Financial Performance Analysis of Nepalese Commercial Banks (A Comparative Study on Public and Private Commercial Banks

Abstract

This study analyses the financial performance of commercial banks of Nepal for the period of eight fiscal years from 2008/09 to 2015/16 A.D. Financial ratios are employed to measure the profitability, liquidity and assets management of sample banks. Among twenty eight commercial banks, six Banks are taken as sample banks. Three banks are government owner bank and other three banks are Private sector bank. Private bank selection on the basis of their highest paid up capital. There are various researches were done in financial performance of commercial banks but they only focused on one public sector and one private sector. So, this research has done by covering all Government owned bank and three private sector banks. The liquidity position of the banks in terms of current ratio shows that the average ratio of private banks is lower than public sector commercial banks. It shows that the liquidity position of public sector commercial banks in terms of current ratio is better than PSBs. But both banks are increasing their profit than past years. The activity ratio is used to examine the efficiency with which firm manages and utilizes its assets. The activity ratio of public sector commercial banks in terms of loan and advance to total deposit ratio is higher than that of private banks. From the analysis, it is concluded that public sector commercial banks has been successfully utilized its deposit in term of loan and advances for profit generating purpose in compared to private banks. The leverage or capital structure position in terms of total debt to shareholders equity ratio of private banks is higher than public sector commercial banks. The average of this ratio implies that the proportion of outsiders claim, in the total capitalization, is higher in private banks. It seems relatively more leverage. Thus, private bank has more risky and aggressive capital structure than public sector commercial banks. The banks have to consider the issue of liquidity vs. profitability due to high or low liquidity. They have to manage both liquidity and profitability. To maintain profit banks should utilize their resources more efficiently in profitable sector. They can increase their area of investment. If assets remain idle, banks should bear high cost and cause of low profit margin. The banks should provide some more responsibilities for the society by expanding their operation in rural areas. They can provide branchless banking in village. These things are helpful to maximize the banks profit.