Relationship Between Liquidity and Profitability of Commercial Banks in Nepal

Abstract

Liquidity management and profitability are very important issues in the growth and survival of banks and the ability to handle the trade-off between the two is of great concern. Liquidity is most significant discipline of Banks’ Profitability. This study has investigated the relationship between liquidity and profitability of Nepalese commercial banks. The main objective was to explore and examine the liquidity position, profitability status and relationship between liquidity and profitability in of Nepalese commercial banks. To accomplish this objective descriptive research approach has been adopted. Data collected and used secondary data from the annual report statements of the Nepalese commercial banks and NRB. Analysis was based on data extracted from annual reports and accounts of the companies for the relevant period. Correlation and regression analysis were employed to examine the relationship between liquidity and profitability. The ROA, ROE and net profit margin was used to measure profitability status and current ratio, cash and bank balance to total deposit and cash and bank balance to current deposit ratio was used to measure liquidity position. The study covered ten Nepalese commercial banks (i.e. ADBL, Everest, Himalayan, Nepal SBI, Nepal Investment, Nabil, Laxmi, Global Ime, Kumari and Prime Commercial Banks) in Nepal over a period of past 10 fiscal years from 2007/08 to 2019/17. Findings established a positive and significant relationship between liquidity and profitability among the Nepalese commercial banks over the period. However, the findings of this paper are based on a study conducted on the selected banks. Hence, the results show that ADBL and NABIL have good liquidity position and profitability position. Therefore, the results are valid for banking sector. Key Words: Liquidity, Profitability and Nepalese Commercial Banks