Non-Performing Assets and Profitability Analysis of Nepalese Commercial Banks

Abstract

ABSTRACT The level of non-performing assets (NPA) in Nepalese banking system is very alarming. It is well known fact that the bank and financial institution in Nepal have been facing the problem of swelling non-performing assets and the issue of becoming more and more unmanageable day by day. This study examines the non-performing assets and profitability analysis of Nepalese commercial banks. The main objectives of this study is to assess the factors of non-performing assets and profitability, to examine the relationship between factors of non-performing assets and profitability and to analyze the impact of non-performing assets effect on profitability. Non-performing assets (NPA), Total Loan to Total deposit Ratio (TLTDR), Capital Adequacy Ratio (CAR), Total Assets (TA) and Non-performing Loan (NPL) are taken as independent variables. Return on Assets (ROA) and Return on Equity (ROE) are taken as dependent variables. Mean, Standard Deviation, Correlation and multiple regression analysis were used to present data. The major finding of this study was the correlation between ROA and ROE is 0.135, suggesting a positive but relatively weak correlation. Notably, the correlation between TLTDR and ROE is negative correlation is statistically significant. Similarly, the correlation between CAR and TLTDR is negative relationship. Moreover, the correlation between NPL and CAR is strong positive correlation. In regression, NPA, TA and CAR are significant variable with ROA and TLTDR and NPL are insignificant with ROA. NPA, TA and CAR are significant variable with ROE and TLTDR and NPL are insignificant with ROE. Keywords: Non-performing Assets, ROA, ROE, Capital Adequacy Ratio, Total Assets and Non-performing Loan and banks and financial instructions.