Impact of Banking Sector Development on Economic Growth of Nepal

Abstract

The study examines the impact of banking sector development on economic growth of Nepal. Gross domestic product and per capita income are the dependent variables. The selected independent variables are credit to deposit ratio, bank deposit, bank credit, interest rate, number of branches, total assets and number of employees. The study is based on secondary data of 15 commercial banks with 120 observations for the study period from 2014/15 to 2021/22. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB), Ministry of Finance (MoF) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of banking sector development on economic growth of Nepal. The study showed that credit to deposit ratio has a positive impact on gross domestic product and per capita income. It means that higher the credit to deposit ratio, higher would be the gross domestic product and per capita income. Similarly, bank deposit has a positive impact on gross domestic product and per capita income. It means that higher the bank deposit, higher would be the gross domestic product and per capita income. Likewise, bank credit has a positive impact on the gross domestic product and per capita income. It means that higher the bank credit, higher would be the gross domestic product and per capita income. Further, total assets have positive impact on gross domestic product and per capita income. It means that higher the total assets, higher would be the gross domestic product and per capita income. In addition, number of branches have positive impact on gross domestic product and per capita income. It means that larger the number of branches, higher would be the gross domestic product and per capita income. Moreover, number of employees have positive impact on gross domestic product and per capita income. It means that higher the number of employees, higher would be the gross domestic product and per capita income. In contrast, interest rate has a negative impact on gross domestic product and per capita income. It means that higher the interest rate, lower would be the gross domestic product and per capita income.