BANK SPECIFIC FACTORS DETERMINING PROFITABILITY OF NEPALESE DEVELOPMENT BANKS

Abstract

The objective of this study is to examine the bank specific factors of profitability of Nepalese development banks. The study is conducted using panel data of five development banks of Nepal with 50 observations for the period 2012/13 to 2021/22. 012/13 to 2021/22. Ordinary least square regression (OLS) of panel data analysis is used as a major tool of analysis. The result reveals that there is strong liquidity position of development banks in form of cash reserve ratio, liquid assets ratio and loan to deposit ratio etc. The relationship analysis depicts that cash reserve ratio has positive association with ROA and ROE. Similarly, liquid assets ratio has significant positive relation with ROA. Further, the relationship analysis shows that there is positive correlation between loan to deposit ratio (LDR) and ROA and ROE of the banks. At the same time, capital adequacy ratio (CAR) has significant positive relation with ROA. The multiple regression analyses revealed that cash reserve ratio has no significant positive impact on profitability (ROA and ROE) of the banks. At the meantime, liquid assets to total assets ratio has significant positive impact on ROA and ROE. Similarly, loan to deposit ratio has significant positive impact on ROA ROE. Moreover, capital adequacy ratio has insignificant negative impact on ROA and it has significant negative impact on ROE of the development banks.