Determinants of Nepalese Commercial Banks' Profitability

Abstract

The research highlights the most important factors influencing the profitability of Nepalese commercial banks, considering the non-performing loans (NPL), operating efficiency ratio (OER), capital adequacy ratio (CAR), inflation (INF), gross domestic product (GDP), and bank size (SIZ) factors. Using both descriptive and causal comparative research designs, a thorough analysis of the secondary information collected from the audited statements of six studied commercial banks in Nepal, including government, private, and joint venture banks, and the country’s economic surveys for FY 2013/14 to FY 2022/23 will be conducted. Statistical parameters like descriptive statistics, correlation analysis, multivariate regression models, and financial parameters like return on assets (ROA) and return on equity (ROE), were employed. The findings show that the capital adequacy ratio (CAR) is positively related to ROA and has a moderate relationship, while non-performing loans (NPL) and operating efficiency ratio (OER) have weak negative relationships with ROA and ROE. GDP is negatively related to ROE with a strong relationship. Bank size and inflation have no significant relationships with profitability. The study points to the business facts for banks to construct their buffers of capital and enhance operations and for policymakers to monitor macroeconomic indicators like GDP, to improve the profitability as well as the financial solidity of the Nepalese banking sector.