CREDIT RISK MANAGEMENT AND PROFITABILITY OF COMMERCIAL BANKS IN NEPAL

Abstract

On studying the credit risk management and profitability of commercial banks in Nepal for a period of ten years from 2012/13 to 2021/22, the study reveals that individually each of the variables contribute meaningful information in prediction of credit risk and profitability. The major conclusion of this study is that, the model used is very significant statistically. Different independent variables CDR, ISR, NPL, LLP, CAR and CRR can contribute on prediction of ROA and ROE. From the normality test, it can be concluded that, data related to dependent variables are normally distributed. The regression results indicate that, the coefficient of ISR is positive and rest of the independent variables have negative coefficient for estimation of ROA under model I, where NPL and CRR are significantly negatively associated and remaining variables are associated non-significantly. Under the model II, coefficient of LLP and ISR are positively associated with ROE determination whereas rest of the variables are negatively associated with CDR and CAR are found to be significant with p-value less than 0.05. Under two regression models, data are best fitted with F-significance having less than 0.01 and also the adjusted R2 explaining almost 85 percent of the information in ROE model. Keywords: CDR, ISR, NPL, LLP, CAR, CRR