A Study on Nonperforming Loan Management of Commercial Banks in Nepal

Abstract

The study was conducted with the aim of studying Non-performing loan of commercial bank in Nepal. The study was conducted with reference to Nabil Bank.ltd and Everest Bank .ltd. The main focus of study was to analyze the NPL ratio, trend of NPL ratio, and to investigate the impact of NPL on profitability of commercial bank. NPL is major concern for the commercial bank because the default of loan and interest has resulted major threat to the income of the bank. If the NPL is not managed soon, the commercial cannot escape from the vicious circle of NPL. Non-performing loan are those loan that has been default in the payment of interest and principle. Loan, which payment of interest and principle is not made for more than 3 months is called non-performing loan. In specific contract the term may differ. The rate of NPL in Nepalese banking sector is alarming. Descriptive and Comparative research design has been used for the study. Everest Bank ltd. and Nabil Bank ltd. was used as a sample. The secondary data has been used from the annual report of the both bank. The data analysis tool includes ratio analysis, trend analysis, correlation, regression model, and P-value. The study showed that the NPL ratio was in fluctuating trend. There was increase and downfall of the NPL ratio in this ten year period. There was positive correlation between loan and NPL amount. Both are moving in the same direction. The study showed that there was minimal influence of the NPL on the return on assets. The NPL ratio was insignificant in studying the impact on profitability.