EFFECT OF CREDIT EXECUTION ON THE PROFITABILITY OF COMMERCIAL BANKS IN NEPAL

Abstract

This thesis explores the effect of credit execution on the profitability of commercial banks in Nepal. It delves into credit management practices, risk assessment, credit allocation, and the role of credit information bureaus in the Nepalese banking context. The study aims to identify gaps in the literature and establish a conceptual framework for empirical investigation. The primary objective of this study was to evaluate the impact of credit risk on the profitability of commercial banks in Nepal. The study used variables such as Credit Deposit Ratio (CDR), Non-Performing Loans (NPL), and Capital Adequacy Ratio (CAR) as independent variables. At the same time, Return on Assets (ROA) and Return on Equity (ROE) served as dependent variables. A quantitative research approach was employed by leveraging secondary financial data from 2013/14 to 2022/23. Descriptive and explanatory research designs were applied, and data analysis was performed using descriptive statistics and multiple linear regression models through SPSS software. The study's findings demonstrated the critical role of effective credit risk management in enhancing the profitability of commercial banks. Notably, non-performing loans (NPL) were found to have a negative impact on profitability. However, this effect was not statistically significant, while the Capital Adequacy Ratio (CAR) showed a statistically significant positive influence. This study emphasizes the significance of implementing prudent credit risk management practices, including assessing borrowers' creditworthiness, managing non-performing loans, and maintaining adequate capital reserves. It recommends that commercial banks in Nepal fortify their credit risk management frameworks to sustain and improve their financial performance. These findings contribute valuable insights into the financial dynamics of Nepalese commercial banks, underscoring the pivotal role of credit risk management in their profitability.