FINANCIAL PERFORMANCE ANALYSIS OF NEPALESE COMMERCIAL BANK: USE OF CAMEL RATING FRAMEWORK
Date
2024
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Shanker Dev Campus
Abstract
This study examines the financial performance of ten commercial banks in Nepal using the
CAMEL model over the period from fiscal years 2013/14 to 2022/23. Through the analysis
of secondary data, the research evaluates various financial indicators including Capital
Adequacy Ratio (CAR), Core Capital Ratio (CCR), Non-Performing Loan Ratio, Loan Loss
Coverage Ratio, Loan Loss Provision Ratio, Management Efficiency Ratio (MER), Earnings
Per Share (EPS), Return on Equity (ROE), Return on Assets (ROA), Cash and Bank Balance
Ratio, and Investment in Government Security Ratio.
The findings suggest that while most banks met regulatory requirements for CAR and CCR,
government-owned banks initially faced challenges but improved gradually. Despite an
initial decrease, non-performing loan ratios are currently increasing, indicating difficulties
in loan recovery and profitability. There’s a noticeable decline in management efficiency
ratios, except for Standard Chartered Bank, suggesting potential issues with staffing and
operational effectiveness.
Earnings quality indicators such as EPS, ROE, and ROA exhibit fluctuating or declining
trends, emphasizing the need for banks to enhance profitability while minimizing costs.
Liquidity management poses challenges, with decreasing trends observed in cash and bank
balance ratios, indicating potential difficulties in meeting short-term obligations. Investment
patterns in government securities fluctuate, underscoring the importance of maintaining
adequate liquidity positions.
The implications drawn from these findings suggest addressing weaknesses in asset quality,
operational efficiency, earnings quality, and liquidity management. Recommendations include improving loan recovery processes, optimizing staffing levels, enhancing profitability,
and maintaining adequate liquidity reserves.
In conclusion, this research offers valuable insights into the financial performance of
Nepalese commercial banks and provides strategic recommendations to enhance their stability, profitability, and overall financial soundness.