Jul 2026· Janabhawana Research Journal· Vol 5, pp. 124-143· 0 citations· 34 references
Abstract
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.
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.
Lelina Pokhrel· Nepalese Journal of Economic...· 0 citations
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
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 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
Bank size remains an important but unsettled determinant of bank performance, particularly in a financial system shaped by consolidation, digitalisation, and changing regulatory requirements. This study examined the impact of equity capital, bank size, loan assets, and deposit liabilities on the performance of selected Nigerian Deposit Money Banks, measured by return on assets. The analysis focused on five Tier-1 banks and used quarterly panel data covering 2014Q1–2024Q4, yielding 220 bank-quarter observations. Descriptive statistics, correlation analysis, conventional static panel estimators, and diagnostic tests were applied. Following evidence of heteroscedasticity, serial correlation, and cross-sectional dependence, the Panel-Corrected Standard Errors estimator was used for the principal regression analysis. The results show that equity capital has a positive and statistically significant relationship with return on assets (coefficient = 1.2312, p < 0.01). Bank size has a negative and statistically significant relationship with performance (coefficient = -4.5039, p < 0.01), while loan assets (coefficient = 1.3261, p < 0.01) and deposit liabilities (coefficient = 2.9369, p < 0.01) are positively associated with return on assets. The model explains approximately 70.35% of the variation in return on assets. The findings indicate that expansion in asset size alone is not associated with improved performance and that capital strength, credit intermediation, deposit mobilisation, and efficient resource management remain important to the performance of the sampled banks.
O. G. Obisesan, James Duru· Asian Journal of Economics B...· 0 citations
This study examines the effects of operational inefficiency, profitability, and independent commissioners on credit risk in Indonesian Regional Development Banks (RDBs). Regional Development Banks (RDBs), locally known as Bank Pembangunan Daerah, are provincially owned financial institutions that play a vital role in promoting regional economic development. Credit risk remains a major concern for RDBs because of their strategic intermediation function and their vulnerability to non-performing loans (NPLs). Using panel data from 23 conventional RDBs over the 2018–2024 period, this study analyzes 161 bank-year observations through panel data regression, with the Random Effect Model identified as the most appropriate estimation technique. Credit risk is measured by the non-performing loan (NPL) ratio, operational inefficiency by the operating expense-to-operating income (OEOI) ratio, profitability by return on equity (ROE), and board independence by the number of independent commissioners. The findings reveal that operational inefficiency has a positive and significant effect on credit risk, indicating that lower cost efficiency increases the deterioration of loan quality. In contrast, profitability has a negative and significant effect on credit risk, suggesting that more profitable banks are better able to maintain asset quality and absorb potential losses. Independent commissioners also have a negative and significant effect on credit risk, demonstrating the importance of board independence in strengthening oversight and mitigating risk. However, independent commissioners do not moderate the relationships between operational inefficiency and credit risk or between profitability and credit risk. This study contributes to the banking and corporate governance literature by providing empirical evidence from Indonesian RDBs, an underexplored segment of the banking industry in emerging markets. The findings suggest that, rather than functioning as a moderating mechanism, independent commissioners serve as an important direct governance mechanism for mitigating credit risk. From a practical perspective, RDBs should improve operational efficiency, maintain sustainable profitability, and strengthen board independence to enhance credit risk management and support long-term financial stability.
Iqbal Alfahruli, L. Lutfi· Golden Ratio of Finance Mana...· 0 citations