Credit management and profitability of commercial canks in Nepal

Abstract

This study investigates the credit management and profitability of commercial banks in Nepal. Secondary data was gathered from commercial banks of Nepal for ten year periods (2013/14-2022/23). This study used correlation and multiple regression analysis to analyze the data. This study shows that the credit risk position in terms of non-performing loan ratio of Nepalese commercial banks performing best or maintaining their NPLs perfectly among them which shows sample banks have low credit risk. Profitability position in terms of ROA and ROE, sample banks could manage their overall operations due to high ratio which means sample banks have generated income and making progressive performance. The correlation analysis concluded that cash reserve ratio has significant positive relation with ROE. Likewise, there is significant positive correlation between credit to deposit ratio with profitability (ROA and ROE). However, non-performing loan ratio has insignificant negative relationship with profitability. Then, leverage ratio has insignificant negative relationship with ROA but significant positive relationship with ROE. Further, bank size has significant negative relationship with profitability of the banks. The multiple regression analysis shows that cash reserve ratio has insignificant negative effect on ROA and significant positive effect on ROE of the banks. Then, credit to deposit ratio has insignificant positive impact on profitability whereas non-performing loan ratio has insignificant negative impact on profitability of the sample banks. Besides these, leverage has significant negative impact on profitability ROA and insignificant positive impact on ROE of the banks. Finally, banks size has significant negative impact on ROA and ROE. Therefore, this study concluded that there is insignificant negative effect on profitability in Nepalese commercial banks.

Keywords: Return on assets, cash reserve ratio, credit to deposit ratio, nonperforming loan ratio and leverage ratio.