NON-PERFORMING ASSETS AND PROFITABILITY OF

NEPALESE COMMERCIAL BANKS

By:

SARITA KOIRALA

Shaheed Smriti Multiple Campus

T.U. Registration No: 7-2-278-722-2009

Exam Roll No: 2390054

A Thesis Submitted to

Office of Dean

Faculty of Management

Tribhuvan University

In partial fulfilment of the requirement for the degree of

Master of Business Studies (MBS)

Ratananagar, Chitwan

May, 2023

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 RECOMMENDATION

This is to certify that the thesis

Submitted by:

SARITA KOIRALA

Entitled:

NON-PERFORMING ASSETS AND PROFITABILITY OF NEPALESE

COMMERCIAL BANKS

has been prepared as approved by this department in the prescribed format of the Faculty of
Management. This thesis is forwarded for examination.

…………………….
Vikash Upadhyaya
(Thesis Supervisor)

Date:

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 VIVA – VOCE SHEET

We have conducted the viva-voce examination of the thesis

Submitted by:

SARITA KOIRALA

Entitled:

NON-PERFORMING ASSETS AND PROFITABILITY OF NEPALESE

COMMERCIAL BANKS

and found the thesis to be original work of the student and written according to the prescribed
format. We recommend the thesis to be accepted as partial fulfilment of requirements for the
Master's Degree in Business Studies (M.B.S.)

Viva-Voce Committee

Master Degree Programme Co-ordinater ------------------------------------------

Member (Thesis Supervisor) -------------------------------------------

Member (External Expert) -------------------------------------------

Date:

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 DECLERATION

I hereby declare that the work in this thesis entitled, Non-Performing Assets of Nepalese
Commercial Banks submitted to Shaheed Smriti Multiple Campus, Chitwan Faculty of
Management. Tribhuvan University, is my original work done in the form of partial
fulfilment of the requirement for the Master of Business Studies under the supervision of Mr.
Vikash Upadhyaya.

Sarita Koirala

Date: ……………………………

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 ACKNOWLEDGEMENTS

The assistance and cooperation of many people allowed for the completion of the current
study.
As a result, I would like to sincerely thank every one of the replies for their assistance and
support. I would like to sincerely thank Khimananda Aryal, the chairperson of the research
committee, and my respected supervisor Vikash Upadhyaya. I would like to extend my
gratitude to the Shaheed Smriti Multiple Campus library personnel and administrative staff
for their assistance in the writing of this thesis. I owe a debt of gratitude to the entire Central
Library personnel of T.U. Kirtipur.
Finally, I would want to express my deep gratitude to my parents, instructors, friends, and
seniors for their constant support, encouragement, and conducive environment that helped me
finish this study.

Sarita Koirala

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 ABSTRACTS

This focused study investigates how non-performing assets affect commercial banks'
profitability in the setting of Nepal. For the study, a pooled dataset of ten commercial banks
with 100 observations from 2012 to 2021 was employed. It investigates the connection
between the bank's profitability and its gross non-performing assets. The NPA has a negative
link with the firm's profitability as measured by ROA, ROE, and NIM, according to the
Pearson correlation coefficient. These profitability measures are positively correlated with
firm size, deposits, and loans. The multiple regression study of non-performing assets also
reveals a substantial inverse relationship between bank profitability (ROA) and non-
performing assets, indicating that the return on assets rises when non-performing assets
decline in banks. NPA has a negligible relationship with shareholders' return on equity (ROE)
and net income (NIM). However, there is a positive association between company size and
deposit and ROA, ROE, and NIM. Total loan demonstrates a substantial inverse link with
NIM and a strong positive relationship with ROA and ROE. It is concluded that non-
performing assets and other factors, such as bank size, deposit, and loans, have an impact on
the profitability of Nepalese commercial banks.

According to the report, banks should employ fresh ideas, talented young people, and creative
processes to improve their health and wealth. Banks should also carefully reassess the proper
proportion of loans and advances relative to assets and management. It ought to try creating a
suitable investment and recovery policy.

Keywords: Non-performing assets, Profitability, Commercial Banks, Nepal.

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 TABLE OF CONTENTS
Page no.
Title Page i
Recommendation ii
Viva Voce Sheet iii
Certificate of Authorship iv
Acknowledgements v
Abstract vi
Table of Content vii
List of Table ix
List of Figures x
List of Abbreviation xi

CHAPTER I: INTRODUCTION 1-6

1.1 Background of Study 1
1.2 Statement of the Problems 2
1.3 Objectives of the Study 4
1.4 Significance of the Study 5
1.5 Limitation of the Study 5
1.6 Organization of the Study 6

CHAPTER II: LITERATURE REVIEW 7-27

2.1 Conceptual Framework 7
2.2 Review Of Related Studies 21
2.3 Research Gap 26

CHAPTER III: RESEARCH METHODOLOGY 28-38

3.1 Background 28
3.2 Research Design 28
3.3 Population and Sample 28
3.4 Types and Source of Data 32
3.5 Method of Analysis 33
3.6 Conceptual framework and definition of variables 35

CHAPTER IV: PRESENTATION OF DATA 39-47

4.1 Descriptive Statistics 39
4.2 Correlation Analysis 40
4.3 Regression Analysis 41
4.4 Concluding Remarks 45
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4.5 Major Findings 46

CHAPTER V: SUMMARY, CONCLUSION AND RECOMMENDATIONS 48-51

5.1 Summary 48
5.2 Conclusion 49
5.3 Recommendations 50

BIBIOGRAPHY 52-55
APPENDIX 56-63

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 LIST OF TABLES
Page No.
Table 2.1 Classification of loan and advances 11
Table 3.1 Selection of Banks, Period of study and Number of Observation 29
Table 3.2 Variables and their measurements 35
Table 4.1 Descriptive Statistics 40
Table 4.2 Correlation Matrix for the dependent and independent variable 41
Table 4.3 Estimated regression results of return on assets (ROA) and its 42
determinants
Table 4.4 Estimated Regression Results of Return on Equity (ROE) and its 43
determinants
Table 4.5 Estimated regression results of net interest margin (NIM) and its 44
determinants

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 LIST OF FIGURES

Page No.

Figure 3.1 Conceptual framework showing factors influencing profitability 36

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 LIST OF ABBREVIATIONS

ANOVA : Analysis of Variance

BFI : Bank and Financial Institution
EBL : Everest Bank Ltd.
EPS : Earnings per Share
GDP : Gross Domestic Product
HBL : Himalayan Bank Ltd.
KBL : Kumari Bank Ltd.
Laxmi : Laxmi Bank Ltd.
MBL : Machapuchre Bank Ltd.
NBL : Nepal Bank Ltd.
NCCBL : Nepal Credit and Commerce Bank Ltd.
NIBL : Nepal Investment Bank Ltd.
NIM : Net Interest Margin
NPA : Non-Performing Assets
NSBI : Nepal SBI Bank Ltd.
POLS : Pooled Ordinary Least Square
ROA : Return on Assets
ROE : Return on Equity
SBI : State Bank of India
SCBL : Standard Chartered Bank Ltd.
SPSS : Statistical Package for the Social Sciences
TA : Total Assets
TD : Total Deposit
TL : Total Loan

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