DETERMINANTS OF PROFITABILITY OF NEPALESE COMMERCIAL BANKS

Abstract

The study examined the determinants of profitability (measures as total deposit, nonperforming loan ratio, cash and balance to total deposit ratio, gross domestic product and inflation independent variables) on profitability (measured as return on assets, return on equity, and net interest margin as dependent variables) of commercial banks in Nepal. The study sampled 5 commercial banks namely Everest Bank Ltd, Nabil Bank Ltd , SBI Bank Ltd and Standard Chartered Bank Nepal Ltd out of 20 commercial banks ( on 3rd Ashar 2080) over period of 10 years from 2012/13 to 2020/21. The data were extracted from annual reports of the particular banks. Data was analyzed using descriptive statistics, correlation analysis as well as panel regression analysis. The result is extracted using SPSS and the results are analyzed accordingly. It can be observed in this regression model suggests that the total deposit (TD) and gross domestic product (GDP) have statistically significant relationships with the dependent variable NIM. The NPL, CBBTD and Inflation does not show a significant relationship with NIM based on the results. This regression model, the significant predictors impacting ROA are TD (negatively) and to some extent, GDP (positively). The other predictors (NPL, CBBTD and Inflation) do not appear to have a significant impact on ROA based on this model. The regression model suggests that the GDP and Inflation variables that is statistically significant and has a meaningful impact on the dependent variable ROE. The other variables (TD, NPL and CBBTD) do not show significant relationships with ROE based on the data. The results call for banks and financial institutions to choose the right financing mix so that the profit can be maximized and the bank can have long survival life with low risk. Keywords: ROA, ROE, Net Interest Margin, Assets Quality and Liquidity.