CREDIT MANAGEMENT IN NEPALESE DEVELOPMENT BANKS

Abstract

This study investigates the credit management practices of Nepalese development banks, focusing on their impact on financial performance, particularly profitability. The research examines three development banks like Jyoti Bikash Bank Ltd., Garima Bikash Bank Ltd., and Kamana Sewa Bikash Bank Ltd. over a ten-year period from 2013/14 to 2022/23. Utilizing a combination of quantitative analysis and financial ratios, the study assesses key metrics such as the Non-Performing Loan Ratio (NPLR), Loan Loss Provision Ratio (LLPR), Interest income to total loan and advance ratio (INR), Loan and Advance Ratio (L&AR), Capital Adequacy Ratio (CAR), Return on Assets (ROA), and Return on Equity (ROE). The findings reveal a significant negative correlation between NPLR and profitability, indicating that higher levels of non-performing loans adversely affect the banks' financial health. Conversely, a positive relationship is established between LLPR and profitability, suggesting that adequate provisions for potential loan losses enhance overall financial performance. The study highlights the variability in credit management effectiveness among the sampled banks, with Garima Bikash Bank Ltd. consistently demonstrating superior performance compared to its counterparts. Additionally, the research underscores the importance of maintaining a robust capital base to mitigate risks and ensure financial stability. The implications of these findings are far reaching, providing valuable insights for bank management, policymakers, and stakeholders regarding the necessity of effective credit policies and risk management strategies. Ultimately, the study contributes to the understanding of how sound credit management practices can drive profitability and support economic development in Nepal, particularly in underserved communities.