Examination of Specific Factors of the Form Affecting Profitability of Commercial Banks: A Case from Nepal
This study investigates the determinants of operational performance in Nepalese commercial banks, with a particular focus on the roles of capital adequacy, cost-to-income ratio, and various performance indicators. The study underscores the pivotal role of maintaining an optimal level of capital adequacy and cost-to-income ratio in shaping the profitability of commercial banks.Bank size, nonperforming loans ratio, liquidity position, cost-to-income ratio, capital adequacy, and assets quality all exhibit a positive impact on overall bank performance. Prudent management of capital adequacy and cost-to-income ratio emerges as key factors influencing profitability. Analysis with one-year lagged variables reaffirms the significance of liquidity ratio, capital adequacy, and increased capital ratio in enhancing bank performance, particularly in terms of return on assets. An improved assets quality also contributes to overall bank performance. Effective liquidity management is crucial, emphasizing considerations of liquidity ratio, capital-to-assets ratio, investment-to-asset ratio, and quick ratio. Commercial banks are advised to operate within a threshold level of capital ratio, avoiding excessively high levels that may negatively impact profitability. The study recommends investing in well-trained manpower to enhance operational efficiency and customer service. In the broader economic context, the study highlights the vital role of banks in contributing to the country's development. It calls for strong supervision, monitoring, and the implementation of a one-window service in lending and investment activities. Commercial banks are encouraged to demonstrate their potential contribution to the national economy by ensuring a satisfactory rate of return on investment, efficient mobilization of savings, and strategic competitiveness
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