CREDIT MANAGEMENT AND PROFITABILITY OF COMMERCIAL BANKS IN NEPAL

Abstract

Credit risk is one of the several hazards that bank's must deal with and it has a significant impact on their profitability because a sizable portion of their revenues come from loans where interest is charge. So a good credit management practice is vital for long term sustainability of banking and financial institutions. This research was aim to analysis the most influencing factors that affect credit trend in commercial banks. The study was an attempt to examine the impact of credit management on bank performance measured by profitability in terms of ROA and ROE. Moreover, it also analyzed the relationship between credit risk factors and financial performance in terms of ROE and ROA for the period covering fiscal year 2012-2022. To assess the impact of credit management and profitability of the banks, various statistical models including descriptive research approach was applied to diagnose the specific objectives of the research. The key findings stated that there was significant relationship between non- performing loans interms of ROA and ROE. There was also significant relation between capital adequacy ratio in terms of ROA and ROE. Also, there was statistically significant, albeit statistically positive, correlation was seen between the loan-to-advance ratio and return on assets (ROA). It was determined that profitability will increase in response to favorable changes in the credit risk variables capital adequacy ratio and non-performing loan ratio. . Keywords: Profitability, credit management, capital adequacy ratio, Return on Assets, Return on Equity, Banking and financial institutions, credit risk factors etc