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VOL. 5, ISSUE 2 (2023)
Effects of non-performing loan on profitability of commercial banks in Nepal
Authors
Sagar Sapkota, Indra Chapai
Abstract
Credit default is one of the major issues in
banking industry. This study investigates the effects of non-performing loan on
profitability of commercial banks in Nepal. The study has collected data from
10 commercial banks for the period of 10 years that is from fiscal year 2011/12
to 2020/21. The profitability measure by return on assets (ROA) and return on
equity (ROE) taken as dependent variable whereas non-performing loan (NPL),
capital adequacy ratio (CAR), liquidity (LIQ) and bank size (SIZE) were taken
as independent variable. This study is based on quantitative analysis collected
from secondary sources that is annual reports published in NRB and individual
banks’ website. Pooled Ordinary Least Square model is used to explain
regression result of the secondary data. The results indicated that
non-performing loans, liquidity, and bank size have a significant impact on ROA
and ROE, while the capital adequacy ratio was found to be insignificant. The
study suggests that commercial banks should focus on these factors to improve
financial performance. Therefore the study recommends that commercial banks
should strive to reduce non-performing loans by enhancing their credit risk
management practices. Additionally, they should maintain adequate liquidity levels
to ensure that they can meet their obligation as they fall due. Finally,
commercial banks should consider the optimal size of their operations, which
can positively impact their profitability by reducing cost and enhancing
efficiency
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Pages:76-82
How to cite this article:
Sagar Sapkota, Indra Chapai "Effects of non-performing loan on profitability of commercial banks in Nepal". International Journal of Finance and Commerce, Vol 5, Issue 2, 2023, Pages 76-82
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