PORTFOLIO MANAGEMENT AND PROFITABILITY OF DEVELOPMENT BANKS IN NEPAL
Date
2024
Authors
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Journal ISSN
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Publisher
Shanker Dev Campus
Abstract
This study investigates the relationship between portfolio management and the profitability of
development banks in Nepal, with a focus on how effective asset management practices can
influence financial performance. Employing a descriptive research methodology, the study
analyzes secondary data sourced from the annual reports and financial statements of selected
development banks over a ten-year period. The findings reveal a significant positive correlation
between investments in government securities and return on assets (ROA), suggesting that
strategic allocation to these low-risk instruments is instrumental in enhancing profitability.
Conversely, the research uncovers a strong inverse relationship between non-performing loans
(NPLs) and ROA, underscoring the critical need for robust credit risk management practices to
mitigate the adverse effects of high NPLs on financial performance. Additionally, the study
assesses the impact of loans and advances, shares and debentures, and due from other financial
institutions on profitability, indicating that while loans are essential for generating income, their
management must be approached with caution to prevent excessive NPLs that could jeopardize
financial health. The research emphasizes the necessity of diversification in investment portfolios
as a strategic approach to managing risks associated with economic fluctuations and sector
specific downturns. Furthermore, it addresses the various challenges faced by development
banks, including regulatory constraints and limited access to capital markets, which necessitate a
proactive and adaptive approach to portfolio management. Overall, the findings of this study
provide valuable insights into the significance of effective portfolio management practices in
enhancing the profitability and stability of development banks in Nepal, ultimately contributing
to the broader economic development of the country. The study serves as a foundation for further
research in this area, encouraging ongoing exploration of effective portfolio management
strategies within the context of Nepal's dynamic banking sector, and highlights the importance of
strategic investment practices that prioritize risk management and diversification to foster long
term profitability and resilience in the face of economic challenges.