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Determinants of financial stability in Nepalese commercial banks / Deena Bhattrai
Title : Determinants of financial stability in Nepalese commercial banks Material Type: printed text Authors: Deena Bhattrai, Author Publication Date: 2019 Pagination: 118p. Size: GRP/Thesis Accompanying material: 14/B Languages : English Abstract: A financial system is in a range of stability when it dissipates financial imbalances that arise endogenously or as a result of significant adverse and unforeseen events. In stability, the system will absorb the shocks primarily via self-corrective mechanisms, preventing adverse events from having a disruptive effect on the real economy or on other financial systems. Financial stability is paramount for economic growth, as most transactions in the real economy are made through the financial system. Financial stability is a system that can be characterized as stability in the absence of excessive volatility and stress or crises. A common measure of stability at the level of individual institutions is the z-score. The popularity of the z-score stems from the fact that it has a clear (negative) relationship to the probability of a financial institution’s insolvency, that is, the probability that the value of its assets becomes lower than the value of its debt. A higher z-score therefore implies a lower probability of insolvency.
The study attempts to examine the determinants of financial stability in the Nepalese commercial banks. Financial stability measured in terms of Z-score return on assets and Z-score return on equity are the dependent variables. The independent variables are bank size, asset quality, income diversity, operating expenses, gross domestic product and inflation. The study is based on secondary data of 18 commercial banks with 126 observations for the period of 2011/12 to 2017/18. The secondary data and information have been collected from annual reports of selected commercial banks. The regression models are estimated to test the significance and impact of different variables on financial stability in Nepalese commercial banks. The findings of the paper are largely original in the area of financial stability of Nepalese banking.
The result shows that average Z-score of return on assets is highest for NABIL (4.37 ) and lowest for MBL(1.82), average Z-score of return on equity is highest for NABIL (4.27) and lowest for MBL (1.75), average bank size is highest for RBBL (Rs.142.91 billion) and lowest for NBBL(Rs.38.73 billion), average asset quality is highest for ADBL (5.43 percent) and lowest for SBI (0.26 percent), average income diversity is highest for NBBL (3.08 percent) and lowest for RBBL (-4.55 percent) and average operating expenses is highest for ADBL (3.62 billion) and lowest for NMB (0.39 billion).
The descriptive statistics shows that the Z-score return on assets ranges from a minimum of 0.38 percent to a maximum of 6.29 percent to an average of 2.86 percent. Similarly, the Z-score return on equity ranges from minimum of 0.23 percent to a maximum of 8.38 percent leading to an average of 2.67 percent. Bank size varies from a minimum of 21.30 to a maximum of 26.01 leading to an average of 24.81. Similarly, asset quality varies from minimum of 0.07 percent to a maximum of 8.98 percent leading to an average of 1.81 percent. Income diversity ranges from a minimum of -5.81 percent to a maximum of 0.57 percent leading to an average of 0.28 percent. Operating expenses varies from a minimum of 18.44 to a maximum of 22.15 leading to an average of 20.73. Similarly, the gross domestic product ranges from minimum of 0.20 percent to a maximum of 7.40 percent leading to an average of 4.41 percent. Likewise, inflation varies from 4.10 percent to a maximum of 9.90 percent leading to an average of 7.57percent.
The result shows bank size has a positive relationship with Z-score return on assets. It indicates that higher the bank size, the bank would be more stable. Similarly, asset quality has a positive relationship with Z-score return on assets. It indicates that increase in asset quality leads bank to be more stable. The results also show that income diversity has a positive relationship with Z-score return on assets. It indicates that higher the income diversity, higher would be the bank stability. Similarly, operating expenses has a positive and significant relationship with Z-score return on assets. It reveals that higher the operating expenses, the bank would be more stable. Likewise, gross domestic product has a positive relationship with Z-score return on assets. It indicates that higher the gross domestic product, the bank would be more stable. However, inflation rate has a negative relationship with Z-score return on assets. It reveals that higher the inflation rate lower would be the bank stability.
The result also reveals that bank size has a positive and significant relationship with Z-score return on equity. It indicates that higher the bank size, the bank would be more stable. Similarly, asset quality has a negative relationship with Z-score return on equity which indicates that higher the asset quality the bank would be less stable. However, income diversity has a positive relationship with Z-score return on equity. It reveals that higher the income diversity, higher would be the bank stability. Operating expenses has a positive relationship with Z-return on equity. It indicates that higher the operating expenses, higher would be the bank stability. However, gross domestic product has a negative and significant relationship with Z-return on equity. It indicates that higher gross domestic product, lower would be the bank stability. The result also shows that inflation rate has a positive relationship with Z-return on equity. It reveals that higher the inflation rate, higher would be the bank stability.
The regression results of Z-score return on assets shows that inflation has negative impact on financial stability. This indicates higher the inflation lower would be the stability. However, bank size has positive impact on financial stability. This indicates higher the bank size higher would be the stability. Likewise, asset quality and income diversity have positive impact on stability. This indicates higher the asset quality and income diversity, higher would be the stability. Similarly, operating expenses has positive and significant impact on level of stability. This indicates higher the operating expenses higher would be the stability. Likewise, gross domestic product has positive impact on financial stability. This indicates that higher the gross domestic product, higher would be the stability. The result also shows that the beta coefficients for operating expenses is significant at 1 percent level of significance. The regression results of Z-score return on equity shows that there is negative and significant impact of gross domestic product on financial stability. This indicates higher the gross domestic product lower would be the stability. Similarly, there is negative impact of asset quality on financial stability. This indicates higher the asset quality lower would be the stability. However, the study indicates that there is positive and significant impact of bank size and inflation on financial stability. This indicates higher the bank size and inflation higher would be the stability. Similarly, there is positive impact of income diversity on financial stability. This indicates higher the income diversity, higher would be the stability. Likewise, there is positive impact of operating expenses on financial stability. This indicates that higher the operating expenses, higher would be the stability. The result also shows that the beta coefficients for bank size, gross domestic product and inflation are significant at 5 percent level of significance.
Determinants of financial stability in Nepalese commercial banks [printed text] / Deena Bhattrai, Author . - 2019 . - 118p. ; GRP/Thesis + 14/B.
Languages : English
Abstract: A financial system is in a range of stability when it dissipates financial imbalances that arise endogenously or as a result of significant adverse and unforeseen events. In stability, the system will absorb the shocks primarily via self-corrective mechanisms, preventing adverse events from having a disruptive effect on the real economy or on other financial systems. Financial stability is paramount for economic growth, as most transactions in the real economy are made through the financial system. Financial stability is a system that can be characterized as stability in the absence of excessive volatility and stress or crises. A common measure of stability at the level of individual institutions is the z-score. The popularity of the z-score stems from the fact that it has a clear (negative) relationship to the probability of a financial institution’s insolvency, that is, the probability that the value of its assets becomes lower than the value of its debt. A higher z-score therefore implies a lower probability of insolvency.
The study attempts to examine the determinants of financial stability in the Nepalese commercial banks. Financial stability measured in terms of Z-score return on assets and Z-score return on equity are the dependent variables. The independent variables are bank size, asset quality, income diversity, operating expenses, gross domestic product and inflation. The study is based on secondary data of 18 commercial banks with 126 observations for the period of 2011/12 to 2017/18. The secondary data and information have been collected from annual reports of selected commercial banks. The regression models are estimated to test the significance and impact of different variables on financial stability in Nepalese commercial banks. The findings of the paper are largely original in the area of financial stability of Nepalese banking.
The result shows that average Z-score of return on assets is highest for NABIL (4.37 ) and lowest for MBL(1.82), average Z-score of return on equity is highest for NABIL (4.27) and lowest for MBL (1.75), average bank size is highest for RBBL (Rs.142.91 billion) and lowest for NBBL(Rs.38.73 billion), average asset quality is highest for ADBL (5.43 percent) and lowest for SBI (0.26 percent), average income diversity is highest for NBBL (3.08 percent) and lowest for RBBL (-4.55 percent) and average operating expenses is highest for ADBL (3.62 billion) and lowest for NMB (0.39 billion).
The descriptive statistics shows that the Z-score return on assets ranges from a minimum of 0.38 percent to a maximum of 6.29 percent to an average of 2.86 percent. Similarly, the Z-score return on equity ranges from minimum of 0.23 percent to a maximum of 8.38 percent leading to an average of 2.67 percent. Bank size varies from a minimum of 21.30 to a maximum of 26.01 leading to an average of 24.81. Similarly, asset quality varies from minimum of 0.07 percent to a maximum of 8.98 percent leading to an average of 1.81 percent. Income diversity ranges from a minimum of -5.81 percent to a maximum of 0.57 percent leading to an average of 0.28 percent. Operating expenses varies from a minimum of 18.44 to a maximum of 22.15 leading to an average of 20.73. Similarly, the gross domestic product ranges from minimum of 0.20 percent to a maximum of 7.40 percent leading to an average of 4.41 percent. Likewise, inflation varies from 4.10 percent to a maximum of 9.90 percent leading to an average of 7.57percent.
The result shows bank size has a positive relationship with Z-score return on assets. It indicates that higher the bank size, the bank would be more stable. Similarly, asset quality has a positive relationship with Z-score return on assets. It indicates that increase in asset quality leads bank to be more stable. The results also show that income diversity has a positive relationship with Z-score return on assets. It indicates that higher the income diversity, higher would be the bank stability. Similarly, operating expenses has a positive and significant relationship with Z-score return on assets. It reveals that higher the operating expenses, the bank would be more stable. Likewise, gross domestic product has a positive relationship with Z-score return on assets. It indicates that higher the gross domestic product, the bank would be more stable. However, inflation rate has a negative relationship with Z-score return on assets. It reveals that higher the inflation rate lower would be the bank stability.
The result also reveals that bank size has a positive and significant relationship with Z-score return on equity. It indicates that higher the bank size, the bank would be more stable. Similarly, asset quality has a negative relationship with Z-score return on equity which indicates that higher the asset quality the bank would be less stable. However, income diversity has a positive relationship with Z-score return on equity. It reveals that higher the income diversity, higher would be the bank stability. Operating expenses has a positive relationship with Z-return on equity. It indicates that higher the operating expenses, higher would be the bank stability. However, gross domestic product has a negative and significant relationship with Z-return on equity. It indicates that higher gross domestic product, lower would be the bank stability. The result also shows that inflation rate has a positive relationship with Z-return on equity. It reveals that higher the inflation rate, higher would be the bank stability.
The regression results of Z-score return on assets shows that inflation has negative impact on financial stability. This indicates higher the inflation lower would be the stability. However, bank size has positive impact on financial stability. This indicates higher the bank size higher would be the stability. Likewise, asset quality and income diversity have positive impact on stability. This indicates higher the asset quality and income diversity, higher would be the stability. Similarly, operating expenses has positive and significant impact on level of stability. This indicates higher the operating expenses higher would be the stability. Likewise, gross domestic product has positive impact on financial stability. This indicates that higher the gross domestic product, higher would be the stability. The result also shows that the beta coefficients for operating expenses is significant at 1 percent level of significance. The regression results of Z-score return on equity shows that there is negative and significant impact of gross domestic product on financial stability. This indicates higher the gross domestic product lower would be the stability. Similarly, there is negative impact of asset quality on financial stability. This indicates higher the asset quality lower would be the stability. However, the study indicates that there is positive and significant impact of bank size and inflation on financial stability. This indicates higher the bank size and inflation higher would be the stability. Similarly, there is positive impact of income diversity on financial stability. This indicates higher the income diversity, higher would be the stability. Likewise, there is positive impact of operating expenses on financial stability. This indicates that higher the operating expenses, higher would be the stability. The result also shows that the beta coefficients for bank size, gross domestic product and inflation are significant at 5 percent level of significance.
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Barcode Call number Media type Location Section Status 605/D DEE Thesis/Dissertation Uniglobe Library Philosophy & Psychology Available