Factors Determining Profitability of Commercial Banks: Evidence from Nepali Banking Sector

Gurung, Jas Bahadur; Gurung, Nirmal

doi:10.3126/paj.v5i1.45044

Cited by 6 publications

(10 citation statements)

References 11 publications

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“…Similarly, Gwachha [34] discovered a robust positive effect of the size of assets, deposit ratio, market size, and interest rate on the performance of banks and a significant adverse effect on loans portfolio. Likewise, Gurung and Gurung [35] found the positive influence of the loan ratio on the profitability and net interest margin of banks operating in Nepal.…”

Section: Introductionmentioning

confidence: 91%

Examining the Factors Affecting the Profitability of Commercial Banks

Shrestha¹

2023

J.Math.Instr.Soc.Res.Opin.

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This paper has assessed the determinants of the profitability of commercial banks operating in Nepal. The effect of macroeconomic as well as internal factors on profitability is estimated. For this purpose, ROA is used to measure a bank's profitability. Similarly, liquidity (LIQ), management efficiency (ME), assets quality (AQ), and operational efficiency (OE) are used as internal factors, and consumer price index (CPI), interest rate (IR), and growth rate of broad money supply (M2) are used as macro-economic factors. Based on the result of panel data analysis, this paper revealed that bank-specific and macroeconomic factors play an essential role in determining profitability. Further, this paper found that LIQ, ME, AQ, CPI, and IR substantially influence the profitability of banks operating in Nepal. Thus, this paper concluded that the bank management should improve its liquidity, efficiency of management, and quality of assets to improve profitability. Likewise, the bank management can benefit from increasing CPI and IR to improve profitability.

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Section: Introductionmentioning

confidence: 91%

Examining the Factors Affecting the Profitability of Commercial Banks

Shrestha¹

2023

J.Math.Instr.Soc.Res.Opin.

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“…Operating expenses, leverage, liquidity and market capitalization have positive significant influence to return on equity in Nepalese commercial banks. Gurung and Gurung (2022) conducted research to identify the impact of bank related and external macroeconomic variables on profitability of Nepalese commercial banks and found that loan to deposit ratio and growth of gross domestic product have positive significant influence to the return on assets and net interest margin. However, non-performing assets has significant negative influence to the return on equity, but it has weakly negative impact to the return on assets.…”

Section: Review Of Literaturementioning

confidence: 99%

“…It is ability of delivering quality product and services with minimum input of resources (Pradhan & Sah 2023). It is a right combination of input resources to enhance the productivity and value of any business operation, while driving down the cost of routine operations to a desired level (Gurung & Gurung, 2022). If the bank provides quality bank services at lower possible cost which is called operating efficiency.…”

Section: Introductionmentioning

confidence: 99%

Operating Efficiency, Macroeconomic Variables, and Profitability: Evidence from Nepalese Commercial Banks

Poudel

2023

Journal of Nepalese Business Studies

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This research examines the impact of operating leverage and macroeconomic variables on profitability of Nepalese commercial bank. To measure operating efficiency, and profitability of bank, the researcher uses descriptive cum causal research design with quantitative data from secondary sources. This study employs ordinary least square model using 120 observations of 20 commercial banks as entire population from the period of 2016/17 to 2021/22. This study reveals that the positive influence of operating income ratio, assets utilization ratio, overhead efficiency ratio and interest revenue ratio to the return on assets, return on equity and earning per share of banks. However, the provision for loan losses ratio has negative significant influence to the return on assets, return on equity and earning per share of Nepalese commercial banks. The growth rate of gross domestic product has positive influence to the earning per share of banks but there is insignificant relationship with return on assets and return on equity. Careful selection of lending areas, expanding the size and scope of the operation activities stand out as key avenues for increasing operating efficiency and profitability. The banks might adopt the strategy of diversifying lending portfolio, introduce non-interest income generation program along with increases the size and operation of the activities. The study lacks consideration of debt capital ratio, dividend ratio, interest spread rate, national consumption, government rules and regulation, managerial structure which also influence the profitability and operating efficiency of banks. Future research aims to use structural equation modeling with addressing uncover variables.

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“…However, capital adequacy ratio is insignificant for the banks' performance. Gurung and Gurung (2022) observed the factors determining profitability of Nepalese commercial banks the study found that loan to deposit ratio and GDP have a positive and significant impact on return on assets. Further, the study also showed non-performing loan and capital adequacy ratio have a negative and significant impact on return on equity.…”

Section: Introductionmentioning

confidence: 99%

Effect of working capital management and credit management policy on financial performance of commercial bank in Nepal

Maharjan¹

2023

Lumbini J. Bus. & Econ.

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This study analyzes the impact of working capital management and credit management policy on the financial performance of Nepalese commercial banks. The study uses data from 16 commercial banks, collected from their annual reports, over the period from 2014/15 to 2021/22. The dependent variables considered are return on asset and return on equity, while the independent variables are working capital, loan to deposit ratio, capital adequacy ratio, non-performing loan, cash asset ratio, operating cash flow to total asset, and rate of bank’s ability to return deposits. The study finds that working capital, cash asset ratio, operating cash flow to total assets, and rate of bank’s ability to return deposits have a positive impact on bank return on assets and return on equity. On the other hand, loan to deposit ratio, capital adequacy ratio, and non-performing loan have a negative impact on both return on assets and return on equity. The study provides insights for the management of commercial banks to enhance their financial performance.

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Factors Determining Profitability of Commercial Banks: Evidence from Nepali Banking Sector

Cited by 6 publications

References 11 publications

Examining the Factors Affecting the Profitability of Commercial Banks

Examining the Factors Affecting the Profitability of Commercial Banks

Operating Efficiency, Macroeconomic Variables, and Profitability: Evidence from Nepalese Commercial Banks

Effect of working capital management and credit management policy on financial performance of commercial bank in Nepal

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