CREDIT MANAGEMENT AND ITS IMPACT ON PROFITABILITY OF NEPALESE DEVELOPMENT BANKS

Abstract

This study examines the impact of credit management on the profitability of Nepalese development banks. Secondary data was collected from these banks over a ten-year period (2012/13–2021/22). The data was analyzed using correlation and multiple regression analysis. The study finds that Nepalese development banks exhibit low credit risk, as indicated by a low non-performing loan ratio, and they maintain a strong profitability position. The correlation test indicates that the cash reserve ratio has an insignificant positive relationship with profitability. The credit-to-deposit ratio shows an insignificant negative relationship with Return on Assets (ROA) and an insignificant positive association with Return on Equity (ROE). In contrast, non-performing loans and bank size have a significant negative relationship with profitability. Additionally, the leverage ratio has a significant negative relationship with ROA but an insignificant positive relationship with ROE. The regression analysis confirms that both the cash reserve ratio and the credit-to-deposit ratio have an insignificant positive effect on profitability (ROA and ROE). However, non-performing loan ratio and bank size significantly negatively impact profitability. Lastly, the leverage ratio has an insignificant negative impact on ROA but a significant positive impact on ROE. Thus, the study concludes that credit risk has a significant negative impact on the profitability of Nepalese development banks.