Impact of Liquidity on Profitability in Nepalese Commercial bank

Abstract

ABSTRACTS This study aims to analyze determinants of liquidity of commercial banks and their relationship with the liquidity based on information available in Nepalese context. The study is based on two types of research design namely descriptive and casual comparative. To describe the nature and behavior of variables, descriptive design is used. To examine and analyze the relationships casual comparative research design has been used. The method of this study is quantitative approach. A casual comparative tools, descriptive statistics, model summary and ANOVA are used. As a analytical tools, correlation and regression are applied to analyze data collected from the annual reports of the sample taken banks for identifying direction and significance level of selected independent variables on determining liquidity level. The study was confined to the private commercial banks operating in Nepal. There were 20 commercial banks in operation in Nepal during the time of the study, with their branches located in different parts of the country. Out of the total population, five leading private commercial banks were selected based on their paid-up capitals which comprised 25.00 percent of the total population of commercial banks in Nepal. The correlation analysis provides insights into the relationships between ROA and various financial ratios. While some correlations are observed, it's crucial to note that correlation does not imply causation, and other factors not considered in this analysis may influence the bank's return on assets. Further investigation and multivariate analysis may be necessary to uncover the underlying factors affecting these correlations. While the model shows an overall good fit, further analysis is necessary to understand the individual contributions of each predictor and validate the assumptions of the regression model. Additionally, the significance of each predictor should be examined to determine which variables have a statistically significant impact on predicting ROA. Further analysis is necessary to assess the significance of individual predictors and validate the assumptions of the regression model for a more comprehensive understanding of the relationships between the variables. The coefficients provide information about the direction and magnitude of the relationships between each predictor variable and ROA. Key words: Liquid Fund to Current Liabilities Ratio, Total Liquid Fund to Total Deposit Ratio, NRB Balance to Total Deposit Ratio, Cash in hand to Total Deposit Ratio, Cash and Bank Balance to Total Deposit Ratio, Return on Assets