Determinants of Profitability of Nepalese Commercial Banks

Abstract

ABSTRACT This study entitled ‘Determinants of Profitability of Nepalese Commercial Banks’ is secondary data-based research study. The main aim of this study is to understand the impact and its magnitude of both the bank specific factors (internal factors) as well as macroeconomic factors (external factors) on the profitability of the commercial banks in Nepal. The selected independent variables are bank’s size, capital adequacy, liquidity, operations management efficiency, market concentration, board size, number of independent directors. The study is conducted to analyze whether or not these independent variables have significant impact on the dependent variable profitability i.e. ROA and ROE. Convenience sampling method has been used for the research and the research is quantitative in nature. Data on the mentioned variables has been considered from the period Nepalese fiscal year 2012/13 to 2021/22. Descriptive and causal comparative research design has been adopted to achieve objectives of this study. These approaches has been conducted using Statistical Package for Social Sciences (SPSS). It is revealed from the study that there exist negative relationship between bank size, liquidity, number of independent directors, gross domestic product and inflation with return in assets while there exists positive relationship of market concentration, board size, operations management efficiency, and capital adequacy ratio with return in assets. Among these variables, bank size, capital adequacy ratio and operations management efficiency has significant impact on the return in assets. Moreover, there exists negative relationship between bank size, capital adequacy ratio, liquidity and board size with return on equity while there exists positive relationship of market concentration, operations management efficiency, number of independent directors, gross domestic product and inflation with return on equity. Among these variables, operations management efficiency has significant impact on the return on equity. Keywords: Return on Assets, Return on Equity, Bank’s Size, Capital Adequacy, Liquidity, Operations management efficiency, Market Concentration, Board Size, Number of Independent Directors