Competitive position and trend analysis of commercial banks in Nepal

Abstract

To find out the trend and competitive position of commercial banks in Nepal by analyzing capital adequacy ratio and assets composition ratio. Different descriptive statistical tools such as mean, percentage and ratios were used to analyze and interpret the data. Review of various articles and collection of secondary data through the websites of Nepal Rastra Bank. Analysis showed that more than 50 percent commercial banks have low capital adequacy ratio and the newly operating private commercial banks had higher assets composition ratio than the other commercial banks."According to the conventional wisdom in banking, a higher capital-to-assets ratio is associated with lower profitability" Berger (1995). On the other hand, if increasing loans lead to higher funding requirements, a negative impact of the loan ratio on the banks profitability may accrue. Empirical evidence of the impact of loan portfolio diversification on bank profitability also remains inconclusive and suggests that banks face a tradeoff between diversifying and focusing their loan portfolio. Newly operating commercial banks had high assets composition ratio. Very high assets composition ratio may also not be beneficial to the banks because of loan issues i.e. if that loan is not recovered in time, it causes low profit. Government-owned banks had lowest assets composition ratio of all the banks. Newly operating commercial banks had high assets composition ratio. Government-owned commercial banks had lowest assets composition ratio, while the private sector commercial banks had highest assets composition ratio.