DETERMINANTS OF BANK VALUE IN NEPALESE COMMERCIAL BANKS

Abstract

This study delves into the intricacies of determining the market value of Nepalese commercial banks by examining a dataset spanning a decade from 10 different banks. Through the utilization of correlation and regression analyses, the research aims to uncover the key factors influencing the market value of these banks. The findings shed light on several significant determinants. Firstly, profitability, as measured by return on assets, emerges as a crucial factor positively impacting bank value. Similarly, the level of deposits held by the bank is found to have a positive association with its market value, indicating the importance of deposit mobilization for enhancing bank worth. Conversely, the study identifies loans as exerting a negative influence on bank value, suggesting that the management of loan portfolios is vital for maintaining or increasing market value. Furthermore, the study highlights the importance of capital adequacy, management efficiency, and asset quality in driving positive outcomes for bank value. Notably, higher levels of capital adequacy and efficient asset management contribute positively to bank worth, while superior management practices are associated with increased market value. However, the analysis also reveals that bank size exhibits a negative relationship with market value, signaling potential challenges associated with economies of scale or operational efficiency in larger banks. Additionally, the study explores the impact of macroeconomic factors such as GDP growth and inflation rate on bank value. Surprisingly, these macroeconomic indicators were found to be non-significant determinants of bank value, indicating that internal factors may play a more dominant role in shaping bank worth. Overall, the study underscores the importance of effective asset utilization, prudent management decisions, and maintaining optimal capital levels as strategies for enhancing the market value of Nepalese commercial banks in a dynamic financial landscape. Keywords: Capital Adequacy Ratio, Liquidity Ratio, Non-Performing Loan Ratio, Loan Ratio, Bank Size, Market Value, Market to Book Value