency and liquidity, of the banks do have stake in the capital adequacy and core capital ratios.
This study attempts to examine the impact of financial position on risk asset ratios of Nepalese commercial banks. The study also identifies the practitioner’s preference towards capital adequacy and core capital ratio. The study is based on secondary data of 18 commercial banks with 162 observations for the period of 2007/08 to 2015/16. Data and information have been collected from Banking and Financial Statistics of NRB and annual reports of the selected commercial banks. The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of financial position on risk asset ratios of Nepalese commercial banks.
The analysis of structure and pattern of capital adequacy ratio shows that average capital adequacy is highest for SABL (17.03 percent) and lowest for NBBL (7.46 percent). It has been found that the average capital adequacy ratio of commercial banks computed across the year is in decreasing trend. The average core capital ratio is highest for SABL (16 percent) and lowest for NBBL (6.70 percent). It has been found that the average core capital ratio of commercial banks computed across the year is in decreasing trend. The average return on assets is highest for NBBL (5.24 percent) and lowest for MBL (0.79 percent). It has been found that the average return on assets of commercial banks computed across the year is in decreasing trend. The average net interest margin is highest for ADBL (5.97 percent) and lowest for
viii
NCBIBL (2.42 percent). It has been found that the average net interest margin of commercial banks computed across the year is in decreasing trend. NIBL has highest average deposit (Rs. -63.77 billion) and SABL has lowest average deposit (Rs. -17.08 billion). It has been found that the average deposit of commercial banks computed across the year is in increasing trend.
The average non-performing loan is highest for NBBL (9.52 percent) and lowest for SABL (0.26 percent). It has been found that the average non-performing loan of commercial banks computed across the year is in decreasing trend. The average leverage is highest for EBL (92.95 percent) and lowest for ADBL (82.42 percent). It has been found that the average leverage of commercial banks computed across the year is in decreasing trend. SUBL has highest average liquidity (27.71 percent) and HBL has lowest average liquidity (7.03 percent). It has been found that the average liquidity of commercial banks computed across the year is in increasing trend.
The descriptive analysis shows that the average capital adequacy ratio is 12.42 percent and average core capital ratio is 10.68 percent of selected commercial banks. The analysis also indicated that the average return on assets is 1.84 percent, net interest margin is 1.25 percent, deposit is Rs.22.46 billion, non-performing loan is 2.41 percent, leverage is 90.33 percent, liquidity is 14.01 percent and size is Rs.41.09 billion for selected commercial banks.
The correlation analysis reveals that return on assets is negatively correlated to capital adequacy ratio. However, net interest margin has positive relationship with capital adequacy ratio. The result also shows that deposit and non-performing loan is negatively correlated to capital adequacy ratio. Similarly, leverage is negatively related to capital adequacy ratio. On the other hand, liquidity is positively related to capital adequacy ratio.
The result also shows that return on assets is negatively correlated to core capital ratio. However, net interest margin has positive relationship with core capital ratio. The result shows that deposit and non-performing loan is negatively correlated to core capital ratio. Similarly, leverage is negatively related to core capital ratio. On the other hand, liquidity is positively related to core capital ratio. It means that higher the liquidity, higher would be the core capital ratio.
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The regression analysis shows that the beta coefficients for return on assets are negative and significant with capital adequacy ratio for commercial banks. It indicates that there is negative impact of return on assets on capital adequacy ratio. However, the beta coefficients for net interest margin are positive and significant with capital adequacy ratio. This indicates that higher the net interest margin, higher would be the capital adequacy ratio. Additionally, the beta coefficients for deposit are negative with capital adequacy ratio. Likewise, the beta coefficients for non-performing loan are negative and significant with capital adequacy ratio. The result is significant at 5 percent level of significance. Similarly, the beta coefficients for leverage are negative and significant with capital adequacy ratio. However, the beta coefficients for liquidity are positive with capital adequacy ratio. It indicates that higher the liquidity, higher would be the capital adequacy ratio.
The regression result shows that beta coefficients for return on assets are negative and significant with core capital ratio. However, the beta coefficients for net interest margin are positive with core capital ratio. Additionally, the beta coefficients for deposit are negative with core capital adequacy ratio. Likewise, the beta coefficients for non-performing loan are negative and significant with core capital ratio. The result denotes that lower the non-performing loan, higher would be the core capital ratio. Similarly, the beta coefficients for leverage are negative and significant with core capital ratio. However, the beta coefficients for liquidity are positive and significant with core capital ratio. Therefore, the study concludes that leverage followed by non-performing loan, deposits and liquidity are the major factors affecting risk assets ratio of the Nepalese commercial banks.Hold
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