Determinants of Liquidity in Nepalese Commercial Bank

Abstract

This study examined the determinants of liquidity in Nepalese commercial banks. In order to accomplish these objective, bank specific and macro-economic variables was taken as independent variable and bank liquidity was taken as dependent variable. Variable under bank specific includes capital adequacy, deposit, bank size and macro-economic variables include gross domestic product, and inflation rate, . Variables under bank liquidity includes liquid assets to total assets and liquid assets to deposit plus borrowing

This research has used the descriptive research design and casual correlation research design. The study is quantitative in nature. Hence, the study is based on secondary data which has been collected from the yearly statistics report published in the official website of economic survey, financial and banking statistics of NRB, principal indicators of respective banks from 2007 to 2018.The study has taken 5commercial banks as a sample covering the period of 2007 to 2017 with 50 number of observation for all banks. The study has used descriptive analysis, correlation analysis, and regression analysis for analyzing data.

The bank specific variables and macro economic variables has used in the study for measuring liquidity in Nepalese commercial banks and result indicated that the, Bank Size Deposits, GDP, Inflation found to have significant effect on liquidity of the country. Similarly, result indicated that the capital adequacy ratio, found to have Negative effect on liquidity of the country. Variables i.e. Bank Size and Inflation have in insignificant positive impact on liquidity. Variables i.e. GDP and Deposit have significant Positive impact with liquidity from our study.

The outcome of the study can be used by commercial banks that have a sufficient capital ratio decreases liquidity position of commercial bank for Nepal. Bank should give higher Increment of the assets to expand their operation and to take advantage of economic scale for carefully monitoring loan growth. Bank authority should carefully observe the macroeconomic condition while formulating liquidity position of their respective banks