Profitability Analysis for Nepalese Commercial Banks

Abstract

The financial system of Nepal is dominated by the commercial banks. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiency allocating resources and makes easy the trade of goods and services. The major objectives of the study is to examine the impact of independent variables on the performance of the commercial bank in Nepal. The return on assets (ROA), return on equity (ROE), and net interest margin (NM) are the dependent variables which have been used to measure the profitability situation of the banks taken under the study. The variables like market capitalization, liquidity management, leverage and operating expense have been used as independent variables in this study. The result indicated that there is a positive relationship between operating expense and net interest margin. This indicates that higher the operating expense, higher would be the net interest margin. There is also a negative relationship between leverage and net interest margin. This indicates that higher leverage, lower would be the net interest margin. Similarly there is also negative relation between liquidity and net interest margin. Likewise, market capitalization has a positive relationship with net interest margin. The result shows that there is positive relationship between gross domestic product and inflation with net interest margin. The study observed that there is a positive relationship between operating expense, return on equity and return on assets. It indicates that higher the operating expense, higher would be the return on equity & return on assets. The results shows that market capitalization positively related to return on assets and return on equity. It indicates that higher the market capitalization, higher would be the return on assets and return on equity. Similarly, leverage and liquidity management is negatively related to return on assets and return on equity. This indicated that higher the leverage lower would be the return on assets and return on equity and higher the liquidity management, lower would be the return on assets and return on equity. The major conclusion of the study is that performance of Nepalese commercial banks in highly influenced by liquidity. This indicates that higher the liquidity, higher the more capable the commercial bank on paying its obligations and has more investment opportunities.