DETERMINANTS OF PROFITABILITY OF NEPALESE DEVELOPMENT BANKS
Date
2024
Authors
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Journal ISSN
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Publisher
Shanker Dev Campus
Abstract
This study investigates the determinants of profitability in Nepalese development banks,
focusing on the role of key factors such as bank capital, deposits, lending, size, and the
CAR. Using secondary data from published financial statements and reports of selected
five banks, the analysis employs correlation and regression methods to examine their
impact on profitability indicators: the ROA, the ROE, and the Tobin's Q, and aims to
provide a comprehensive understanding of how internal and regulatory variables impact
profitability and market valuation. The findings reveal significant variability across the
banks in terms of size, deposits, and lending, with substantial interdependence among
these variables. CAR exhibits a negative relationship with profitability measures,
suggesting that regulatory compliance may impose constraints on banks' profitability.
ROA demonstrates a negative association with bank capital, deposits, lending, and size,
while ROE is positively correlated with ROA, underscoring the alignment between
operational efficiency and shareholder returns. Notably, Tobinās Q shows a weak
relationship with these variables, indicating the influence of external market factors on
market-based valuations, but positively correlates with ROE and ROA. The findings
further highlight the limited explanatory power of the selected financial variables on
profitability metrics, suggesting that while operational factors like bank lending
marginally impact profitability, external and qualitative factors such as market conditions,
customer satisfaction, and technological innovation warrant further investigation. This
research underscores the need for a multidimensional approach to enhancing the
performance of Nepalese development banks. Policymakers are urged to strike a balance
between regulatory compliance and profitability enhancement, while banks should
prioritize efficiency, optimize resource allocation, and embrace technological
advancements to remain competitive.