Analysis of Non-Performing Loans of Nepalese Commercial Banks
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Department of Management
Abstract
Non-performing loans are those whose interest and principal are not paid beyond three months of due period.Non-Performing loan is very important aspect in case of commercial banking as this will have huge impact upon Net profit. It further shows the efficiency of bank showing how effectively it is able to utilize its resources. The major objective of this research is to understand the relationship between Non-performing loan & Profitability of the bank. For this research descriptive method is used and secondary data from Annual report of bank is used to identify relationship between Non-Performing loan&Profitability.
After conducting this research, it was observed that there exists no relationship between Non-performing loan and Net Profit as GBIME and NABIL shows positive relationship between Non-performing loan and Net profit however incase of ADBL the relationship between Non-performing loan and Net profit seems to be negative. In case of deposit all banks deposit shows increasing trend and same was true regarding loan and advances but it was observed that NABIL has utilized its resources very efficiently compared to GBIME & ADBL. GBIME & ADBL in other hand shows positive improvement towards their resource utilization.
ADBL has increased loans and advances however Non-loss provision and Non-Performing loan is also increasing as well but incase of NABIL loan and advances is increasing but non-performing loan is decreasing which shows efficiency of NABIL. Further it was observed that CD ratio of all three banks were above 75%however ADBL has lower ratio compared to that to NABIL&GBIME which have ratio above 77% but prescribed ratio by NRB is 80%.Net profit in other hand is also increasing where NABIL is leading with highest profit earned compared to that of GBIME &ADBL and ADBL’s Profit is increasing as well,GBIME in other hand has also increasing in moderate level.
Hence increased NPL doesnot seen to be problem for banks regarding their Net Profit if they are expanding their business so NPL alone cannot be considered as measuring rod for performance of banking sector.