Financial Performance of Commercial Banks in Nepal

Abstract

Financial performance of commercial banks in Nepal is a representative vision of the reality. Main thrust of the present study is to assess the financial performance of Nepalese commercial banks, to determine the relationship between capital adequacy, assets qualities, management qualities, earning capacities, and liquidity positions of Nepalese commercial banks and to ascertain the effect of capital adequacy, assets quality, management quality and liquidity position on profitability. xii

Descriptive research design has been adapted in this study. This study has examined the determinants of financial performance of Nepalese commercial banks over the period of FY 2014/15 to FY 2018/19 AD. The Convenience sampling method was used in choosing the banks for the study. The banks selected for the study are: Everest Bank Limited, Nabil Bank Limited, Nepal SBI Bank Limited, Machhapuchchhre Bank Limited and Nepal Bank Limited. The commercial banks have been able to maintain their assets quality as per directives set by NRB. Considering total expenses to total income ratio as an indicator to measure the management, MBL has efficient management and Nepal SBI has less efficient management than other banks. EBL has more efficient and NBL has less efficient management than other banks considering profit per branch as an indicator to measure management efficiency. Earning is a base of operation of any institution. Return on equity (ROE) and return on assets (ROA) are taken in account to measure profitability position of the commercial banks. Nepal SBI has more stable and efficient ROE than other banks. On other hand, NBL has high fluctuated and inefficient ROE. The directives set by Nepal Rastra Bank on maintaining good liquidity position has also been strictly followed by the commercial banks. The minimum cash reserve ratio (CRR) set by NRB has been maintained by all commercial banks. Considering cash to deposit ratio as an indicator to measure liquidity position, NABIL has been able to maintain better liquidity position than other banks. Likewise, total expenses to total income (TE/TI) ratio and cash reserve ratio (CRR) has low positive influence on ROE of the commercial banks in Nepal. There is significant relationship between CAR, TE/TI, ROE, and ROA of commercial banks whereas; the relationship between ROA and other variables (NPL, and CRR) is insignificant.