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Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal

Received: 25 November 2020     Accepted: 4 December 2020     Published: 16 December 2020
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Abstract

Non-performing loan (NPL) is major problem in banking industry. It has play major role for making profit and bank success or failure. The study has examine the effects of non-performing loan on profitability of commercial banks in Nepal with panel data collected from twelve commercial banks of five years from 2013-2014 to 2017-2018 period with the total observations sixty. The multiple regression model has been used to analysis of the data. The Pooled ordinary least square model, fixed effect model and random effect model has been employed to analyzed profitability. The profitability measure by return on equity (ROE) taken as dependent variable whereas non-performing loan (NPL), capital adequacy ratio (CAR), liquidity (LIQ), size of banks (SIZE) and inflation (INF) were independent variables. The result of three different model revealed that the NPL, CAR, LIQ have significant and negatively associated with ROE. Similarly, the SIZE has significant and positive associate with ROE. The INF has positive but insignificant result with ROE. The study concluded that among study variable NPL, CAR, LIQ and SIZE have major role to determine profitability. The INF has does not significantly effect on Profitability. However, the effect of nonperforming loan on profitability very strong. The bankers have sincerely take for the over 90 day's dues. It has rational effect of national economy also.

Published in European Business & Management (Volume 6, Issue 6)
DOI 10.11648/j.ebm.20200606.15
Page(s) 164-170
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Return on Equity (ROE), Non-performing Loan (NPL), Capital Adequacy Ratio (CAR), Liquidity (LIQ), Size of Banks (SIZE) and Inflation (INF)

References
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Cite This Article
  • APA Style

    Bishnu Prasad Bhattarai. (2020). Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal. European Business & Management, 6(6), 164-170. https://doi.org/10.11648/j.ebm.20200606.15

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    ACS Style

    Bishnu Prasad Bhattarai. Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal. Eur. Bus. Manag. 2020, 6(6), 164-170. doi: 10.11648/j.ebm.20200606.15

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    AMA Style

    Bishnu Prasad Bhattarai. Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal. Eur Bus Manag. 2020;6(6):164-170. doi: 10.11648/j.ebm.20200606.15

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  • @article{10.11648/j.ebm.20200606.15,
      author = {Bishnu Prasad Bhattarai},
      title = {Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal},
      journal = {European Business & Management},
      volume = {6},
      number = {6},
      pages = {164-170},
      doi = {10.11648/j.ebm.20200606.15},
      url = {https://doi.org/10.11648/j.ebm.20200606.15},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ebm.20200606.15},
      abstract = {Non-performing loan (NPL) is major problem in banking industry. It has play major role for making profit and bank success or failure. The study has examine the effects of non-performing loan on profitability of commercial banks in Nepal with panel data collected from twelve commercial banks of five years from 2013-2014 to 2017-2018 period with the total observations sixty. The multiple regression model has been used to analysis of the data. The Pooled ordinary least square model, fixed effect model and random effect model has been employed to analyzed profitability. The profitability measure by return on equity (ROE) taken as dependent variable whereas non-performing loan (NPL), capital adequacy ratio (CAR), liquidity (LIQ), size of banks (SIZE) and inflation (INF) were independent variables. The result of three different model revealed that the NPL, CAR, LIQ have significant and negatively associated with ROE. Similarly, the SIZE has significant and positive associate with ROE. The INF has positive but insignificant result with ROE. The study concluded that among study variable NPL, CAR, LIQ and SIZE have major role to determine profitability. The INF has does not significantly effect on Profitability. However, the effect of nonperforming loan on profitability very strong. The bankers have sincerely take for the over 90 day's dues. It has rational effect of national economy also.},
     year = {2020}
    }
    

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  • TY  - JOUR
    T1  - Effects of Non-performing Loan on Profitability of Commercial Banks in Nepal
    AU  - Bishnu Prasad Bhattarai
    Y1  - 2020/12/16
    PY  - 2020
    N1  - https://doi.org/10.11648/j.ebm.20200606.15
    DO  - 10.11648/j.ebm.20200606.15
    T2  - European Business & Management
    JF  - European Business & Management
    JO  - European Business & Management
    SP  - 164
    EP  - 170
    PB  - Science Publishing Group
    SN  - 2575-5811
    UR  - https://doi.org/10.11648/j.ebm.20200606.15
    AB  - Non-performing loan (NPL) is major problem in banking industry. It has play major role for making profit and bank success or failure. The study has examine the effects of non-performing loan on profitability of commercial banks in Nepal with panel data collected from twelve commercial banks of five years from 2013-2014 to 2017-2018 period with the total observations sixty. The multiple regression model has been used to analysis of the data. The Pooled ordinary least square model, fixed effect model and random effect model has been employed to analyzed profitability. The profitability measure by return on equity (ROE) taken as dependent variable whereas non-performing loan (NPL), capital adequacy ratio (CAR), liquidity (LIQ), size of banks (SIZE) and inflation (INF) were independent variables. The result of three different model revealed that the NPL, CAR, LIQ have significant and negatively associated with ROE. Similarly, the SIZE has significant and positive associate with ROE. The INF has positive but insignificant result with ROE. The study concluded that among study variable NPL, CAR, LIQ and SIZE have major role to determine profitability. The INF has does not significantly effect on Profitability. However, the effect of nonperforming loan on profitability very strong. The bankers have sincerely take for the over 90 day's dues. It has rational effect of national economy also.
    VL  - 6
    IS  - 6
    ER  - 

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Author Information
  • Excel Business College, Pokhara University Affiliated, New Baneshwor, Kathmandu & Faculty Member, Patan Multiple Campus, Tribhuvan University, Lalitpur, Nepal

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