Non-Performing assets and profitability analysis of Nepalese commercial banks
Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Department of Management
Abstract
This selective study explores the effect of non-performing assets on the profitability of
commercial banks in Nepalese context. A pooled data of ten commercial banks with 100
observations during the period of 2012 to 2021 has been used for the study. It examines
the relation between the gross non-performing assets and profitability of the bank. The
Pearson’s correlation coefficient indicates negative influence of NPA with the firm’s
profitability reflected by ROA, ROE and NIM. Firm size, deposit and loans are positively
related with these profitability indicators. The multiple regression analysis of nonperforming
assets also shows significant negative relation with respect to bank
profitability (ROA) meaning that when there is a lower non-performing asset of banks,
the return on asset increases. NPA has insignificant negative relation with respect to
shareholders’ return (ROE) and NIM. In contrary, size of the firm and deposit show the
positive correlation with respect to ROA, ROE and NIM. Total loan shows positive
relationship with ROA and ROE and significant negative relationship with NIM. It is
concluded that profitability of Nepalese commercial banks is influenced by nonperforming
assets
and other
covariates
such
as:
bank
size,
deposit
and loans.
The
study implies that banks should adopt new aspects, qualitative and creative young
personnel to create better health and wealth for the banks. Furthermore, banks should
highly re-consider on the appropriate portion of loans and advances on the assets and
management. It should try developing an appropriate recovery policy and investment
policy.
Keywords: Non-performing assets, Profitability, Commercial Banks, Nepal.