Impact of interest rate changes on profitablity of commercial bank in Nepal

Abstract

The aim of this study is to determine the relationship between interest rate changes and profitability of banks in the context of commercial banks in Nepal. The specific objectives of this study are to examine the effect of interest rate changes on profitability of commercial banks in Nepal, to analyze the relation between the interest rate and profitability of commercial banks, A descriptive research design was used with a sample of seven commercial banks out of 20 commercial banks were selected and ten resent years data ( FY 2013/14 to FY 2022/23) were used for analysis. The major source of data was secondary and collected from authentic websites. Using descriptive statistics, correlation analysis and multiple regression analysis this study investigates the effects of interest rate on profitability of commercial banks. The major findings of the study are; Variables like Base interest rate (BSR) and profitability ratios (ROA, ROE and NIM) of bank have negative relationship and interest spread rate (ISR) and profitability ratios of banks have positive relationship. The independent variables i.e. BSR and ISR are significantly associated with dependent variable i.e. ROA, ROE and NIM of seven sample commercial banks. Finally, the study concludes that base interest rate has insignificant negative effect on profitability of commercial banks. But there is significant positive effect of Interest spread rate on profitability of commercial banks.