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Outline

Title
Abstract
Figures
Background
Objectives of the Study
Review of Literature
Hypotheses of the Study
Relevancy of the Study
Methodology
Universe of the Study
The Sample and Sampling Design
Data Collection Method
Data Analyzing Model
Findings and Discussions
Regression Analysis
Conclusion
References

Capital Structure and Profitability of Commercial Banks in Nepal

Profile image of Sahadev BhattaSahadev Bhatta

2020, Account and Financial Management Journal

https://doi.org/10.33826/AFMJ/V5I5.01
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9 pages

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Abstract

This study seeks to examine the relationship between the capital structure and the profitability of commercial Banks in Nepal. In this connection, 18 Nepalese commercial banks were selected as study samples and their financial data were gathered from NRB BI Statistics and Bank Supervision Report for the period of 2010-2019. Return on Equity was used as indicator of profitability while short term debt, long term debt, deposits and total debt to assets ratio were used as a proxy of capital structure along with the control variables of bank size and assets growth. Results showed that more than 40 percent bank profitability measured by return on equity is predicted by the explanatory-capital structure variables. It is also revealed that return on equity is insignificantly positively related with long term debt and deposits whereas it is insignificant negative with short term debt and total debt. In all regression models, profitability is significantly positively related with banks size indicating that larger the size of the bank, higher is the return for shareholders.

Figures (8)
Table 2.1 Variables used in the Study 2.5 Data Analyzing Model The purpose of this research is to study the relationship between capital structure and profitability of the commercial banks therefore quantitative method is used in order to make the results successful. Secondary data is analyzed using quantitative method of linear regression using dependent and independent along with the control variables to measure the relationship of profitability and capital structure. Both descriptive and inferential statistics are used to summarize and to answer the research problem. The t-test is used to test the significance of the model at 5% level of significance. The following regression models (Abor, 2005, Gill, 2011 and Shubita, 2012) are estimated:- The purpose of this research is to study the relationship
Table 2.1 Variables used in the Study 2.5 Data Analyzing Model The purpose of this research is to study the relationship between capital structure and profitability of the commercial banks therefore quantitative method is used in order to make the results successful. Secondary data is analyzed using quantitative method of linear regression using dependent and independent along with the control variables to measure the relationship of profitability and capital structure. Both descriptive and inferential statistics are used to summarize and to answer the research problem. The t-test is used to test the significance of the model at 5% level of significance. The following regression models (Abor, 2005, Gill, 2011 and Shubita, 2012) are estimated:- The purpose of this research is to study the relationship
Table 3.1 Descriptive Statistics The ROE measures the contribution of net income per rupee invested by the firms’ stockholders. It is a measure of the efficiency of the owners’ invested capital. The average profitability proxied by Return on Equity (ROE) is 9.37 percent. This result reveals that the shareholders of commercial banks in Nepal earned on average 9.37 percent net profit on equity capital. The leverage represented by the average short term debt ratio (STDR) of Nepalese commercial banks is found to be 11.19 percent and this indicates commercial banks are financed (leveraged) with short term debt at approximately Rs.11 per Rs.100 financing whereas long term financing averaged 0.59 percent. This fact attested that the Nepalese commercial banks are highly reluctant in utilizing long term debt in their capital structure. Further, deposit ratio (DR) constitutes the largest portion (78.84 percent) of assets financing and the average total debt assets (DA) ratio is 90.63 percent. The highest debt assets ratio for a bank in a particular year was 105.10 percent and in the same way the minimum ratio for a bank in a year was 69 percent. From the summary of statistics it was observed that 90.63 percent of the total capital of commercial banks in Nepal in the period under study was made up of debt. Of this, 78.84 percent constitute deposit and the remaining was non-deposit liabilities. This result suggests that Nepalese commercial banks are highly levered. The mean of the firms’ size which was represented by the natural log of book value of total assets was Rs.10.4219 million with a standard deviation of Rs. 0.5892 million. Total assets for the sample
Table 3.1 Descriptive Statistics The ROE measures the contribution of net income per rupee invested by the firms’ stockholders. It is a measure of the efficiency of the owners’ invested capital. The average profitability proxied by Return on Equity (ROE) is 9.37 percent. This result reveals that the shareholders of commercial banks in Nepal earned on average 9.37 percent net profit on equity capital. The leverage represented by the average short term debt ratio (STDR) of Nepalese commercial banks is found to be 11.19 percent and this indicates commercial banks are financed (leveraged) with short term debt at approximately Rs.11 per Rs.100 financing whereas long term financing averaged 0.59 percent. This fact attested that the Nepalese commercial banks are highly reluctant in utilizing long term debt in their capital structure. Further, deposit ratio (DR) constitutes the largest portion (78.84 percent) of assets financing and the average total debt assets (DA) ratio is 90.63 percent. The highest debt assets ratio for a bank in a particular year was 105.10 percent and in the same way the minimum ratio for a bank in a year was 69 percent. From the summary of statistics it was observed that 90.63 percent of the total capital of commercial banks in Nepal in the period under study was made up of debt. Of this, 78.84 percent constitute deposit and the remaining was non-deposit liabilities. This result suggests that Nepalese commercial banks are highly levered. The mean of the firms’ size which was represented by the natural log of book value of total assets was Rs.10.4219 million with a standard deviation of Rs. 0.5892 million. Total assets for the sample
Table 3.3 Coefficient for Predictors of Profitability and Model Summary 1 Table 3.2 provides the Pearson correlation for the variables that we used in the regression model. We found that the bank’s profitability measured by return on equity is positively correlated with the long term debt and deposit ratio whereas it is negative for short term and total debt. Similarly, there is positive relation size and all types of debt ratios except the deposits. This fact implies that a larger bank tends to use more debt by reducing dependency in deposits. Moreover it was also found that there is significant positive relation between size and profitability and significant negative relation between growth and total debt. relationship between short term debt and return on equity. However the profitability is significantly (p= 0.001< 0.05) positively related with control variable of size. Regression model summary | tests our first hypothesis and we fail to reject the null hypothesis concluding that there is no relationship between short-term debts and return on equity of Nepalese commercial banks. The R square measures the extent to which the explanatory
Table 3.3 Coefficient for Predictors of Profitability and Model Summary 1 Table 3.2 provides the Pearson correlation for the variables that we used in the regression model. We found that the bank’s profitability measured by return on equity is positively correlated with the long term debt and deposit ratio whereas it is negative for short term and total debt. Similarly, there is positive relation size and all types of debt ratios except the deposits. This fact implies that a larger bank tends to use more debt by reducing dependency in deposits. Moreover it was also found that there is significant positive relation between size and profitability and significant negative relation between growth and total debt. relationship between short term debt and return on equity. However the profitability is significantly (p= 0.001< 0.05) positively related with control variable of size. Regression model summary | tests our first hypothesis and we fail to reject the null hypothesis concluding that there is no relationship between short-term debts and return on equity of Nepalese commercial banks. The R square measures the extent to which the explanatory
Table 3.2 Correlations Matrix banks in the study period were ranged from Rs.9.25 million to Rs.11.51 million. Similarly, the banks’ total assets have an average growth rate of 24.16 percent for the ten years of study period. The asset growth ranges approximately from 4 percent (minimum growth rate) to 102 percent (maximum erowth rate). The results show no collinear variables because no correlation exceeds 0.8 as reported in table 3.2. The majority of the correlations correspond to the findings in capital structure literature.
Table 3.2 Correlations Matrix banks in the study period were ranged from Rs.9.25 million to Rs.11.51 million. Similarly, the banks’ total assets have an average growth rate of 24.16 percent for the ten years of study period. The asset growth ranges approximately from 4 percent (minimum growth rate) to 102 percent (maximum erowth rate). The results show no collinear variables because no correlation exceeds 0.8 as reported in table 3.2. The majority of the correlations correspond to the findings in capital structure literature.
Table 3.4 Coefficient for Predictors of Profitability and Model Summary 2
Table 3.4 Coefficient for Predictors of Profitability and Model Summary 2
Table 3.5 Coefficient for Predictors of Profitability and Model Summary 3 ** Significant at the 0.05 level The R square values obtained in Table 3.5 showed that the
Table 3.5 Coefficient for Predictors of Profitability and Model Summary 3 ** Significant at the 0.05 level The R square values obtained in Table 3.5 showed that the
Table 3.6 Coefficient for Predictors of Profitability and Model Summary 4 ratio and return on equity of Nepalese commercial banks. The R square values obtained in Table 3.6showed that the
Table 3.6 Coefficient for Predictors of Profitability and Model Summary 4 ratio and return on equity of Nepalese commercial banks. The R square values obtained in Table 3.6showed that the

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Impact of Bank Specific Factors on Profitability of Nepalese Commercial Banks
Kishor Hakuduwal

Tribhuvan University Journal, 2021

This paper aims to investigate the impact of bank specific factors unprofitability of Nepalese commercial banks. Total assets, total deposit, total loan and advance and total equity are taken as independent variables and return on assets is taken as dependent variable. The study is based on pooled least square method. The seven years’ panel data from 2012 to 2018 is taken for the study. Taking 112 observations from sixteen commercial banks, the regression result, F-test and t-test are used for analysis. The study found that the total assets and total loan and advance have positive significant impact on profitability of Nepalese commercial banks. The study also revealed that the total equity has not significant impact and deposit has negative significant impact on profitability of commercial banks in Nepal. The study has important implications for the policy makers of Nepalese commercial banks to utilize their assets, loans, deposits properly and equity for sound profitability.

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