Impact of liquidity on profitability of Development Banks in Nepal

Abstract

Bank development and survival depend heavily on their capacity to manage liquidity and profitability, and managing the trade-off between the two is a critical skill. The most important factor influencing banks' profitability is liquidity. The effect of liquidity on the profitability of development banks in Nepal has been examined in this study. The primary goal was to investigate and assess the profitability status, liquidity situation, and correlation between profitability and liquidity in Nepalese development banks. A descriptive research approach has been used to achieve this goal. Secondary data from the annual report statements of the Nepalese development banks and NRB was gathered and used. Data taken from the companies' annual reports and accounts for the relevant period served as the basis for the analysis. The relationship between liquidity and profitability was investigated using regression analysis and correlation. The profitability status was measured using the ROA and ROE, and the liquidity situation was measured using the CHTDR, LADR, NRBTDR, LACLR, and CATAR. The study looked at five Nepalese development banks throughout the course of the last ten fiscal years, from 2012/13 to 2021/22, namely MNBBL, JBBL, GBBL, MBBL, and KSBBL bank limited. The research findings indicate that there is a negative correlation and a negligible association between the LADR and ROE, but not with ROA. However, there is little correlation between ROA and ROE and CHTDR, NRBTDR, LACLR, and CATAR. The results showed that, across the time, there was a positive and significant association between profitability and liquidity among the Nepalese development banks. Nonetheless, a study on the chosen banks served as the foundation for this paper's conclusions. As a result, the findings demonstrate that ADBL and NABIL have strong positions in terms of profitability and liquidity. The findings therefore apply to the banking industry.

Key Words: Liquidity (CHTDR, NRBTDR, LADR, LACLR and CATAR), Profitability (ROA and ROE) and Nepalese development banks