FACTORS INFLUENCING THE PROFITABILITY OF NEPALESE DEVELOPMENT BANKS

Abstract

Profitability is a crucial aspect influencing the growth and sustainability of banks, and effectively managing the trade-off between liquidity and profitability is a paramount concern. This research focuses on assessing the profitability status of Nepalese development banks, exploring their liquidity positions, and investigating the relationship between liquidity and profitability. The study adopts a descriptive research approach, utilizing secondary data extracted from the annual reports of development banks in Nepal and the Nepal Rastra Bank. The analysis employs correlation and regression techniques, using Return on Assets (ROA) and Return on Equity (ROE) to gauge profitability, while Cash in Hand to Total Deposit Ratio (CHTDR), Loan and Advance to Total Deposit Ratio (LATDR), NRB Balance to Total Deposit Ratio (NRBTDR), Liquid Assets to Current Liability Ratio (LACLR), and Current Assets to Total Assets Ratio (CATAR) are used to assess liquidity and profitability positions. The study spans a decade, covering five Nepalese development banks (MNBBL, GBBL, MBBL, JBBL, and KSBBL) from the fiscal year 2012/13 to 2021/22. Results indicate that LATDR exhibits an insignificant relationship with ROA. Conversely, CHTDR, NRBTDR, and CATAR demonstrate significant relationships with ROA, The findings suggest a positive and significant relationship between liquidity, deposits, loans and advances, and profitability across Nepalese development banks during the study period. Keywords: Profitability, ROA, LATDR, Nepalese development bank