BANKS SPECIFIC FACTORS DETERMINING PROFITABILITY OF NEPALESE COMMERCIAL BANKS

Abstract

The purpose of this study was to examine the variables influencing Nepal's commercial 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 commercial banks spanning ten years, from 2012–13 to 2021–22, is used in the study. The ratio of cash and bank balance to total deposits, cash reserve ratio, total investment to deposit ratio, loan and advance to deposit ratio, and current assets to deposit ratio are the independent variables, and the dependent variable is profitability (ROA and ROE), which measures liquidity. In this study, secondary data was utilized. Panel data analysis was employed, focusing on regression and correlation analysis as the primary tools. The current to deposit ratio showed a significant positive correlation with ROE. Ratios such as cash and bank balance to total deposits, cash reserve, total investment to deposits, and loan and advance to deposits exhibited an insignificant relationship with ROE. The regression results indicated that the loan and advance to deposit ratio and current assets to deposit ratio had a significant positive impact on ROA. Conversely, the cash and bank balance to total deposits ratio, cash reserve ratio, and total investment to deposit ratio had an insignificant negative impact on ROA. Nonetheless, the study found that liquidity significantly affects the profitability of commercial banks. These findings could assist bankers and policymakers in implementing effective strategies to enhance the profitability of financial institutions. Keywords: Profitability, Commercial Banks, ROE, ROA, Liquidity