EFFECT OF BANK SPECIFIC FACTORS ON PROFITABILITY OF NEPALESE COMMERCIAL BANKS

Abstract

The basic objective of the study is to analyze the bank specific factors of profitability of commercial banks of Nepal. Specially this study analyzes the effect of bank size, capital adequacy ratio, operating expenses ratio, liquidity ratio and NPL ratio on profitability of Nepalese commercial banks. This study covers the period of ten years from 2013/14 to 2022/23. This study analyzes the data of six joint venture commercial banks i.e. SCNBL, NABIL, NMB, EBL, SBI and HBL. To achieve the specific objective of the study, descriptive and causal research has been carried to analyze the determinants of profitability. This study has adopted a expected generalized least squares model (EGLS) to investigate the effect of bank specific factors on profitability Nepalese commercial banks. The analysis reveals that capital adequacy ratio and liquidity ratio have significant positive effect on return on assets of the banks. The bank size has significant negative on return on assets of the banks. On the other hand, operating expenses ratio and NPL ratio have no significant effect on return on assets of the banks. Likewise, it is also concluded that there is significant positive effect of liquidity ratio on return on equity of the banks. However, there is significant negative effect of bank size and capital adequacy ratio of banks on return on equity of the banks. The operating expenses ratio and NPL ratio have no significant effect of return on equity of the banks. The results of this study help the bankers and policy makers to take effective action in order to improve banks’ profitability by managing these banks specific factors of the profitability.