COMPARATIVE FINANCIAL ANALYSIS OF COMMERCIAL BANKS IN NEPAL ON THE BASIS OF CAMEL FRAMEWORK

Abstract

The study evaluated the financial performance of five commercial banks in Nepal for ten year period from 2013/2014 to 2022/2023 based on Camel rating approach. The study used the secondary data sourced from the annual reports of the selected banks. CAMEL approach is a tool to measure the bank performance on the basis of Capital adequacy, Asset quality, Management quality, Earning Quality and Liquidity. The collected data were analyzed using both financial and statistical tools. The financial tools used to rate the overall performance of the bank, while correlation coefficient and multiple regression models were used to measure the impact of Camel elements on profitability i.e. ROA and ROE. Financial ratio analysis compares the financial performance among commercial banks; the same bank had different outcomes under the different financial ratios. As per the CAMEL analysis model, the finding of the study revealed that EBL bank stood on the top followed by NIBL and SCBL banks, while NBL bank stood the least position among the selected banks. The correlation analysis revealed that ROA had a positive correlation with Non-performing loan (NPL), Earning per Share (EPS) and Liquid Assets to Total Assets (LATTA) which signifies that it helps to increase the profitability of bank. While Capital Adequacy Ratio (CAR), Operating Expenses to Operating Income (OETOI) had negative correlation with Return on Assets (ROA). Likewise, Return on Equity (ROE) positive correlation with Non-performing loan (NPL), Earning per Share (EPS). Where Capital Adequacy Ratio (CAR), Operating Expenses to Operating Income (OETOI) and Liquid Assets to Total Assets (LATTA) were negatively correlated. The regression analysis showed that Non-performing loan (NPL), Operating Expenses to Total Operating Assets (OETOI), Liquidity Assets to Total Assets (LATTA) had no significant relationship with the selected banks' performance in terms of Return on Assets (ROA). On the other hand Capital Adequacy Ratio (CAR) and Earning per Share (EPS) ratio was found to be significant relationship to the performance of the bank. While Earning per Share (EPS) had significant relationship with the selected bank's performance in terms of Return on Equity (ROE) and other ratios were found to be insignificant relationship to the performance of the bank at 5% significance level. The finding of this study will be helpful in the management of selected banks in making appropriate managerial decision.