IMPACT OF LIQUIDITY ON PROFITABILITY OF COMMERCIAL BANKS IN NEPAL A

Abstract

This comprehensive analysis explores the intricate relationship between liquidity management and bank profitability, drawing insights from a thread of data tables representing key liquidity metrics for ten banks over a decade, and from a series of cited studies conducted in various countries. The examined metrics include Cash Reserve Ratio (CRR), Cash and Bank Balance to Total Deposit (CASH to TD) ,Credit Deposit Ratio(CDR), Liquidity Assets Ratio(LAR), Capital Adequacy Ratio (CAR), Non- Performing Loan Ratio (NPLR), Return on Equity (ROE) and Return on Assets (ROA). These metrics offer a nuanced view of how liquidity levels fluctuate and their impact on banks' financial performance. The data tables present a decade-long snapshot of liquidity metrics for ten banks offering valuable insights into how these banks managed their liquidity during this period. The cited studies provide a broader context for understanding the relationship between liquidity and profitability. The consensus is that a well-balanced liquidity strategy is essential for long-term financial success. Further, these studies highlight the complexity of the liquidity-profitability relationship. Some findings show positive correlations between liquidity ratios and profitability indicators such as Return on Equity (ROE) and Return on Assets (ROA), while others indicate negative or insignificant relationships. This underscores the need for banks to tailor their liquidity management strategies to their specific circumstances and market dynamics. This analysis underscores the critical importance of liquidity management in the banking sector and its profound impact on profitability. Banks must adapt their strategies to meet both their regulatory obligations and market demands. Striking the right balance between sufficient liquidity management and optimization profitability is key to thriving in the ever-evolving banking industry