Empirical analysis of the financial performance of commercial banks in Nepal

Abstract

The main purpose of this study is to analyze the financial performance of commercial banks in Nepal. For this purpose, panel data was used by employing monthly data from July 2011 to October 2016. Among the 28 commercial banks in Nepal, 25 commercial banks were taken as the sample. To carry out the study, the commercial banks were categorized into three groups, notably: Government Owned Banks, Joint Venture Banks and Domestic Banks. Three multivariate regression models were developed to test the effect of endogenous variables on the profitability of commercial banks. According to the findings of the study, Domestic banks were found to have better Return On Assets (ROA) and Return On Equity (ROE) trends, whereas Joint venture banks have higher ROA and ROE mean. Government owned banks were found to have the highest performing Net Interest Margin (NIM). The result from ANOVA test indicated significant mean differences on ROA and NIM, but no significant mean difference on ROE among the three categories of commercial banks in Nepal. The findings from regression analysis show that the ratios related to asset quality, management quality, earning capacity were statistically significant with ROA. In addition, ratios related to capital adequacy, earning capacity showed a significant impact on ROE. Except capital adequacy, all ratios related to CAMEL model are statistically significant to NIM.