Impact Of LIquidity Risk On Financial Performance Of Nepalese Development Bank

Abstract

This study investigates the impact of liquidity risk on the performance of development banks in Nepal by analyzing quarterly report of five development banks selected on the basis of their total assets from the fiscal year 2071/72 to 2075/76. The objective of this study is to identify the impact of liquidity risk factors on both top line and bottom-line performance indicators of development banks. Descriptive statistic unveil that average CDR is 75.77 which is .77 above the international standard of 75. Multiple regression analysis reveals that liquidity risk has non-linear relation with bottom lines Return on Average Assets (ROAA) and negatively affect ROAA, whilst significantly affects Return on Average Equity (ROAE). The liquidity risk has mixed impact on top line performance (Net Interest Margin) of the development banks. The findings of this study suggest that Nepalese development banks need to increase the level of deposits and core fund to gain the higher-level liquidity and financial performance.