CREDIT RISK MANAGEMENT AND FINANCIAL PERFORMACE OF NEPALESES COMMERCIAL BANKS

Abstract

This study was to analyze the effect of credit risk management and financial performance of commercial banks in Nepal. The dependent variable is in the profitability of commercial banks which has been specified in terms of return on Assets and Return on Equity while the independent variable is Capital adequacy ratio, Non- performing loan ratio, loan loss provision, loan and advance ratio and liquidity ratio. To test the effect of credit risk management on financial performance regression models have been estimated, and the study has used trend analysis, descriptive data analysis, correlation, and regression analysis obtaining through using SPSS software. The study was mainly conducted with secondary data. The data were collected for the three commercial banks among the 20 commercial banks of Nepal which covers the 30 observations. The study found that the credit risk indicator non-performing loan, loan and advance, capital adequacy ratio and liquidity is negative and significant relationship between the ROE but liquidity is negative and insignificant with ROE where Loan loss provision and capital adequacy ratio is positive and significant with ROE. The study reveals that Capital adequacy ratio and liquidity ratio has positive and insignificant relationship between the ROA but loan loss provision is positive and significant in ROA. As non-performing loan and loan and advance ratio has positive and significant relationship with ROA.