Risk and return on common stock investment of commercial banks in Nepal (Himalyan Bank, Everest Bank of Kathmandu and Nabil Bank Limited)

Abstract

The commercial bank plays a vital role in accelerating the temps of growth in developing country like Nepal. It mobilizes the saving of people and then drives them into productive channels. It is through this function that it seems as an index of commercial, industrial and financial stability and growth of the nation. The risk and return on common stock of the banks has to be considered in this respect. But the risk and return on the commercial bank is affected by central bank. So the risk and return is laid down and make more liberal for taking risk in productive sector. The specific objectives are as follows: To examine risk and return on common stock of commercial Banks i.e Himalayan Bank, Everest Bank, Bank of kathmandu and Nabil Bank limited in Nepal.  To assess the volatility of individual stock.  To determine the effect of portfolio on risk and return.  To identify which's bank's stock price is overpriced, under priced and correctly priced.  To test the relationship between risk and return.  To provid relevant suggestions and practical ideas on the basis of finding of the study. Expected return and standard deviation of BOKL is higher than other sample banks with value of 118.53% and 114.63% respectively. Expected return of NABIL is lower than others with the value of 56.78%, Standard of EBL is lower than others with the value of 45.80%. Coefficient of variation measures the risk per unit. CV of common stock of EBL is minimum than other. The minimum CV, the lesser the risk. To earn one unit of return on investor has to bear 0.7452 unit of risk, by investing in EBL. EBL and HBLboth banks have more return and less risk in their own inter bank comparison. In the view point of portfolio risk and return HBL and EBL has highest return of 0.669 and risk an rate of return of BOKL and EBL has low.Investor can earn highest return by holding optimal portfolio of HBL and EBL. Covariance indicates that relationship between stock and market rate of return. In analyses all the covariance between stock of banks market are positive. It indicates that rate of return of all banks are in increasing trend.Beta coefficient of NABIL bank is less than other bank, but more than market beta. All banks expected rate of return is more than required rate ofreturn so the stock is under priced and investor can gain from buying this stock.