Market Interest Rate and Profitability of Commercial Banks in Nepal

Abstract

The main purpose of the study was to examine the interest rates and its impact on profitability of commercial banks in Nepal. This study included interest rate factors (spread rate, liquidity, non performing loan, credit to deposit ratio, total operating efficiency ratio) and profitability factors (return on assets, net interest margin and return on equity) of commercial banks in Nepal. This study used descriptive research design based on quantitative method, secondary sources was used to collect the data, convenience sampling was used and taken sample data of fiscal year (2007/08 to 2016/177 AD) of 10 sample commercial bank in Nepal. The data presented on table and figure, interest rate policy directed by NRB, descriptive statistics, correlation and regression tools were used to analyze the result. SPSS was used to obtained the result. The spread rate was found maintain level directed by NRB for commercial banks in Nepal. The correlation of independent factors and ROA was found very low or negative. Correlation between independent factor and NIM was found strongly positive and significant relationship among the variables. The correlation between ROE and spread rate found negative due to higher negative value of ROE of some sample banks. The model summary showed the change in variation of NIM strongly explained by independent factors. But ROE was little bit explained by independent factors, the p-value for ROA, NIM and ROE was seen less then five percent, the regression model were best fitted. The major findings was that the interest rate spread highly impact on profitability of commercial banks in Nepal rather than other variables. This study may have many implications in future such as it may be a fundamental literature for further research in academic sector as well as professional, social and management sectors, commercial banks in Nepal may formulate strategy plans on the basis of the findings of this study. It may be the legal evidence to the researcher to foster experience, knowledge and skill in further works. Finally it may be implacable for all stakeholders those who concerned with the study.