IMPACT OF REGULATORY CHANGES ON BANKS AND FINANCIAL INSTITUTION IN NEPAL A

Abstract

The main objective of the study is to analyze the impact of financial regulatory changes on the financial institutions in Nepal. This study examines impact of regulatory factors such as capital adequacy ratio, credit deposit ratio, liquidity ratio, interest spread rate, non-performing loan ratio and bank size on profitability as return on assets and return on equity of selected commercial banks. The study is totally based on secondary sources of data collected from published annual reports of sample banks selected for this study and the study covers the data of sample banks from year 2013/14 to 2022/23. This study used descriptive and causal research design. In this study data collected from the different sample banks are arranged in the panel data set and analyzed with the help of SPSS software. It was found that that credit deposit ratio, liquidity ratio and non-performing loan ratio have significant negative effect on return on assets of the banks, whereas capital adequacy ratio and bank size have insignificant effect on return on assets of the banks. Likewise, it is also concluded that there is significant negative effect of credit deposit ratio and non-performing loan ratio on return on equity of the banks. However, there is significant positive effect of interest spread rate on return on equity of the banks. The capital adequacy ratio, liquidity ratio and bank size have no significant negative effect of return on equity of the banks. The results of this study help the policy makers to take effective action in order to improve banks’ profitability by managing these regulatory factors of the profitability.