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"Relative contribution of micro and macroeconomic determinants on the profitability of Nepalese commercial banks " / Prativa Gurung
Title : "Relative contribution of micro and macroeconomic determinants on the profitability of Nepalese commercial banks " Material Type: printed text Authors: Prativa Gurung, Author Publication Date: 2017 Pagination: 116p Size: GRP/Thesis Accompanying material: 8/B Languages : English Abstract: As financial intermediaries, banks play a crucial role in the operation of most economies. Economies that have a profitable banking sector are better able to withstand negative shocks and contribute to the stability of the financial system (Athanasoglou et al., 2005). On the other hand, the poor performance of the bank leads the financial institution to the possible crisis and insolvency. Profitability is one of the major concerns of any business because it shows surplus of profit over expense for a specified period of time that represents earning of the bank. Bank must earn profit to survive. Profitable banks are in better position to contribute positively to the gross domestic product of a nation. If the banking system in a country is effective, efficient and disciplined; it brings about a rapid growth in the various sectors of the economy (Saini and Sindhu, 2014).
Profitability is one of the major concerns of any business because it shows surplus of profit over expenses for a specified period of time that represent earnings of the banks. Bank must earn profit to survive. Profitability is the major driver behind banks willingness to higher amount of risk (Kosmidou, 2008). Return on assets (ROA), return on equity (ROE) and net non-interest margin (NIM) are the three ratios which represent the profitability measures (San and Heng, 2013).
Firm performance depends upon micro economic variables and macro-economic variables. The micro economic determinants referred as industry specific variables affect bank profits, which are not the direct result of managerial decisions. The external determinants are variables that are not related to bank management but reflect the economic and legal environment that affects the operation and performance of financial institutions. Brinson et al. (1991) defined macro-economic variables as those that are pertinent to a broad economy at the regional or national level and affect a large population rather than a few selected individuals.
Otuori (2013) found that commercial bank contributes to economic growth of the country by making funds available for investors to borrow as well as financial deepening in the country. Ferreira (2016) stated that bank efficiency contributes positively to economic growth confirming the assumption that well-functioning banks are at least a necessary condition to the increase of the national income.
The major objective of this study is to determine the contribution of micro and macroeconomic determinants on the profitability of Nepalese commercial banks. The study is based on secondary data of commercial banks of Nepal. Data are collected for the time period of 2008/09 to 2014/15. This study contains the sample of 20 commercial bank of Nepal, leading to a total of 140 observations. The necessary secondary data and information has been collected from the Annual Reports of selected commercial banks, Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank, and Central Bureau of Statistics. The study has employed descriptive and causal comparative research design to deal with the fundamental issues associated with the contribution of micro and macroeconomic determinants of banks’ profitability.
The result shows that the average return on equity is highest for NBBL (45.67 percent) and lowest for NBL (-51.44 percent). The average return on assets is highest for NBBL (5.32 percent) and lowest for MBL (0.59 percent). The average net interest margin is highest for ADBL (5.76 percent) and lowest for NMB (2.31 percent).The bank size is highest for ADBL (Rs 24.96 billion) and lowest for LBL (Rs 23.19 billion). The capital adequacy ratio is highest for LBL (20.21 percent) and lowest for NBL (-3.47 percent). The average assets quality is highest for NBBL (7.20 percent) and lowest for EBL (0.53 percent). The average expenses management is highest for ADBL (4.52 percent) and lowest for PBL (0.94 percent). The average liquidity is highest for SCB (39.05 percent) and lowest for NSBI (17.33 percent). The inflation rate is highest in year 2012/13 (9.9 percent) and lowest in year 2014/15 (7.2 percent). The GDP is highest in year 2013/14 (5.4 percent) and lowest in year 2014/15 (3.4 percent).
The descriptive statistics for selected commercial banks show that the average ROE, ROA, NIM, BS, CAR, AQ, EM, LIQ, INF and GDP are 15.69 percent, 1.85 percent, 3.40 percent, Rs 24.22 billion, 11.92 percent, 2.29 percent, 1.85 percent, 26.51 percent, 8.77 percent, 4.40 percent respectively.
The correlation matrix shows that bank size, capital adequacy ratio, assets quality, and GDP are positively related to return on equity, while expenses management, liquidity and inflation are negatively related to return on equity. The result states that bank size, capital adequacy ratio, assets quality, expenses management, liquidity and GDP are positively related to return on assets, while inflation is negatively related to return on assets. Furthermore, bank size, capital adequacy ratio, assets quality, expenses management, liquidity and inflation are positively related to net interest margin, while GDP is negatively related to net interest margin.
The regression analysis reveals that bank size have positive impact on return on equity. It indicates that higher the bank size, higher would be the return on equity. Similarly, capital adequacy ratio and assets quality have positive and significant impact on return on equity. It indicates that higher the capital adequacy ratio and assets quality, higher would be the return on equity. However, expenses management has negative and significant impact on return on equity. It indicates that higher the expenses management, lower would be the return on equity.
The study also shows that bank size have positive impact on return on assets. It indicates that higher the bank size, higher would be the return on assets. Similarly, capital adequacy ratio, assets quality and expenses management have positive and significant impact on return on assets. It indicates that higher the capital adequacy ratio, assets quality and expenses management, higher would be the return on assets. However, inflation has negative impact on return on assets. It indicates that higher the inflation, lower would be the return on assets.
The result shows that bank size have positive impact on net interest margin. It indicates that higher the bank size, higher would be the net interest margin. Similarly, capital adequacy ratio, assets quality and expenses management have positive and significant impact on net interest margin. It indicates that higher the capital adequacy ratio, assets quality and expenses management, higher would be the net interest margin. However, GDP has negative impact on net interest margin. It indicates that higher the GDP, lower would be the net interest margin.
"Relative contribution of micro and macroeconomic determinants on the profitability of Nepalese commercial banks " [printed text] / Prativa Gurung, Author . - 2017 . - 116p ; GRP/Thesis + 8/B.
Languages : English
Abstract: As financial intermediaries, banks play a crucial role in the operation of most economies. Economies that have a profitable banking sector are better able to withstand negative shocks and contribute to the stability of the financial system (Athanasoglou et al., 2005). On the other hand, the poor performance of the bank leads the financial institution to the possible crisis and insolvency. Profitability is one of the major concerns of any business because it shows surplus of profit over expense for a specified period of time that represents earning of the bank. Bank must earn profit to survive. Profitable banks are in better position to contribute positively to the gross domestic product of a nation. If the banking system in a country is effective, efficient and disciplined; it brings about a rapid growth in the various sectors of the economy (Saini and Sindhu, 2014).
Profitability is one of the major concerns of any business because it shows surplus of profit over expenses for a specified period of time that represent earnings of the banks. Bank must earn profit to survive. Profitability is the major driver behind banks willingness to higher amount of risk (Kosmidou, 2008). Return on assets (ROA), return on equity (ROE) and net non-interest margin (NIM) are the three ratios which represent the profitability measures (San and Heng, 2013).
Firm performance depends upon micro economic variables and macro-economic variables. The micro economic determinants referred as industry specific variables affect bank profits, which are not the direct result of managerial decisions. The external determinants are variables that are not related to bank management but reflect the economic and legal environment that affects the operation and performance of financial institutions. Brinson et al. (1991) defined macro-economic variables as those that are pertinent to a broad economy at the regional or national level and affect a large population rather than a few selected individuals.
Otuori (2013) found that commercial bank contributes to economic growth of the country by making funds available for investors to borrow as well as financial deepening in the country. Ferreira (2016) stated that bank efficiency contributes positively to economic growth confirming the assumption that well-functioning banks are at least a necessary condition to the increase of the national income.
The major objective of this study is to determine the contribution of micro and macroeconomic determinants on the profitability of Nepalese commercial banks. The study is based on secondary data of commercial banks of Nepal. Data are collected for the time period of 2008/09 to 2014/15. This study contains the sample of 20 commercial bank of Nepal, leading to a total of 140 observations. The necessary secondary data and information has been collected from the Annual Reports of selected commercial banks, Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank, and Central Bureau of Statistics. The study has employed descriptive and causal comparative research design to deal with the fundamental issues associated with the contribution of micro and macroeconomic determinants of banks’ profitability.
The result shows that the average return on equity is highest for NBBL (45.67 percent) and lowest for NBL (-51.44 percent). The average return on assets is highest for NBBL (5.32 percent) and lowest for MBL (0.59 percent). The average net interest margin is highest for ADBL (5.76 percent) and lowest for NMB (2.31 percent).The bank size is highest for ADBL (Rs 24.96 billion) and lowest for LBL (Rs 23.19 billion). The capital adequacy ratio is highest for LBL (20.21 percent) and lowest for NBL (-3.47 percent). The average assets quality is highest for NBBL (7.20 percent) and lowest for EBL (0.53 percent). The average expenses management is highest for ADBL (4.52 percent) and lowest for PBL (0.94 percent). The average liquidity is highest for SCB (39.05 percent) and lowest for NSBI (17.33 percent). The inflation rate is highest in year 2012/13 (9.9 percent) and lowest in year 2014/15 (7.2 percent). The GDP is highest in year 2013/14 (5.4 percent) and lowest in year 2014/15 (3.4 percent).
The descriptive statistics for selected commercial banks show that the average ROE, ROA, NIM, BS, CAR, AQ, EM, LIQ, INF and GDP are 15.69 percent, 1.85 percent, 3.40 percent, Rs 24.22 billion, 11.92 percent, 2.29 percent, 1.85 percent, 26.51 percent, 8.77 percent, 4.40 percent respectively.
The correlation matrix shows that bank size, capital adequacy ratio, assets quality, and GDP are positively related to return on equity, while expenses management, liquidity and inflation are negatively related to return on equity. The result states that bank size, capital adequacy ratio, assets quality, expenses management, liquidity and GDP are positively related to return on assets, while inflation is negatively related to return on assets. Furthermore, bank size, capital adequacy ratio, assets quality, expenses management, liquidity and inflation are positively related to net interest margin, while GDP is negatively related to net interest margin.
The regression analysis reveals that bank size have positive impact on return on equity. It indicates that higher the bank size, higher would be the return on equity. Similarly, capital adequacy ratio and assets quality have positive and significant impact on return on equity. It indicates that higher the capital adequacy ratio and assets quality, higher would be the return on equity. However, expenses management has negative and significant impact on return on equity. It indicates that higher the expenses management, lower would be the return on equity.
The study also shows that bank size have positive impact on return on assets. It indicates that higher the bank size, higher would be the return on assets. Similarly, capital adequacy ratio, assets quality and expenses management have positive and significant impact on return on assets. It indicates that higher the capital adequacy ratio, assets quality and expenses management, higher would be the return on assets. However, inflation has negative impact on return on assets. It indicates that higher the inflation, lower would be the return on assets.
The result shows that bank size have positive impact on net interest margin. It indicates that higher the bank size, higher would be the net interest margin. Similarly, capital adequacy ratio, assets quality and expenses management have positive and significant impact on net interest margin. It indicates that higher the capital adequacy ratio, assets quality and expenses management, higher would be the net interest margin. However, GDP has negative impact on net interest margin. It indicates that higher the GDP, lower would be the net interest margin.
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Barcode Call number Media type Location Section Status 331/D GUR Thesis/Dissertation Uniglobe Library Philosophy & Psychology Available