IMPACT OF NON-PERFORMING LOANS ON PROFITABILITY OF NEPALESE FINANCE COMPANIES

Abstract

This study investigates the influence of non-performing loans on profitability in Nepalese financial institutions. Secondary data was acquired from Nepalese financing businesses during 10 years (2012/13 to 2021/22). This study employed multiple regression analysis. This analysis demonstrates that SIFC's non-performing loan ratio is the best or maintains their NPLs precisely among them, indicating that SIFC has the finest lending policy. SIFC could manage their whole operations since they had the greatest ROA ratio. However, GFCL the best or most effective management in earning profit among them. The correlation analysis reveals that The correlation analysis shows that credit to deposit ratio has insignificant negative relation with profitability (ROA and ROE) of the finance companies. However, non-performing loan has significant negative relationship with profitability. Then, capital adequacy ratio and inflation rate have negative relationship with profitability of the finance companies. Moreover, size of companies has strong positive relationship with ROA and ROE of the finance companies. The regression analysis reveals that credit to deposit ratio and inflation rate have insignificant positive impact on profitability (ROA and ROE) of the finance companies in Nepal. However, non-performing loan ratio has significant negative impact on profitability (ROA and ROE) of the companies. Moreover, capital adequacy ratio has insignificant negative impact on profitability whereas, size of companies has significant positive influence on profitability (ROA and ROE) in Nepalese finance companies. Hence, it can be concluded that non-performing loan has strong impact on profitability of the finance companies in Nepal.