IMPACT OF FINANCIAL DISTRESS ON PROFITABILITY OF NEPALESE COMMERCIAL BANKS

Abstract

This dissertation aims to assess the Impact of Financial Distress on Profitability of Nepalese Commercial Banks. This study delves into the financial performance and stability of commercial banks in Nepal, recognizing their pivotal role in economic development as financial intermediaries. The research examines key financial variables such as liquidity, capital adequacy, leverage, and non-performing loans (NPL) and their influence on profitability metrics, specifically earnings per share (EPS) and return on assets (ROA). To accomplish its objectives, this study employs a robust research methodology that combines descriptive research and causal comparative research. Data spanning from fiscal years 2012/13 to 2021/22, collected from 20 Nepalese commercial banks, is systematically analyzed. Among these, three specific banks (Nabil Bank Limited, Global IME Bank Limited, and NIC Asia Bank Limited) are selected to provide insights into varying degrees of financial distress. Descriptive statistics unveil the structure and patterns of financial variables within Nepalese commercial banks. The analysis covers EPS fluctuations, ROA variability, NPL management, capital adequacy, leverage, and credit-to-cash-plus-deposit ratios (CCD). The study emphasizes the importance of effective financial management and risk mitigation strategies for sustainable banking operations. Regression models are applied to delve deeper into the relationships between financial distress variables and profitability metrics. The findings confirm the positive impact of leverage and liquidity on EPS. Additionally, CCD is identified as the sole statistically significant variable positively influencing ROA in the specified model. This research enhances our comprehension of the financial performance and stability of Nepalese commercial banks during the five-year period from 2012/13 to 2021/22. It offers valuable insights into the diverse trajectories of EPS and ROA, NPL management, capital adequacy, and the influence of leverage, liquidity, and CCD.