Impact of Credit Performance on the Profitability of Nepalese Development Banks

Abstract

This study investigates the relationship between credit performance and profitability in Nepalese development banks. Using data from 10 development banks over a 5-year period (2018-2023), we examine the impact of Credit to Deposit Ratio (CDR), Non-Performing Loan Ratio (NPLR), and Capital Adequacy Ratio (CAR) on Return on Assets (ROA) and Return on Equity (ROE). Results show that CDR has a positive effect on profitability, while NPLR has a significant negative impact. Additionally, CAR positively influences both ROA and ROE. These findings highlight the importance of maintaining a robust capital buffer and managing credit risk effectively to enhance profitability in development banks. The study provides useful insights for bank managers and policymakers in Nepal and other emerging economies.