This study aims to examine the bank-specific factors and banking sector development in Nepal by using the ARDL approach technique with economic time series data ranging from 1995 to 2020. The study employed the Autoregressive Distributed Lag (ARDL) model to avoid the spurious regression problem in the construction of contemporary time series econometrics. The study depends on the co-integration analysis to find out the long-run equilibrium relationship among the variables of the model. Banking sector development is measured by the arithmetic average of the normalized values of banking depth, banking efficiency, and banking stability. This study reveals that banking trade has positive and significant influenced the banking sector development in line with theoretical predictions. Electronic banking and liquidity have a positive and statistically significant role to explain banking sector development in Nepal. In addition, it demonstrates that non-performing loans has a negatively and significantly influenced banking sector development whilst branch network has a marginally negative but insignificant impact on banking sector development. This study reveals implications for policymakers as it sheds light on the importance of raising deposits and lending policies and focused on electronic banking. The authorities of a financial institution should be implied to build systems and skills in liquidity management, assets and liability management, and branch networking management to enhance the banking sector's development.

Background:  Maintaining financial stability is vital for all financial institutions, as it fosters public trust and confidence in the entire system contributing to a healthy and well-operating economy in a country. Therefore, banks and other financial institutions must uphold their financial soundness and stability, given their crucial economic role. Objective:  The study examines the influence of macroeconomic factors such as Inflation (INF), Gross Domestic Product (GDP) growth, Inflation Rate (INF), the Exchange rate (ER), Money Supply (M2), and NEPSE Index on bank stability of commercial banks in Nepal. Method:  The study obtained data from the Nepal Rastra Bank, which published a quarterly economic bulletin and database on the Nepalese economy from 2001 to 2022, and applied the Autoregressive Distributed Lag (ARDL) technique for evaluation and interpretation. Result:  The findings from this study indicate that the interest rate and money supply (M2) have a positive and significant impact on bank stability. Similarly, the NEPSE index has a positive but insignificant impact on bank stability. However, bank stability is negatively and statistically significantly impacted by both the exchange and inflation rates. Conclusion:  The primary findings of the research indicate the presence of a sustained and stable association between bank stability and macroeconomic variables. The ARDL techniques analysis demonstrates that GDP growth, inflation, effective exchange rate, and NEPSE index are statistically significant factors, implying that they have a robust capacity to clarify the evolution of bank stability in Nepal. Implications:  Therefore, the study suggests that policymakers and regulators need to pay close attention to macroeconomic indicators such as inflation, interest rates, money supply (M2), and exchange rates to ensure the stability and soundness of the banking system. The research also highlights the need for commercial banks to closely monitor macroeconomic developments and adjust their strategies accordingly to mitigate risks and maintain stability.

This study aims to examine the macroeconomic determinants that have influenced the development of the banking sector in Nepal by using the ARDL approach technique with economic time series data over the period 1995 to 2020. The research study applied the ARDL approach for a small number of observations to avoid the spurious regression issue that plagues the creation of modern time series data. The research study used bound test co-integration analysis to determine the long-run equilibrium association between the macroeconomic determinants and the development of banking sector industry. The arithmetic average of the normalised values for banking efficiency, banking depth, and banking stability is used to measure the development of the banking industry. The research study found that per capita GDP and remittances have a positive and significant impact on the development of the banking industry. Additionally, the development of the banking industry was explained by government expenditure and stock market capitalisation. However, the research study reveals that the development of the banking industry is negatively impacted by trade openness and inflation in Nepal.

Background: The concept of banking sector development is multi-dimensional, and it is difficult to establish a single description for it because it is an interconnected process that encompasses increases in the number and quality of financial services. Objectives: The objective of the study is to examine the impact of macroeconomic determinants on banking sector development in Nepal. Methods: The study applied the vector error correction model (VECM) approach technique with economic time series data ranging from 1995 to 2020. The study employed the VECM model to avoid the spurious regression problem in the construction of contemporary time series econometrics. The co-integration analysis is used in the study to determine the long-run equilibrium relationship between the macroeconomic variable and the banking sector development of the model. Banking sector development is measured by the arithmetic average of the normalized values of banking depth, banking efficiency, and banking stability. Result: This study reveals that per capita GDP and remittances have a positive and significant impact on the banking sector development. Similarly, government expenditure and stock market capitalization have positive and statistically significant roles to explain banking sector development in Nepal. In addition, it demonstrates that trade openness and inflation have a marginally negative but insignificant impact on banking sector development. Conclusion: There is a long-term equilibrium relationship between macroeconomic variables and banking sector development. Macroeconomic policies and institutional quality play an important role in the banking sector development. Implications: For policymakers since it clarifies the significance of sound macroeconomic policies in the development of the banking industry while taking into account the quality of the existing institutional infrastructure.

Background: The concept of the banking sector development is multi-dimensional, and it is difficult to establish a single description for it because it is an interconnected process that encompasses increases in the number and quality of banking services. Objective: The major purpose of the study is to examine the impact of bank-specific factors on the banking sector development in Nepal Method: The study applied the vector error correction model (VECM) technique with economic time series data ranging from 1995 to 2020. The study was based on co-integration analysis to determine the long-run equilibrium relationship between the model's variables. Banking sector development is measured by the arithmetic average of the normalized values of banking depth, banking efficiency, and banking stability. Result: The study reveals that banking trade has a positive and significant influence on the banking sector’s development in line with theoretical predictions. Electronic banking and liquidity have a positive and statistically significant role to explain banking sector development in Nepal. In addition, it demonstrates that non-performing loans has a negatively and significantly influenced banking sector development whilst branch network has a marginally negative but insignificant impact on banking sector development. Conclusion: The major conclusion of the study is that there is a long-term equilibrium relationship between bank-specific variables and banking sector development.  The dynamic causality of VECM reveals that banking trade, non-performing loans, electronic banking, and liquidity are statistically significant which indicates strong explanatory power to explain banking sector development in Nepal. Recommendation:  This study recommends for policymakers as it sheds light on the importance of raising deposits and lending policies and focused on electronic banking. The financial institution authorities should be implied to build systems and skills in liquidity management, assets and liability management, and branch networking management to enhance the banking sector development.