Impact of Non-Performing Assets on the Profitability of Commercial Banks in Nepal (With reference Himalayan Bank Limited, Kumari Bank Limited, Standard Chartered Bank Nepal Limited and Everest Bank Limited)
Date
2024
Authors
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Journal ISSN
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Publisher
Shanker Dev Campus
Abstract
This study aims to evaluate the profitability position of commercial banks in Nepal and
analyze the relationship between profitability and non-performing assets (NPAs). Four
commercial banks, Himalayan Bank Limited, Kumari Bank Limited, Standard Chartered
Bank Nepal Limited, and Everest Bank Limited were selected as samples from a
population of 20 commercial banks in Nepal. Correlation and regression analyses were
conducted using Return on Assets (ROA) and Return on Equity (ROE) as dependent
variables and Non-Performing Loan Ratio (NPLR), Interest Rate Spread (IRS), Loan and
Advance Ratio (LAR), and Cash Reserve Ratio (CRR) as independent variables. The
findings revealed a negative correlation between ROA and ROE, attributed to heavy
accumulated profit and optimal capital among sample banks. Additionally, CRR
exhibited a positive correlation with ROA, indicating effective asset management.
However, there was a negative correlation between CRR and ROA. Regression analysis
confirmed these relationships, with an increase in ROE leading to a decrease in the
average influence on ROA. Conversely, an increase in CRR resulted in a higher average
influence on ROA, with statistically significant findings. ANOVA further supported the
negative correlation between ROA and ROE, and model summary results indicated no
multicollinearity among independent variables. The study concludes by highlighting the
importance of understanding these relationships for assessing bank performance in Nepal.