FACTORS DETERMINING OPERATIONAL RISK MANAGEMENT IN NEPALESE COMMERCIAL BANKS

Abstract

Operational risk management (ORM) is a systematic approach that organizations use to identify, assess, control, and mitigate risks arising from their day-to-day operations. It focuses on managing the risks associated with people, processes, systems, and external factors that can disrupt business operations or cause financial losses. The major objective of the study is to analyze the determinants of operational risk management practices in commercial banks in Nepal. The specific objectives are to examine the determinants of operational risks management practices and financial performance in commercial banks in Nepal and to analyze the relationship between independent variables (capital adequacy ratio, gearing ratio, liquid assets and non-performing loan ratio) and dependent variable (Operational efficiency). The research design utilized in this study is quantitative in nature and cross sectional information gathered from chosen business bank site; secondary data regarding operational risk management have been taken in order to examine the relationship. The bank internal selected variables taken into consideration are capital adequacy ratio, non- performing loan ratio, operating efficiency and loan to deposit ratio. The operational risk management are operating efficiency ratio which is assumed to dependent variable. This research is based on the recent historical data, so simply it is a historical research. It covers the data from 2012/13-2021/22. Various statistical and financial tools have also been used for analysis of research. The research employed a descriptive financial analysis to outline, quantify, compare, and categorize the operational risk management practices of Nepalese commercial banks. Additionally, it utilized an econometric multivariate regression model to evaluate the impact of various variables on the operational risk management of these banks. The study found that the beta coefficients for capital adequacy ratio are positive with operating efficiency. It indicates that the capital adequacy ratio has a positive impact on operating efficiency. Likewise, the beta coefficients for Non-Performing Loan are positive with operating efficiency. It indicates that NPL has a positive impact on operating efficiency. Similarly, the beta coefficients for liquid assets are positive in xi relation to operating efficiency, suggesting that liquid assets positively influence operating efficiency. Moreover, the beta coefficients for gearing ratio are positive with operating efficiency. It indicates that the gearing ratio has a positive impact on operating efficiency. similarly, the beta coefficient for inflation is positive. It indicates that inflation has a positive impact on operating efficiency.