The Consequence of Credit Performance and Capital Adequacy: Evidence from Commercial Banks in Nepal

  • Bijay Gopal Shrestha Tribhuvan University
  • Damodar Niraula Nesfield International College
Keywords: credit performance, capital adequacy, Nepalese commercial banks, non-performing loan, return on assets

Abstract

Following random effect GLS model, this study aims at examining the consequence of credit performance and capital adequacy of Nepalese commercial banks. For the analysis, the balanced panel data of 19 commercial banks have judgmentally been selected and used. The researcher took credit to deposit ratio (CDR), interest rate spread (IRS), non-performing loan ratio (NPLR) and capital adequacy ratio (CAR)  as the predictors of profitability measured by return on assets (ROA) of the banks. The results indicate that the study predictors are significant in defining variation on ROA. The variables CDR and NPLR have significant negative impact on ROA. In contrast, the predictors IRS and CAR have positive consequence on ROA. However, the relationship between CAR and ROA is statistically insignificant. Results of the study can contribute as an important input to regulatory body in developing policy so as to make banking operation effective.

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Author Biographies

Bijay Gopal Shrestha, Tribhuvan University

Professor

Damodar Niraula, Nesfield International College

Faculty

Published
2021-03-01
How to Cite
Shrestha, B., & Niraula, D. (2021). The Consequence of Credit Performance and Capital Adequacy: Evidence from Commercial Banks in Nepal. The Batuk, 7(1), 1-12. https://doi.org/10.3126/batuk.v7i1.35334
Section
Part I: Management Science