Jul 2026· Nepalese Journal of Economics· 0 citations· 63 references
Abstract
This study examines the effects of liquidity risk and credit risk on the stability of Nepalese commercial banks. Return on assets and Altman Z-score are the selected dependent variables. The selected independent variables are non-performing loan, capital adequacy ratio, bank size, loan-to-deposit ratio, debt-to-equity ratio, interest rate spread and loan loss provision. The study is based on secondary data of 12 commercial banks with 120 observations for the study period from 2014/15 to 2023/24. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of liquidity risk and credit risk on the stability of Nepalese commercial banks. The study showed that non-performing loan has a negative impact on Z-score and return on assets. It implies that increase in nonperforming loan leads to decrease in Z-score and return on assets. In addition, capital adequacy ratio has a positive impact on Z-score and return on assets. It implies that increase in capital adequacy ratio leads to increase in Z-score and return on assets. However, bank size has a negative impact on Z-score and return on assets. It shows that increase in bank size leads to decrease in Z-score and return on assets. Likewise, loan to deposit ratio has a negative impact on Z-score and return on assets. It implies that increase in loan to deposit ratio leads to decrease in Z-score and return on assets. Similarly, debt to equity ratio has a negative impact on Z-score and return on assets. It implies that increase in debt-to-equity ratio leads to decrease in Z-score and return on assets. In addition, interest rate spread has a positive impact on Z-score and return on assets. It implies that increase in interest rate spread leads to increase in Z-score and return on assets. However, loan loss provision has a negative impact on Z-score and return on assets. It shows that increase in loan loss provision leads to decrease in Z-score and return on assets.
This study examines the impact of credit, liquidity, and market risks on the profitability of Nepalese commercial banks. Return on assets and return on equity are the selected dependent variables representing profitability. The selected independent variables are non-performing loan, loan loss provision rate, loan to deposit ratio, liquidity ratio, net interest margin, and market risk. The study is based on secondary data of 12 commercial banks with 120 observations for the study period from 2014/15 to 2023/24. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of impact of credit, liquidity, and market risks on the profitability of Nepalese commercial banks. The study revealed that non-performing loan has a negative effect on return on assets and return on equity. It indicates that increase in non-performing loan leads to decrease in return on assets and return on equity. Similarly, loan loss provision rate has a negative effect on return on assets and return on equity. It indicates that increase in loan loss provision rate leads to decrease in return on assets and return on equity. Likewise, liquidity ratio has a negative effect on return on assets and return on equity. It indicates that increase in liquidity ratio leads to decrease in return on assets and return on equity. In addition, net interest margin has a positive effect on return on assets and return on equity. It indicates that increase in net interest margin leads to increase in return on assets and return on equity. Furthermore, market risk has a positive effect on return on assets and return on equity. It indicates that increase in market risk leads to increase in return on assets and return on equity.
Bikash Thapa Magar· Nepalese Journal of Finance· 0 citations
Recent structural change, regulatory capital requirement related adjustment by Nepal Rastra bank, and rising assets quality concern of lending portfolio have shaped bank profitability. In this regard, there is great concern with credit management and performance of banks. Applying descriptive and causal research design and utilizing the annual reports data of ten commercial banks in Nepal for the fiscal year of 2076/77 to 2080/81 B.S., the aim of this study is to establish the dynamic relationship between credit risk and performance of commercial banks in Nepal. The study used panel data regression techniques. The appropriate model is selected on the basis of Redundant Fixed Effects Tests, Correlated Random Effects - Hausman Test and omitted Fixed Effect model. The findings of this study reveal that credit risk negatively impacts the financial performance of commercial banks in Nepal. Non-Performing Loans (NPL) and total Loan Loss Provisions (LLP) have a negative impact on both Return on Assets (ROA) and Return on Equity (ROE), implying that low-quality assets can pose serious risks to banks' financial performance. Likewise, Capital Adequacy Ratio (CAR) has a positive impact on the financial performance of the bank, implying that well-capitalized banks tend to achieve high performance levels. An increase in the Loan-to-Deposit Ratio (LDR) reduces ROA due to increased credit risk, and LLP has the most adverse effect on the profitability indicator ROE. Therefore, the study concludes that effective credit risk management is crucial for enhancing the financial performance of commercial banks in Nepal. The results provide valuable insights for bank management, policymakers, and regulators to formulate strategies that balance risk and return for sustainable banking performance.
L. Adhikari, Pitambar Sapkota, Sandip Paudel et al.· Janabhawana Research Journal· 0 citations
This study examines the effect of interest rate spread on profitability of Nepalese commercial banks. Return on assets and Earning per Share are the selected dependent variables. The selected independent variables are capital adequacy ratio, non-performing loan, base rate, spread rate, credit to deposit ratio and inflation. The study is based on secondary data of 19 commercial banks with 209 observations for the study period from 2012/13 to 2022/23. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of interest rate spread on profitability of Nepalese commercial banks. The study showed that capital adequacy ratio has a positive impact on return on assets and earnings per share. It indicates that increase in capital adequacy ratio leads to increase in return on assets and earnings per share. However, non-performing loan has a negative impact on return on assets and earnings per share. It indicates that increase in non-performing loan leads to decrease in return on assets and earnings per share. In contrast, base rate has a positive impact on return on assets and earnings per share. It indicates that higher the base rate, higher would be the return on assets and earnings per share. Likewise, spread rate has a positive impact on return on assets and earnings per share. It indicates that increase in spread rate leads to increase in return on assets and earnings per share. Further, credit to deposit ratio has a positive impact on return on assets and earnings per share. It indicates that increase in credit to deposit ratio leads to increase in return on assets and earnings per share. In contrast, inflation has a negative impact on return on assets and earnings per share. It indicates that higher the inflation rate, lower would be the return on assets and earnings per share.
Prathana Sethi· Nepalese Journal of Business· 0 citations
This study examines the impact of external and internal factors on the earnings in the context of Nepalese commercial banks. Return on assets and return on equity are the selected dependent variables. The selected independent variables are bank size, capital adequacy ratio, non-performing loans, inflation rate, GDP growth rate, and interest rate. The study is based on secondary data for a sample of 14 commercial banks, which include 3 public sector banks, 3 joint venture banks, and 8 private sector banks for the period of 8 years from 2015/16 to 2022/23, leading to total 112 observations. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of internal and external factors on earnings of Nepalese commercial banks. The study shows that the bank interest rate has a positive impact on return on assets and return on equity. It indicates that higher the bank interest rate, higher would be the return on assets and return on equity. However, non performing loans have a negative impact on return on assets and return on equity. It indicates that higher the non performing loan, lower would be the return on assets and return on equity. Moreover, capital adequacy ratio, GDP growth rate, and inflation rate have a positive impact on return on assets. It indicates that the higher the capital adequacy ratio, GDP growth rate, and inflation rate, higher would be the return on assets. Contrarily, capital adequacy ratio, GDP growth rate, and inflation rate have a negative impact on return on equity. It indicates that higher the capital adequacy ratio, GDP growth rate, and inflation rate, lower would be the return on equity.
Ayush Dahal· Nepalese Journal of Economic...· 0 citations
This study examines the impact of financial distress on the financial sustainability of Nepalese commercial banks. Return on assets, return on equity, and bank stability as the dependent variables. The selected independent variables were liquidity ratio, non-performing loan ratio, capital adequacy ratio, efficiency, gross domestic product and inflation as the independent variables. This study is based on secondary data of 27 commercial banks with 216 observations for the period from 2011/12 to 2018/19. The data were collected from the Banking and Financial Statistics, Quarterly Economic Bulletin published by Nepal Rastra Bank, and annual reports of the selected commercial banks. The regression models are estimated to test the impact of financial distress on the financial sustainability of Nepalese commercial banks. The study showed that gross domestic product has a positive impact on return on assets. It indicates that an increase in gross domestic product leads to an increase in return on assets. The study also showed that the capital adequacy ratio has a positive impact on return on assets. It reveals that higher the capital adequacy ratio, the higher the return on assets. Likewise, the inflation rate has a negative impact on return on assets. It indicates that higher the inflation rate, lower would be the return on assets. However, efficiency ratio has a negative impact on return on assets. It reveals that increase in cost to income ratio leads to decrease in return on assets. Likewise, non-performing loan has a negative impact on return on assets. It means that increase in non-performing loans leads to decrease in return on assets. In contrast, efficiency ratio has a negative impact on return on equity and bank stability. It reveals that an increase in the cost-to-income ratio leads to a decrease in return on equity and bank stability. Moreover, the liquidity ratio has a negative impact on return on equity. It means that the higher the liquidity ratio, the lower the return on equity. Likewise, non-performing loans have a negative impact on return on equity and bank stability. It means that an increase in non-performing loans leads to a decrease in return on equity and bank stability. Moreover, gross domestic product has a positive impact on return on equity and bank stability. It indicates that an increase in gross domestic product leads to an increase in return on equity and bank stability.
This study investigated the relationship between the upside potentials inherent in credit risk and
the performance of deposit money banks (DMBs) in Nigeria. While credit risk is traditionally
perceived as a threat to banking stability, emerging evidence suggests that it can also present
opportunities for enhanced profitability if effectively managed. The study obtained data from the
Nigerian Deposit Insurance Corporation where credit risk proxied by the ratio of non-performing
loans to total loans (NPLTL) and average liquidity ratio (ALR) as explanatory variables, whereas
return on assets (a proxy of bank performance) as dependent variable, spanning from 1990 to
2023. The Autoregressive Distributed Lag (ARDL) model was employed to estimate the models.
Findings indicate that the ratio of non-performing loans to total loans and advances (credit risk)
significantly affects bank return on assets, a proxy for deposit money banks' performance, whereas
the average liquidity ratio has no significant impact on return on assets. From the findings, Deposit
money banks should adopt a dynamic credit risk management practice; flexible risk management
frameworks that allow them to exploit profitable lending opportunities while controlling potential
losses, among others. The study contributes to the literature on the credit risk-bank performance
nexus, given the ever-changing dynamic economic environment faced by Nigerian banks.
O. M. Ogbulu· Journal of Accounting and Fi...· 0 citations