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Determinants of lending interest rate in nepalese commercial banks / Anita jaishi
Title : Determinants of lending interest rate in nepalese commercial banks Material Type: printed text Authors: Anita jaishi, Author Pagination: 108p. Size: GRP/Thesis Accompanying material: 2nd/Gmba Languages : English Abstract: Banking industry in Nepal is still growing and it should ensure that effective strategies are put in place to minimize lending interest rate. Lending interest rate is a burning issue in Nepalese banking sector. Moreover, the interest rates charged on lending by commercial banks have been a sensitive and recurring policy issue in Nepal and one which requires an objective examination of all the factors that influence commercial banks’ lending interest rates. The lending interest rate is the percentage of the loan amount that the lender charges to lend money. When banks lend money to customers, interest is charged on it for a number of reasons, including value preservation, compensation for risk, and profits among others.
The study attempts to examine the determinants of lending interest rate of the Nepalese commercial banks. Lending interest rate measured by interest income from loans and advances as a fraction of total loans and advances is the dependent variable. Bank size, liquidity ratio, cash reserve ratio, operating expenses, inflation, and return on assets are the independent variables. 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 of Nepalese commercial banks. The findings of the paper are largely original in the area of lending rate determinants of Nepalese banking.
The result shows that average lending rates is highest for ADBL (13.23%) and lowest for SCBL (9.1%), average bank size is highest for RBBL (Rs.142.91 billion) and lowest for NBBL(Rs.38.73 billion), average liquidity is highest for ADBL (89.73) and lowest for SCBL (57.43), average cash reserve ratio is highest for SRBL (31.58%) and lowest for HBL (7.49%) and average operating expenses is highest for ADBL (3.62 billion) and lowest for NMB (0.39 billion), the inflation is highest in the year of 2012/13 and 2015/16 ( 9.9%) and lowest in the year of 2017/18 (4.1%).lending interest rate ranges from a minimum of 6.80 percent to the maximum of 15.470 percent leading to the average of 10.391 percent. However, the bank size ranges from minimum of 22.692 billion to maximum of 26.008billion leading to an average of 24.870 billion. The liquidity ratio of selected banks during the study period is noticed to be with a minimum of 46.082 percent and a maximum of 96.326 percent with an average of 77.289 percent. Likewise, cash reserve ratio revealed a minimum of 6.00percent to maximum of 36.650 percent with an average of 15,241 percent. The average of operating expenses of selected banks during the study period is noticed to be 20.726 billion with minimum of 18.436 billion and maximum of 22.151billion. Similarly, the average of inflation during the study period is noticed to be 7.571 percent with a minimum of 4.1 percent and a maximum of 7.571 percent. And the Return on assets ranges from minimum of 0.150 percent to maximum of 4.162 percent, leading to an average of 1.768 percent.
The result shows that the bank size has a negative and significant relationship with the lending rate It indicates that higher the bank size, the lending interest rate would be decrease. Similarly, liquidity ratio has a positive relationship with the lending interest rate. It indicates that increase in liquidity ratio leads increase in the lending interest rates of bank. The results also show that liquidity ratio has a positive relationship with lending interest rate. It indicates that higher the liquidity ratio, higher would be the lending interest rate. Similarly, cash reserve ratio has a positive and significant relationship with lending interest rates. It reveals that higher the cash reserve ratio, the banks’ lending interest rate would be more. Likewise, operating expenses has a positive relationship with lending interest rate. It indicates that higher the operating expenses, the bank lending interest rates would also be higher. However, inflation rate has a positive relationship with lending interest rates. It reveals that higher the inflation rate higher would be the bank lending interest rates. Similarly, return on assets has a positive relationship with the lending interest rate. It indicates that increase in return on assets leads increase in the lending interest rates of bank. The results also show that return on assets has a positive relationship with lending interest rate. It indicates that higher the return on assets, higher would be the lending interest rate.
The regression results of Z-score return on assets shows that the beta coefficients for bank size are negative and significant at (1% level of significance) with lending interest rate. This indicates that bank size has negative impact on lending rate of bank. The finding is similar to the findings of (Georgievska et al., 2010), Okoye and Ricahrd (2013), Malede (2014)). Likewise, the results also show that the beta coefficients for liquidity ratio are positive and significant at (5% level of significance) with lending interest rates. It shows that liquidity ratio has positive impact on lending interest rate. This finding is consistent with the findings of (Adoah, 2015), (Ali et al., 2016). Similarly, the result shows that the beta coefficients for cash reserve ratio are positive and significant at (1% level of significance) with lending interest rates. It shows that cash reserve ratio has positive impact on lending interest rate. This finding is consistent with the findings of Olumuyiwa et al. (2012), Punita and Somaiya (2006). Likewise, the beta coefficients for operating expenses are positive and significant at (5% level of significance) with lending interest rate. It shows that for operating expenses has positive impact on lending interest rate. This finding argues with the findings of (Bawumia et al. 2005), (Bhattarai, 2015), and (Mbao et al. 2014). Similarly, the beta coefficients for inflation are positive with lending interest rate. It shows that inflation has positive impact on lending interest rate. This finding is consistent with the findings of Adoah (2015), Boyd and Champ (2004), Aboagye et al. (2005) and Bawumia et al (2005). Similarly, the result shows that the beta coefficients for return on assets are positive with lending interest rates. It shows that return on assets has positive impact on lending interest rate. This finding is consistent with the findings of Bhattarai (2015). The result also shows that the beta coefficients for bank size and cash reserve ratio are significant at (1% level of significance). And also the result shows that the liquidity ratio, operating expenses is significant at (5% level of significance) with lending interest rate.
Determinants of lending interest rate in nepalese commercial banks [printed text] / Anita jaishi, Author . - [s.d.] . - 108p. ; GRP/Thesis + 2nd/Gmba.
Languages : English
Abstract: Banking industry in Nepal is still growing and it should ensure that effective strategies are put in place to minimize lending interest rate. Lending interest rate is a burning issue in Nepalese banking sector. Moreover, the interest rates charged on lending by commercial banks have been a sensitive and recurring policy issue in Nepal and one which requires an objective examination of all the factors that influence commercial banks’ lending interest rates. The lending interest rate is the percentage of the loan amount that the lender charges to lend money. When banks lend money to customers, interest is charged on it for a number of reasons, including value preservation, compensation for risk, and profits among others.
The study attempts to examine the determinants of lending interest rate of the Nepalese commercial banks. Lending interest rate measured by interest income from loans and advances as a fraction of total loans and advances is the dependent variable. Bank size, liquidity ratio, cash reserve ratio, operating expenses, inflation, and return on assets are the independent variables. 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 of Nepalese commercial banks. The findings of the paper are largely original in the area of lending rate determinants of Nepalese banking.
The result shows that average lending rates is highest for ADBL (13.23%) and lowest for SCBL (9.1%), average bank size is highest for RBBL (Rs.142.91 billion) and lowest for NBBL(Rs.38.73 billion), average liquidity is highest for ADBL (89.73) and lowest for SCBL (57.43), average cash reserve ratio is highest for SRBL (31.58%) and lowest for HBL (7.49%) and average operating expenses is highest for ADBL (3.62 billion) and lowest for NMB (0.39 billion), the inflation is highest in the year of 2012/13 and 2015/16 ( 9.9%) and lowest in the year of 2017/18 (4.1%).lending interest rate ranges from a minimum of 6.80 percent to the maximum of 15.470 percent leading to the average of 10.391 percent. However, the bank size ranges from minimum of 22.692 billion to maximum of 26.008billion leading to an average of 24.870 billion. The liquidity ratio of selected banks during the study period is noticed to be with a minimum of 46.082 percent and a maximum of 96.326 percent with an average of 77.289 percent. Likewise, cash reserve ratio revealed a minimum of 6.00percent to maximum of 36.650 percent with an average of 15,241 percent. The average of operating expenses of selected banks during the study period is noticed to be 20.726 billion with minimum of 18.436 billion and maximum of 22.151billion. Similarly, the average of inflation during the study period is noticed to be 7.571 percent with a minimum of 4.1 percent and a maximum of 7.571 percent. And the Return on assets ranges from minimum of 0.150 percent to maximum of 4.162 percent, leading to an average of 1.768 percent.
The result shows that the bank size has a negative and significant relationship with the lending rate It indicates that higher the bank size, the lending interest rate would be decrease. Similarly, liquidity ratio has a positive relationship with the lending interest rate. It indicates that increase in liquidity ratio leads increase in the lending interest rates of bank. The results also show that liquidity ratio has a positive relationship with lending interest rate. It indicates that higher the liquidity ratio, higher would be the lending interest rate. Similarly, cash reserve ratio has a positive and significant relationship with lending interest rates. It reveals that higher the cash reserve ratio, the banks’ lending interest rate would be more. Likewise, operating expenses has a positive relationship with lending interest rate. It indicates that higher the operating expenses, the bank lending interest rates would also be higher. However, inflation rate has a positive relationship with lending interest rates. It reveals that higher the inflation rate higher would be the bank lending interest rates. Similarly, return on assets has a positive relationship with the lending interest rate. It indicates that increase in return on assets leads increase in the lending interest rates of bank. The results also show that return on assets has a positive relationship with lending interest rate. It indicates that higher the return on assets, higher would be the lending interest rate.
The regression results of Z-score return on assets shows that the beta coefficients for bank size are negative and significant at (1% level of significance) with lending interest rate. This indicates that bank size has negative impact on lending rate of bank. The finding is similar to the findings of (Georgievska et al., 2010), Okoye and Ricahrd (2013), Malede (2014)). Likewise, the results also show that the beta coefficients for liquidity ratio are positive and significant at (5% level of significance) with lending interest rates. It shows that liquidity ratio has positive impact on lending interest rate. This finding is consistent with the findings of (Adoah, 2015), (Ali et al., 2016). Similarly, the result shows that the beta coefficients for cash reserve ratio are positive and significant at (1% level of significance) with lending interest rates. It shows that cash reserve ratio has positive impact on lending interest rate. This finding is consistent with the findings of Olumuyiwa et al. (2012), Punita and Somaiya (2006). Likewise, the beta coefficients for operating expenses are positive and significant at (5% level of significance) with lending interest rate. It shows that for operating expenses has positive impact on lending interest rate. This finding argues with the findings of (Bawumia et al. 2005), (Bhattarai, 2015), and (Mbao et al. 2014). Similarly, the beta coefficients for inflation are positive with lending interest rate. It shows that inflation has positive impact on lending interest rate. This finding is consistent with the findings of Adoah (2015), Boyd and Champ (2004), Aboagye et al. (2005) and Bawumia et al (2005). Similarly, the result shows that the beta coefficients for return on assets are positive with lending interest rates. It shows that return on assets has positive impact on lending interest rate. This finding is consistent with the findings of Bhattarai (2015). The result also shows that the beta coefficients for bank size and cash reserve ratio are significant at (1% level of significance). And also the result shows that the liquidity ratio, operating expenses is significant at (5% level of significance) with lending interest rate.
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