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VOL. 6, ISSUE 2 (2024)
Effect of macroeconomic and microeconomic variables on bank performance
Authors
Sudeep Raj Shrestha
Abstract
This study investigates the impact of
macroeconomic and microeconomic variables on bank performance. Using the panel
data from annual reports of 10 Nepal commercial banks and supplementary data on
GDP and interest rates from macroeconomic and financial reports, as well as
monetary policy from the NRBfor fiscal year 2069/70 to 2078/79, a descriptive
and causal-comparative research design was used. Correlation, regression,
analysis of variance (ANOVA), and coefficient of regression were conducted. The
findings conclude that there is a strong negative link between GDP and ROA,
with CAR positively correlated with ROE. CAR and interest rates positively
relate to ROA, while NPL and bank size negatively impact it. NPL especially has
a strong adverse correlation. Interestingly, interest rates weakly correlate
negatively with ROE, while bank size and GDP weakly correlate positively. GDP
is the most influential variable that affects ROA negatively, implying that
higher GDP doesn't guarantee bank profitability due to factors like
competition. While CAR positively influences both ROA and ROE, emphasizing its
importance for sustained bank profitability. Other factors like NPL, bank size,
and interest rates lack statistical significance. While NPL is not
statistically significant in this study, high NPL levels likely have a negative
effect on profitability. Banks should use efficient loan management techniques
to reduce NPL.
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Pages:105-110
How to cite this article:
Sudeep Raj Shrestha "Effect of macroeconomic and microeconomic variables on bank performance". International Journal of Finance and Commerce, Vol 6, Issue 2, 2024, Pages 105-110
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