Non–Performing Assets & Profitability Analysis of Nepalese Commercial Banks

Abstract

This selective study explores the effect of non-performing assets on the profitability of commercial banks in Nepalese context. A pooled data of ten commercial banks with 100 observations during the period of 2012 to 2021 has been used for the study. It examines the relation between the gross non-performing assets and profitability of the bank. The Pearson’s correlation coefficient indicates negative influence of NPA with the firm’s profitability reflected by ROA, ROE and NIM. Firm size, deposit and loans are positively related with these profitability indicators. The multiple regression analysis of nonperforming

assets also shows significant negative relation with respect to bank profitability (ROA) meaning that when there is a lower non-performing asset of banks, the return on asset increases. NPA has insignificant negative relation with respect to shareholders’ return (ROE) and NIM. In contrary, size of the firm and deposit show the positive correlation with respect to ROA, ROE and NIM. Total loan shows positive relationship with ROA and ROE and significant negative relationship with NIM. It is concluded that profitability of Nepalese commercial banks is influenced by nonperforming assets and other covariates such as: bank size, deposit and loans.

The

study implies that banks should adopt new aspects, qualitative and creative young personnel to create better health and wealth for the banks. Furthermore, banks should highly re-consider on the appropriate portion of loans and advances on the assets and management. It should try developing an appropriate recovery policy and investment policy.

Keywords: Non-performing assets, Profitability, Commercial Banks, Nepal.