The determinants of financial performance of Nepalese commercial banks

Abstract

Bank is a financial institution which collects deposit from general public and advancing loan to borrowers with the aim of earning profit. Profit of the bank is influenced by various internal and external economic factor. The main objective of study is to analyze examine and interpret the financial position of sample commercial bank with the help of ratio analysis and other relevant financial and statistical tools. It is focused to examine relationship between internal factor and bank’s profitability and to analyze the impact of internal factor on bank’s profitability. This study is based on descriptive and causal relationship research design. Moreover, the study attempts to examine the relationship between dependent and independent variable, and the cash reserve ratio (CRR), capital adequacy ratio (CAR), non-performing assets (NPA), credit deposit ratio (CDR), interest income to loan and advance (IILA) and interest expenses to deposit and borrowing (IEDB) towards profitability and return on assets and return on equity are taken as dependent variable. Six banks selected are selected for the study among 20 commercial bank of Nepal. This study covers the period of 10 years from FY 2013/14 to 2022/23. Ratio analysis is taken as financial tools and mean, standard deviation, coefficient of correlation and regression analysis are taken as statistical tools to analysis of data and interpret the result. The result found, NPA is significantly positive, CDR is significantly negative, IILA is insignificantly negative and IEDB is significantly negative relationship with profitability. Similarly, the analysis found, ROA is insignificantly positive, CRR and CDR significantly negative, NPA and IEDB insignificantly negative and IILA is significantly positive impact on ROA. Similarly, CAR, CDR and IILA is significantly negative, CRR and NPA insignificantly positive and IEDB is insignificantly negative impact on ROE. The result found relatively similar result with previous findings, so the result is taken as consistent result. Keywords: Profitability, ROA, ROE, CAR, CRR, NPA, CDR, IILA and IEDB.