Financial Performance Analysis of Commercial Banks on The Basis of Camel (With Special Reference to Selected Nepalese Commercial Banks)

Abstract

The study is to examine the Financial Performance of Commercial Bank on the Basis of CAMEL study in the context of Nepalese commercial Banks. Change in Earning Per Share is the dependent variable while the capital adequacy ratio (CAR), non-performing loan (NPL), management efficiency ratio (MER), return on assets (ROA) & cash reserve ratio (CRR) were chosen as independent variables. The data were collected from the annual reports of selected banks, annual report of SEBON, report of Nepal Rastra Bank and other official and unofficial publications. Data were analyzed by using appropriate financial and statistical tools and the descriptive research design were used. The multiple regression models were used to test the Financial Performance of Commercial Bank on the Basis of CAMEL. The regression of CAMEL parameter and its impact on earning shows that beta coefficients are positive for Non-performing loan Ratio (NPL), Return on Assets (ROA) and Cash Reserve Ration (CRR). However, beta coefficient is negative for capital adequacy ratio and management efficiency ratio. In this study, there is positive relationship between the, Return on Assets and Earning Per share, Non-performing loan and Earning per share and Cash Reserve Ratio and Earning Per Share. Hence, the result shows that higher the NPL, ROA & CRR, larger would be earnings and vice-versa. Whereas the beta coefficient of ROA, NPL & CRR is also significant at 5% level of significance. The relationship between EPS and CAR, NPL, MER, ROA and CCR of commercial bank is significant. The study found that the variables CAR, NPL, ROA and CRR is responsible on EPS only by 58.10% and around 41.90% is unexplained. The study recommends that other studies is to be done to identify other factors which may explain the remaining 41.90% roles on determining the earning price per share of Nepalese commercial banks.