Determinant Of Liquidity Of Commercial Banks Of Nepal

Abstract

As liquidity problems of some banks during global financial crisis re-emphasized, liquidity is very important for functioning of financial markets and the banking sector. The aim of this study is therefore to identify determinants of liquidity of Nepali commercial banks. The data cover the period from 2010 to 2020. In this study liquidity is dependent variable and capital adequacy ratio (CAR), share of nonperforming loan (SoNPL), deposit amount, GDP and inflation are independent variables. More specifically study have used two model for this study (liquidity/ total assets) and (liquidity/deposit + borrowing) model, as used by volvoda. Accordance to model, the results of panel data regression analysis showed that capital adequacy ratio (CAR), share of non-performing loan (SoNPL) and GDP have significant but CAR and SoNPL only have positive impact to determine liquidity and GDP have inverse relation. Bank size, deposit and inflation rate have insignificant but only bank size and inflation rate have positive impact to determine liquidity level and deposit amount have inverse relation. Accordance to model, the results of panel data regression analysis showed that CAR, bank size, deposit amount and GDP have significant relation in determining liquidity level. Among of them CAR and bank size have positive relation with liquidity level but deposit amount and GDP have negative relation. SoNPL and Inflation rate both have insignificant and positive relation with liquidity level in the commercial bank of Nepal.