Capital Adequcay and its Impact on Profitability of Commercial Banks in Nepal

Abstract

This study aimed at examining the impacts of capital adequacy of commercial banks in Nepal. The Descriptive research design has been adopted for the study. The study used a secondary data for six commercial bank for the period 2010/11 to 2019/20have been analyzed using different financial ratios and statistical tools. Data is obtained from banks annual report and Nepal Rastra Banks annual supervision report.ROA and ROE is taken as profitability indicator and capital adequacy ratio, debts-equity ratio, government security investment ratio and non-performing loan ratio are determinants of profitability.The overall criteria to evaluate the banking profitability as a whole. It doesn’t only consider the best part of the risk but it assumes what is the impact of capital adequacy ratio and evaluate the banking profitability in term of risk-weighted assets as a whole. Based on the finding, it is recommended that the banks should safe investment based on capital adequacy ratio, make optimum capital adequacy, improvement on quality of investment and liquidity by mitigate the risk because it gives the life to the institutions for the coming days. They should also focus on their assets quality to ensure their existence in long run. The liquidity position of the sample banks should meet its current and contingent obligations. The correlation coefficient shows the positive and negative impact of the dependent and independent variables. The correlation coefficient between CAR, GSTIRNPLR and D/E ratio which shows that there is negative correlation with ROA and ROE.AAR is positively correlated with ROA and ROE.