DETERMINANTS OF LENDING BEHAVIOR OF COMMERCIAL BANKS IN NEPAL

Abstract

This research investigates the determinants of lending behavior of commercial banks in Nepal. It analyzes data from the top five banks over a decade (2013/14 to 2022/23). Using a descriptive and causal-comparative research approach, the study relies on secondary data from the banks' annual reports and financial statements. Descriptive and inferential statistical methods were employed, utilizing SPSS version 29 for analysis. The sample includes PRVU, NIMB, NMB, NIC Asia, and KBL. The study examines the relationships between independent variables (CRR, CAR, IRS, LnTD and INF) with the dependent variable (LnLA). The results show a moderate negative correlation between CRR and LnLA, indicating that higher CRR can limit lending. Conversely, a high positive correlation between CAR and LnLA suggests that wellcapitalized banks tend to issue more loans. IRS has a minimal direct relationship with LnLA, whereas LnTD shows a strong positive correlation with LnLA, indicating that larger deposits are associated with more loans. INF has a moderate negative correlation with LnLA, implying that higher inflation can restrict lending activities. Moreover, CAR significantly positively influences LnLA indicating that higher CAR boosts lending capacity. IRS has a significant negative impact on LnLA, suggesting that wider interest rate spreads can inhibit lending. TD shows a strong positive effect on LnLA, emphasizing the role of substantial deposit bases in facilitating lending. However, CRR and INF are not significant predictors of LnLA, indicating their limited effect on lending behavior. Thus, the study concludes that CRR, IRS, TD and INF are key determinants of lending behavior in Nepalese commercial banks. Keywords: Loans and advances, cash reserve ratio, capital adequacy ratio, total deposit and inflation rate.