EFFECT OF CREDIT MANAGEMENT ON PROFITABILITY OF NEPALESE DEVELOPMENT BANKS IN NEPAL

Abstract

This study investigates the effect of credit management on the profitability of development banks in Nepal. Three development banks were chosen as samples from a population of seventeen listed in the Nepal Stock Exchange (NEPSE). Data from the fiscal years 2013/14 to 2022/23 was analyzed using descriptive and explanatory research design. The research questions explored credit efficiency and profitability, the relationship between credit and profitability, and the impact of credit factors on profitability. The study found a positive correlation between credit management ratios (loan to deposit, deposit to assets, cash and cash equivalent, liquid assets, and current ratio) and return on equity (ROE), indicating a positive relationship between credit management and profitability. However, the correlation analysis did not reveal a statistically significant relationship between credit ratios and ROE. This suggests that while credit management practices might be positively associated with profitability, the sample credit ratios used in this study do not significantly impact profitability. The study concludes that proper credit management is crucial for development banks to generate desired returns. However, other factors beyond the scope of this study also influence profitability. Further research using a larger sample size and incorporating additional data sources like primary data through questionnaires is recommended. This study provides valuable insights for development bank management teams and investors, aiding them in decision-making regarding credit management practices and their impact on profitability.