EFFECT OF LIQUIDITY RISK ON PROFITABILITY IN COMMERCIAL BANKS OF NEPAL

Abstract

The impact of liquidity on the profitability of commercial banks in Nepal is investigated in this study. The independent variables in this study include the credit deposit ratio, cash deposit ratio, and asset quality. The return on equity and return on assets are the dependent variables. The study utilized secondary data sourced from the 2013–2022 Nepal Rastra Bank bank supervision report and the annual reports of six Nepalese commercial banks. This resulted in a total of sixty observations. Using SPSS version 26 for data analysis, the mean, standard deviation, coefficient of variance, multiple correlations, multiple regression, and coefficient of determination were applied. To investigate the connection between bank liquidity and profitability, these regression models are estimated. Return on equity (ROE) and return on assets (ROA) are the profitability measures, while credit deposit ratio (CDR), cash deposit ratio (CADR), and assets quality (AQ) are the indications of liquidity. According to the findings, assets quality (AQ) and return on assets (ROA) have a negative and significant association, while AQ and return on equity (ROE) have a positive and significant link. The return on equity (ROE) and return on assets (ROA) have a positive but negligible connection with the cash deposit ratio (CADR). The study does, however, show that credit deposit (CDR) has a negative and negligible association with return on equity (ROE) and a positive but small link with ROA