1Assistant Professor of Management, Tribhuvan University, Saraswati Multiple Campus, Kathmandu, Nepal
2Department of Management Sciences, Mahatma Gandhi Central University, Motihari, Bihar, India
3Member of Management, Tribhuvan University, Saraswati Multiple Campus, Kathmandu, Nepal
(*Corresponding author) email id: *drsnehachaurasiya@gmail.com
Online Published on 15 January, 2025.
The aim of this study was to examine the relationship between liquidity and the profitability of Nepalese commercial banks. Its primary objective was to investigate the relationship between bank profitability and liquidity. The study also aimed to assess the overall liquidity and profitability conditions as well as the correlation between these institutions’ profitability and liquidity. Profitability was measured using return on equity (ROE) and return on assets (ROA), with profitability being regarded as the dependent variable. Liquidity was considered the independent variable and was measured using the following metrics: capital adequacy ratio (CAR), loan-to-deposit ratio (loan and advance), non-performing loan ratio, and liquidity ratio (CCR). Furthermore, interest rates and GDP were used as control variables. An OLS regression model was used to assess how the independent factors affected profitability. Utilizing secondary data sources, descriptive data analysis, correlation analysis, and regression analysis were performed. The data, which totaled 96 observations, were gathered from the annual reports of eight of Nepal’s twenty commercial banks. SPSS software was used for data analysis. The study’s conclusions showed a negative correlation between profitability and liquidity as measured by ROA and ROE. Liquidity did, however, have a statistically significant impact on ROE and ROA at the 5% significance level, with p-values of 0.032 and 0.005, respectively. The capital adequacy ratio (CAR) had a positive and negative impact on ROA and ROE, respectively. Furthermore, it was discovered that the loan-to-deposit ratio (LDR) had a favorable and statistically significant impact on the profitability of Nepalese commercial banks. More research might look at how macroeconomic variables like interest rate and GDP fluctuations affect the liquidity-profitability relationship in order to validate these results in broader economic scenarios. A larger sample of banks might be included in the analysis as well.
Liquidity, Return on assets, Non-performing loan, Profitability, Return on equity, Capital adequacy ratio, Loan-to-deposit ratio
