A COMPARATIVE STUDY OF LOAN MANAGEMENT ON NEPALESE COMMERCIAL BANKS
Date
2024
Authors
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Journal ISSN
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Publisher
Shanker Dev Campus
Abstract
This study provides an analysis of loan management and profitability at Nepal Investment
Mega Bank Ltd. (NIMBL), Kumari Bank Ltd. (KBL), and Agricultural Development Bank
Ltd. (ADBL), identifying errors in their credit risk management practices and suggesting
corrective measures. Loan management, which encompasses both on-balance sheet and offbalance sheet activities, aims to maximize the bank's risk-adjusted rate of return while keeping
credit risk within acceptable limits. This study examines the relationship between various
financial variables, including the credit deposit ratio (CDR), non-performing loan ratio
(NPLR), cash reserve ratio (CRR), capital adequacy ratio (CAR), bank size (SIZE), return on
assets (ROA), and return on equity (ROE).
Using both descriptive and causal research designs, data from annual reports and official
websites for the period 2011/12 to 2020/21 were analyzed through financial ratios, descriptive
statistics, correlation analysis, t-statistics, and multiple regression analysis. The findings
revealed that ADBL demonstrated the most consistent asset growth and maintained a CDR
below the 80% threshold. NIMBL also kept its CDR under 80%. ADBL had the highest
average NPLR at 4.61%, while KBL had the lowest at 1.90%, indicating superior loan
management by KBL. All three banks met the capital requirements set by NRB. ADBL
exhibited lower liquidity risk and earned more from asset utilization, whereas NIMBL's
investors saw higher returns from equity investments.
The study concludes that credit flow was consistent across the banks during the study period.
While early years showed higher NPL ratios, adequate provisions mitigated credit risk.
Profitability, measured by ROA and ROE, remained stable. The analysis found positive
relationships between ROA and variables CDR, NPLR, CRR, CAR, and SIZE, with CRR and
CAR being statistically significant. Conversely, CDR, NPLR, CAR, and SIZE had negative
relationships with ROE, with CRR showing a positive relationship.
Keywords: Credit Deposit Ratio, Non-Performing Loan Ratio, Cash Reserve Ratio, Capital
Adequacy Ratio, Bank Size