Factors Affecting Profitability in Nepalese Development Banks

Abstract

The purpose of this study was to examine the bank-specific variables influencing Nepal's development banks' profitability. Research using both descriptive and causal comparison methods has been conducted in order to meet the specific goal of the study. Panel data from Nepal's development banks spanning ten years, from 2013–14 to 2022–23, is used in the study. The independent variables include bank size, loan to deposit ratio, equity to asset ratio, cash reserve ratio, and non-performing loan ratio (NPL ratio), whereas the dependent variable is profitability (ROA and ROE), which measures liquidity. We have utilized secondary data for this investigation. One important analytical approach in panel data analysis is ordinary least square regression (OLS). The ratio of loans to total assets and ROA are significantly positively correlated. The size of the bank also affects ROA negatively. The relationship between ROA and the cash reserve ratio, NPL ratio, total equity to assets ratio, and cash reserve ratio is negligible. According to the regression analysis, the independent variable, the size of the bank and cash reserve ratio (CRR), is statistically significant. In addition, loan to deposit ratio (LDR) and equity to assets (ETA) are statistically significant when combined with ROE.