Credit Management of Nepal Bank limited

A Dissertation Submitted to the Office of the Dean, Faculty of Management

in Partial Fulfillment of the Requirements for the
Master’s Degree

By
Ankita Adhikari
Exam Roll No: 7894/18
T.U. Reg.: 7-2-580-4-2013
Mahendra Multiple Campus, Dharan

Dharan, Nepal
December, 2023
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Certification of Authorship

I, hereby, corroborate that I have researched and submitted the final draft of the dissertation
entitled “Credit Management of Nepal Bank Limited”. The work of this dissertation has
not been submitted previously for the purpose of conferral of any degrees nor it has been
proposed and presented as part of requirements for any other academic purposes.

The assistance and cooperation that I have received during this research work have
been acknowledged. In addition, I declare that all information sources and literature used
are cited in the reference section of the dissertation.

Name of the Candidate Ankita Adhikari

Signature .………………….

Date of submission 2023/12/22

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TRIBHUVAN UNIVERSITY
Mahendra Multiple Campus, Dharan
Faculty of Management

MANAGEMENT RESEARCH COMMITTEE

Report of Research Committee

Ms. Ankita Adhikari has defended the research proposal entitled “Credit management of
Nepal Bank Limited” successfully. The research committee has registered the dissertation
for further progress. It is recommended to carry out the work as per the suggestions and
guidance of the supervisor Prof .Dr. AK Jha and submit the thesis for evaluation and viva
voce examination.

Name of Supervisor Prof .Dr . AK Jha Dissertation Proposal defended date

Post Professor 2023/09/23
Signature ……………………

Name of Supervisor Prof. Dr. AK Jha Dissertation submitted date

Position Professor 2023/12/22
Signature ………………

Name of Head Prof. Dr. Ashok Kumar Jha Dissertation Viva-voce date
Management Research Committee 2023/12/29
Signature …………………

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TRIBHUVAN UNIVERSITY
Mahendra Multiple Campus, Dharan
Faculty of Management

MANAGEMENT RESEARCH COMMITTEE

Approval Sheet

We have examined the dissertation entitled “Credit Management of Nepal Bank Limited”
presented by Ankita Adhikari for the degree of Master of Business Studies (MBS). We
hereby certify that the dissertation is acceptable for the award of a degree.

_______________
Signature
Name : Prof. Dr. Ashok Kumar Jha Post Professor
Dissertation Supervisor

_______________
Signature
Name : Ganga Prasad Chaulagain Post Lecturer
Internal Examiner

________________
Signature
Name : Min Bahadur Karki
External Examiner

________________
Signature
Prof. Dr. Ashok Kumar Jha
Chairperson, Research Committee
Date: 2023/12/29

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Acknowledgement

The research dissertation was written in partial fulfilment of the requirements for the degree
of Master of Business Studies (M.B.S.) as per guidelines of the Faculty of Management,
Tribhuvan University, Kathmandu, Nepal.

First and foremost, I would like to express my sincere appreciation to the thesis
supervisor .Prof. Dr. AK Jha, for his invaluable guidance, support, encouragement and
insights leading to the writing of the thesis.

I would like to pay gratitude and thanks to the Hon. Chairman of the Research
Committee Prof. Dr. Ashok Kumar Jha for proper guidance and suggestions during
proposal and thesis writing. My sincere thanks also go to my graduate research committee
members for their patience and understanding during the period of efforts that went into
the production of the thesis paper.

I shall remain obliged to all respected teachers and faculties for their continuous
guidance and support while completing my Master of Business Studies (MBS). I would
like to thank the campus librarian and administrative staff of the campus for their support
during the period of thesis work. The work presented in this report has been carried out at
Mahendra Multiple Campus, Dharan. The academic support from the college is gratefully
acknowledged.

I am grateful to my parents for their concern and endless encouragement. Every

time I feel tired, I will get energized by the thought of their love and support.

Finally, I extend my gratitude to my friends who have shared their laughter and
tears with me. They have made the past year a wonderful and enriching experience.

Special thanks also to the American Psychological Association for the book many
of the examples used in this sample research paper have been quoted.

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Table of Contents

Contents Page
Title page
Certification of Authorship ii
Report of Research Committee iii
Approval Sheet iv
Acknowledgement v
Table of Contents vi
List of Table viii
Abbreviations ix

Chapter I: Introduction 1
1.1 Background of the Study 1
1.2 Problems Statement 3
1.3 Objectives of the Study 4
1.4 Research Hypothesis 4
1.5 Rational of the Study 4
1.6 Limitation of the Study 5
1.7 Organization of the Study 6
Chapter II: Literature Review 8
2.1 Theoretical Review 8
2.1.1 Concept of Credit 10
2.1.2 Evaluation of Credit 10
2.1.3 Credit Policies and Procedures 12
2.1.4 Credit Management Strategies 13
2.1.5 Concept of Credit Management 14
2.1.6 Credit Management Strategies 15
2.2 Empirical Review 16
2.2.1 Review of Articles 16
2.2.2 Review of Thesis 19
2.3 Research Gap 23
Chapter III: Research Methodology 25
3.1 Introduction 25
3.2 Research Design 25

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3.2.1 Nature and Sources of Data 26

3.2.2 Population and Sample 26
3.2.3 Data Collection and Processing Techniques 27
3.2.4 Tools for Analysis 27
3.2.4.1 Financial tools 27
3.2.4.2 Statistical tools 30
3.3 Conceptual Framework 32

Chapter IV: Results and Discussion 36

4.1 Analysis of Credit Management of Nepal Bank Limited 36
4.1.1 Capital Adequacy Ratio 36
4.1.2 Non-Performing Loan Ratio 38
4.1.3 Cost Per Loan Asset Ratio 39
4.1.4 Cash Reserve Ratio 40
4.1.5 Bank Size 41
4.2 Profitability Ratio 42
4.2.1 Return on Equity 42
4.2.2 Return on Assets 43
4.2.3 Return on Loan and Advances 44
4.3 Correlation Analysis 45
4.4 Analysis of Impact of Variables on Profitability 47
4.4.1 Analysis of ROA on CAR, NPL, CLA, CRR and BS 47
4.4.2 Analysis of ROE on CAR, NPL, CLA, CRR and BS 49
4.5 Major Findings 51
4.6 Discussion 54

Chapter V: Summary and Conclusions 56

5.1 Summary 56
5.2 Conclusions 57
5.3 Implications 58
References 60-63
Appendix 64 -67
Dissertation Proposal 68-81
Plagiarism 82-83

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LIST OF TABLES

Table Title Page

4.1 Capital Adequacy Ratio 37

4.2 Non-Performing Loan Ratio 38

4.3 Cost Per Loan Asset Ratio 39

4.4 Cash Reserve Ratio 40

4.5 Bank Size 41

4.6 Return on Equity NBL 43

4.7 Return on Assets NBL 44

4.8 Return on Loan and Advances Ratios NBL 45

4.9 Correlation Matrices between Variables 46

4.10 Model Summary 47

4.11 Analysis of Variance (ANOVA) 48

4.12 Regression Results of ROA on Independent Variables 48

4.13 Model Summary 49

4.14 Analysis of Variance (ANOVA) 50

4.15 Regression Results of ROE on Independent Variables 51

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Abbreviations

CLA = Corporate License Agreement

NPLR = Non-Performing Loan Ratio

NRB = Nepal Rastra Bank

NBL = Nepal Bank Limited

CRM = Customer Relationship Management

GDP = Gross Domestic Product

NPL = Non-Performing Loan

SCBNL = Standard Chartered Bank Nepal Limited

BOK = Bank of Kathmandu Limited

SBI = State Bank of India

HBL = Himalayan Bank Limited

NPA = Non-Performing Asset

NWR = Non-Work Related

EPS = Earnings Per Share

PER = Price Earnings Ratio

ANOVA = Analysis of Variance

SPSS = Statistical Package For The Social Sciences

CPLA = Cost Per Loan Assets

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Chapter I: Introduction

1.1 Background of the Study

The term bank credit refers to the amount of credit available to a business or
individual from a banking institution in the form of loans. Bank credit, in this way, is the
aggregate sum of cash an individual or business can get from a bank or other monetary
establishment. A borrower's bank credit relies upon their capacity to reimburse any
credits and the aggregate sum of credit accessible to loan by the financial establishment.
Sorts of bank credit incorporate vehicle advances, individual credits, and home loans
(Pandey, 2009). The credit of commercial banks refers to the ability of these banks to
extend loans and provide financial resources to individuals, businesses, and other entities.
This credit is typically granted based on the bank's assessment of the borrower's
creditworthiness, which includes factors such as their income, assets, and repayment
history. By offering credit, commercial banks play a crucial role in stimulating economic
growth by facilitating investment, consumption, and business expansion.
Acknowledge is by and large characterized as a legally binding understanding in
which a borrower gets something of significant worth now and consents to reimburse the
bank sometime in the not too distant future, for the most part with revenue. Now and
then, it might try and include crediting somebody, for example. The individual or
business's creditworthiness or credit history is another term for credit. It likewise alludes
to a bookkeeping section that either diminishes resources or builds liabilities and value on
an organization's monetary record (Wagner, 2012). Acknowledge is controlled as the
most pay creating resource, particularly in business banks. Acknowledge is viewed as the
core of business banks as in it possesses an enormous volume of exchanges; it is the
principal part of speculation; a large portion of the venture exercises depend using a credit
card; it is the fundamental variable for accomplishing productivity; it is the principal
wellspring of making benefit; it decides benefit. It influences the general economy of the
country. In the present setting, it additionally influences the public economy similarly.
Customer loyalty will be bolstered if the retailer receives credit from the bank.
Essentially, assuming credit offices are given to exchange and industry, the public
authority will get charges from them, which will assist with animating the public
economy. It serves as protection from depositors. It is demonstrated all along that credit is
the investor's abundance augmentation subsidiary. In any case, different elements can
likewise influence productivity and abundance amplification, yet the best component is

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viewed as credit. It is the most difficult occupation since it is the foundation of three
business banks. Consequently, viable administration of credit ought to be truly thought of.
The board is the framework that assists with finishing each task actually. Credit the board
is likewise a framework that oversees credit really. As such, credit the board alludes to
the administration of credit openings emerging from advances, corporate securities, and
credit subordinates. Credit openings are the primary wellspring of interest in business
banks, and the profit from such ventures should be the fundamental type of revenue.
According to Balla (2013), credit management strongly recommends analyzing and
managing credit risks. Acknowledge risk is characterized as the likelihood that a
borrower will neglect to meet its commitments as per the settled upon agreements. Credit
risk isn't confined to loaning exercises alone however incorporates cockeyed sheet and
interbank investigations. Credit risk management aims to keep a bank's credit risk
exposure within acceptable limits while maximizing the risk-adjusted rate of return. For
most banks, advances are the biggest and most clear wellsprings of credit risk;
nonetheless, different wellsprings of credit risk exist all through the exercises of a bank,
remembering for the financial book and in the exchanging book, and both are
progressively confronting credit risk in different monetary instruments other than land,
including acknowledgments, interbank exchanges and certifications, and the repayment of
exchanges (Pradhan, 2017). The credit strategy of a firm gives the system to decide if to
expand credit and how much credit to broaden. The credit strategy choices of a bank have
two expansive aspects: credit norms and credit examination. A fire needs to lay out and
involve principles in settling using a credit card choices, foster proper wellsprings of
credit data, and foster a strategy for credit examination (Brigham, 2009).
Credit management at commercial banks in Nepal refers to the processes and
strategies implemented by these banks to effectively manage and control the credit
extended to borrowers. This includes assessing the creditworthiness of potential
borrowers, setting appropriate terms and conditions for loans, monitoring loan repayment,
and taking necessary actions in case of default. The primary objective of credit
management is to minimize the risk associated with lending while maximizing
profitability for the bank. Credit management is the main function of a commercial bank.
However, credit management is a difficult task. Credit is associated with enormous risks.
In the banking sector, this type of risk is sometimes referred to as "credit risk." As per
Gieseche's (2014) assertion, credit risk refers to the possibility of unforeseen fluctuations
in counterparty’s credit quality during a financial transaction. Failure on the part of a
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counterparty or borrower to fulfill obligations under an agreement can result in financial

loss and negatively impact the bank's financial performance. A credit risk is the
possibility of a debt default, which might increase if a borrower doesn't make the required
payments. The bank bears the risk of principal and interest loss, disruption of cash flows,
and higher collection expenses. Additionally, credit risk can also lead to a decrease in the
bank's overall liquidity and solvency. It is crucial for banks to carefully assess and
manage credit risk through thorough due diligence and monitoring of borrowers'
creditworthiness to mitigate potential losses and maintain financial stability.

1.2 Problem Statements

Credit management refers to the process by which commercial banks assess,

monitor, and control the risks associated with lending money to borrowers. It involves
various activities such as evaluating the creditworthiness of potential borrowers, setting
appropriate interest rates, establishing credit limits, and implementing effective collection
strategies. Additionally, credit management also involves continuously monitoring the
financial health of borrowers and taking the necessary actions to mitigate any potential
risks or defaults. The ongoing circumstance has carried ferocious rivalry to the financial
business. The achievement and disappointment of a money organization to a great extent
rely upon the complete credit risk the executives and execution of banks. Credit risk
alludes to the likelihood of misfortune because of the borrower's inability to make
installments on an obligation. Banks ought to deal with their liquidity issues to limit risk.
Bhattarai (2016) led research on the impact of credit the board on the exhibition of Nepal
bank Restricted, and they found that non-performing advance proportion adversely affects
bank execution, while CLA, bank size emphatically affects bank execution, and Vehicle
and CRR are not considered to impact bank execution. The following questions can be
answered by examining the bank's current performance in this study: What are the capital
sufficiency and resource nature of the tested banks?
a. What is the credit management and performance of Nepal bank limited?
b. What is the impact of CAR, NPLR, CLA, CRR and bank size on ROA of Nepal
bank Limited?
c. What is the impact of CAR, NPLR, CLA, CRR and bank size on ROE of Nepal
bank Limited?
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1.3 Objective of the Study

Objectives in research refer to the specific goals or aims that a researcher sets out
to achieve through their study. These objectives outline the purpose and direction of the
research, guiding the researcher in their data collection, analysis, and interpretation. The
fundamental objective of this study is to analyze the financial performance analysis of
three commercial banks in the framework of CAMEL. The specific objectives of the
study are given below:
d. To examine the credit management and performance of Nepal bank limited.
e. To measure the impact of CAR, NPLR, CLA, CRR and bank size on ROA of
Nepal bank Limited.
f. To analyze the impact of CAR, NPLR, CLA, CRR and bank size on ROE of
Nepal bank Limited.

1.4. Research Hypothesis

Research hypotheses refer to specific statements or predictions that are formulated

to guide a research study. These hypotheses are based on existing theories, observations,
or previous research findings and aim to test the relationship between variables or
determine the impact of certain factors on a particular phenomenon. They provide a clear
direction for the research and help in formulating research questions, designing
experiments, collecting data, and analyzing results. By formulating research hypotheses,
researchers can systematically investigate and contribute to the existing knowledge in
their field of study. The research hypothesis will be as follows.
H1: There are significant correlations of CAR, NPLR, CLA, CRR and bank size on
ROA and ROE of Nepal bank Limited.
H2: There is significant impact of CAR, NPLR, CLA, CRR and bank size on ROA
and ROE of Nepal bank Limited.

1.5 Rational of the Study

The success of any organization is fundamentally linked to how well the

organization manages risk. The banking sector involves many risks, which need to be
handled promptly for the survival and growth of the institution. This study provides
important information to a wide range of stakeholders into the primary concerns of banks
and the bank's activities for their management, since its major purpose is to analyze credit
risks and their management in accordance to NRB directives and measures. The key
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stakeholders who are going to be, for the most part, expedited by this analysis include:
This analysis can be extremely beneficial to the business banks under consideration.
a. This analysis highlights the existing credit management strategies, NRB credit risk
management recommendations, and the organization's fundamental compliance
with such recommendations, among other things. Additionally, NBL is capable of
recognizing not just their performance but also the ideas around their strengths and
flaws.
b. People with a great interest in the financial and economic sectors of Nepal will
gain from this. This investigation will provide an associate-level understanding of
the structure of credit management patterns at intervals of the NRB criteria is
provided by this investigation.
c. This research paper will be helpful to policymakers since it outlines the problems
with credit risk management and explains why new rules need to be created or old
ones modified.
d. The credit risks associated with these banking businesses will benefit all parties
involved, including investors, depositors, and borrowers.

1.6 Limitation of the Study

Limitations in research refer to the factors or constraints that may affect the
validity, reliability, or generalizability of the findings. These limitations can arise from
various sources, such as methodological issues, sample size limitations, time constraints,
funding limitations, or even ethical considerations. It is important for researchers to
acknowledge and address these limitations in order to provide a comprehensive
understanding of the study's outcomes and implications.
a. The end result of the study is a personal effort. Therefore, management of
resource mobilization will limit the in-depth study of credit analysis except other
factors of the study.
b. The study is predicated on the study of secondary knowledge. Furthermore,
secondary data are obtained in a relatively short period of time. Therefore, any
changes in the general reading, ideas, and behavior of the individuals before and
once the amount won’t be enclosed within the study.
c. In this investigation, certain financial comparison tools have been employed.
Therefore, the shortcomings and weaknesses of such techniques might negatively
impact the study's findings.
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d. The study has been performed through the analysis of monetary statements printed
and given by the banks. Therefore, generalization of the complete banking system
cannot be achieved.
e. The secondary data of 10 years has been taken from the sample bank, i.e., from
2012/13 to 2021/22.One sample commercial banks will be taken as sample for the
study (i.e NBL).

1.7 Organization of the Study

Organization of a study refers to the systematic arrangement and structure of its

components. It involves determining the logical sequence and flow of information, as
well as the division of the study into distinct sections or chapters. This helps to ensure
that the study is coherent, easy to follow, and effectively communicates its purpose,
objectives, methodology, findings, and conclusions. The organization of the study will be
as follows.

Chapter I: Introduction
The first chapter will provide the introduction of banking, background of the
study, an introduction to sample banks, concept of Credit management, Focus of study,
Statement of problem, Objective of the study, limitations of the study
Significance/Importance of the study and organization of the study.

Chapter II: Review of Literature

Chapter II will cover the conceptual framework, as well as an overview of
relevant and related literature. This chapter's conceptual examination of relevant
literature offers a framework that has enabled the study to be completed.

Chapter III: Research Methodology

This chapter will contain the research methodology used in the study which
includes Research Design, Population and Sample, Nature and Source of Data, Data
Analysis Tools.

Chapter IV: Results and Discussions

The acquired data will be analyzed and presented through the way of designed
methodology in this chapter to accomplish the research objective. It will include
Presentation and Analysis of Data, Capital Adequacy, Management Quality, Earning,
Liquidity, major Findings.
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Chapter V: Summary, and Conclusion

The last and fifth chapter will discuss summary, conclusion and implications of
the overall study. At the end an extensive bibliography and appendices are also included
as a part of the research work.
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Chapter II: Literature Review

The review of literature could be a crucial facet of the design of the study. During
this chapter, focus has been created on the abstract framework and therefore the review of
literature relevant to the credit and profitablity of commercial banks in
Nepal. It's supported by obtainable literature within the field of analysis. For this purpose,
it has to review connected literature on the subject, which enables the researcher to
achieve clear concepts, opinions, and ideas on what different people have said. What is
the difference made? and what different have written? 'These all
and different connected queries are reviewed that have provided helpful inputs during
this analysis work. Each potential effort has been created to get data and
knowledge that's obtainable from libraries, document assortment
centers, different managing bureus, printed and unpublished journals, and reports of
involved banks. Since loans provide the majority of banks' revenue and are the source of
interest, credit risk is essential to their profitability. The performance of banks might
likewise be seriously threatened by credit risk. As a result, a wide range of scholars have
looked at how credit risk affects banks in different ways (Wolff & Pant, 2012). A
literature review can be used for the following purposes:
a. Recap the previously published literature on the subject to give context for your
work.
b. Sort the research into several categories and show how it has evolved over time by
providing historical context (such as early research findings) when appropriate and
outlining more recent advancements in a field.
c. Identify the prevailing viewpoints and make clear the points of agreement and
disagreement among the subject-matter experts.
d. Analyze prior research and note any gaps (i.e., areas that are either under- or over-
researched). By highlighting how your study differs from other studies in the field,
you may support your findings.

2.1 Theoretical Review

A theoretical review is an examination and analysis of existing theories and

concepts related to credit management. It involves critically evaluating the strengths,
weaknesses, and gaps in the existing body of knowledge to identify areas for further
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research or development on credit management. This type of review aims to provide a

comprehensive understanding of the theoretical foundations and frameworks that
underpin credit management, offering insights and suggestions for future studies or
practical applications. Credit management refers to the practice of overseeing and
controlling a company's credit policies and procedures. It involves evaluating the
creditworthiness of customers, setting credit limits, monitoring payment terms, and
ensuring timely collection of outstanding debts. Effective credit management helps
businesses minimize the risk of bad debts, improve cash flow, and maintain healthy
customer relationships. Additionally, it plays a crucial role in maintaining a company's
financial stability and profitability (Pradhan, 2017).
Credit management at commercial banks refers to the process of assessing,
monitoring, and controlling the risks associated with lending money to borrowers. It
involves evaluating the creditworthiness of potential borrowers, setting appropriate loan
terms and conditions, and implementing strategies to minimize the likelihood of default.
Additionally, credit management also includes activities such as credit analysis, loan
documentation, debt recovery, and ongoing portfolio management.
Sectors of credit management at commercial banks include retail banking,
corporate banking, and small business banking. In retail banking, credit management
focuses on assessing the creditworthiness of individual consumers and granting personal
loans or credit cards. In corporate banking, credit management involves evaluating the
financial health of businesses and providing them with loans or lines of credit for their
operations. Small business banking entails managing the credit risks associated with
lending to small businesses and supporting their growth and development.
Credit management is a financial exposure resulting from a bank’s dependence on
another party (counterparty) to perform an obligation as agreed (National Bank of
Ethiopia 2010). The main sources of credit management include lending to individuals
and businesses, issuing credit cards, and providing loans for various purposes, such as
mortgages or car financing. Additionally, credit management also involves assessing the
creditworthiness of borrowers, monitoring repayment schedules, and implementing
strategies to minimize the risk of default. Low capital and liquidity levels, directed
lending, extensive bank licensing, unstable interest rates, inadequate management,
improper legislation, inadequate credit rules, and subpar credit evaluation are some of the
factors that contribute to limited institutional capability (Richard, 2013).
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2.1.1 Concept of Credit

The amount of money lent to the borrower as security by the creditor is known as
credit. Credit is the total amount of money that a bank lends (Shekher & Shekher, 2016).
Credit and advances is a big item on the asset side of a commercial bank's balance sheet.
One of the main sources of income for banks is interest earned on credits and advances.
In order to avoid adding bad debts and negatively affecting profitability, the bank creates
a credit portfolio (Pandey, 2009).
Risky assets must be created and managed as part of credit administration.
Lending takes into account the personnel and infrastructure needed for term-setting,
documentation, distribution, administration of outstanding loans, and workouts, in
addition to the review and approval of loan requests. Setting objectives and goals for
lending operations and allocating available money to various lending functions, such as
commercial, installment, and mortgage portfolios, require knowledge of the process and
understanding of its strengths and shortcomings (Karki, 2016).
A necessary component of loan management is the banking industry and its
transactions, and the banking industry's methodology is crucial to this management.
Numerous topics are taken into consideration and deliberated upon; these include loan
flow policies, loan flow documentation, loan administration, loan audits, loan renewals,
loan conditions and security provisions, capital and interest payment provisions, and other
related procedures. Healthy competitive activities greatly benefit from this management
(Bhandari, 2014).
It is crucial to remember that declining loan and advance values account for the
majority of bank failures worldwide. Thus, credit risk, or default risk, refers to the
possibility that a loan may not be repaid (Dahal, 2017). Credit risk may be reduced or
managed with the use of portfolio management, which distributes the risk over several
portfolios. Don't put all your eggs in one basket are the motto that guides these credit risk
management strategies (Bhattarai, 2018).

2.1.2 Evaluation of Credit

Because it contributes to ensuring the loan's quality, this is a very delicate step. To
put it simply, the lender's confidence in the borrower's capacity to make payments is the
basis for granting credit (credit worthiness). A borrower's capacity and willingness to pay
off debt determines their credit worthiness. This is only one of many factors that
influence what should be included in a lender's credit rules. Many different financial
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models are used to assess the deficit units' creditworthiness. The five financial analysis
tools—character, capital, capacity, condition, and collateral—are the most often utilized.
The five C's of credit are the common name for these instruments. Maharaja, 2004.
i. Character. As indicated by Machiraju (2004), character connotes the client's
readiness and determination to settle their obligation. When the lender talks to
the borrowers one-on-one and examines the borrowers' debt history as well as
their financial management and business operations, character is typically
established. Character is viewed as the most significant of the five c's since
refusal to do an expected level of investment will prompt an unmistakable
instance of moral risk.
ii. Capacity. Limit is a quantitative monetary investigation to conclude whether
the clients have the ability to repay what they have taken. As indicated by
Machiraju (2004), limit is the capacity of the borrower to produce cash from the
general activities to pay for the advances given. Limit is vital to the
moneylender since it fills in as a type of confirmation that the credit can be
recuperated.
iii. Capital. Capital is additionally alluded to as the total assets, which addresses
finances put away to provide food for unforeseen misfortunes. Hence, it fills in
as a pad for the business. The loan specialist is extremely keen on the capital
ampleness of the borrower. ( Machiraju, 2004).
iv. Conditions. Conditions are outward factors that can affect the credit
arrangement of a business. This can appear as financial approaches winning in
the nation and the global market at large. Banks will be in a protected position
on the off chance that they think about the impacts of the financial
circumstances on both the borrowers and themselves (Machiraju, 2004).
v. Collateral. According to Machiraju (2004), collateral is the property that a
lender provides in exchange for a loan. It fills in as protection for the
moneylender when the borrower can't settle their obligation. Guarantee is
viewed as protection against default, yet it isn't prudent for a moneylender to
give out credits in light of security. Credit officials shouldn't just think about
these 5c's, yet to acquire a superior comprehension of how to examine the credit
risk factors, a few head financial determinants that control the presentation of a
credit portfolio and the effect these monetary elements have on each other not
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entirely set in stone. These variables incorporate expansion, loan fees, Gross
domestic product, and the market worth of guarantee.

2.1.3 Credit Policies and Procedures

The credit and risk department is not the only organization that manages credit
policies. Any staff members who interact with clients in any capacity must be aware of
the credit policy and make sure it is applied consistently. Credit rules need to be
monitored, disseminated throughout the company, put into practice using the proper
processes, and then updated on a regular basis to account for evolving internal and
external conditions.

They have to be implemented at the level of individual affiliates as well as on a

consolidated bank basis where necessary. Furthermore, the policies have to include the
crucial role of reviewing in an equitable manner. The state of the economy and a
company's credit policies have a major impact on the amount of accounts receivable it
has. The financial manager, of course, has little control over the state of the economy. But
just as with other current assets, the management may adjust the amount of receivables to
balance risk and profitability. Settling for the status quo may invigorate request, which,
thusly, ought to prompt higher beneficial receivables as well as a more serious gamble of
terrible obligation (Bhalla, 2012).

The credit and assortment approaches of one firm are not free of those of different
firms. Other organizations' credit and assortment practices will affect one's own, gave that
the item and capital business sectors are sensibly aggressive. Such practices connect with
the valuing of the item or administration and should be seen as a feature of the by and
large serious interaction. The assessment of specific approach factors suggests that the
serious cycle is represented in the determination of the interest capability as well as in the
open door cost related with taking on extra receivables. The strategy factors incorporate
the nature of the exchange accounts acknowledged, the length of the credit time frame,
the money markdown, any extraordinary terms like occasional dating, and the assortment
program of the firm. Together, these components generally decide the typical assortment
time frame and the extent of awful obligation misfortunes (Afroz, 2013).

Loaning tasks are center financial exercises and the most productive resources of
credit foundations. Credit management is defined as the process of overseeing and
controlling the credit extended to borrowers. It involves assessing the creditworthiness of
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borrowers, setting appropriate credit limits, monitoring repayment schedules, and taking
necessary actions in case of default. Effective credit management is crucial for
minimizing credit risk and ensuring the financial stability of the institution. Credit
management defines the efficacy of a commercial bank's operations. The number and
assortment of clients, as well as the volume of credit exchanges, have as of late expanded
decisively, requiring the execution of undeniable gamble the executives frameworks. The
most dynamic work is being finished to make units for surveying and overseeing credit
risk in retail and private companies. Banks should work in many business sectors in a
monetary climate portrayed by the presence of true obstructions to great credit the board,
exhibiting the significance of fortifying this sort of administration. Banks, then again, as
often as possible need laid out credit the board. Credit management is a subset of
economic activity that requires extensive knowledge of decision-making techniques,
insurance, psychology, and other areas. A commercial bank's credit policy is the
foundation for all credit management. It lays out genuine principles and boundaries for
bank representatives accountable for credit arrangement, handling, and the executives.
Assuming the credit strategy is accurately formed, carried out, and comprehended at all
levels of the bank, it permits the executives to keep up with legitimate principles for bank
advances to stay away from pointless dangers and accurately survey business
improvement potential open doors (Brigham, 2012).

2.1.4 Credit management Strategies

The process of developing risky bank lending policies, including the identification
of fundamental objectives and approaches to achieving them, is known as strategic credit
management. The selection and implementation of an organization's objectives and
strategies is referred to as strategic management. The bank's three primary vital objectives
— development, security, and improvement — decide how effective credit system the
executives is. To accomplish the bank's essential points and targets in credit the
executives, the way of thinking and motivation behind the bank, the general credit
technique, and the credit strategy are, as we would see it, the apparatuses of key credit the
board. The most useful way to deal with key credit the board is to characterize essential
credit arrangements and inclinations for banking exercises as per the picked advancement
way. The course of vital credit the executives can be separated into a few stages,
including characterizing the bank's credit reasoning and mission, gathering an
investigation of outer and inward factors impacting the credit framework, arranging
 14

decisively for the ideal conditions encompassing the doled out unsafe positions, picking a
credit procedure and making credit strategies connected with that credit, and making
execution systems (Horcher, 2016).

From the time a loan agreement is signed until it is fulfilled, the credit risk of a specific
borrower is monitored. Business conditions can be troublesome and unusual, which
makes them essential since they could influence the borrower's ability to reimburse what
is happening. In financial practice, various basic standards of looks at are worked, for
instance: intermittent checking of a wide range of credits; really looking at every one of
the basic states of each credit understanding; successive checking of significant credits,
and so forth. Banks should continually further develop risk the executives to forestall
disintegration in the nature of their resources. In conclusion, we would like to emphasize
that the growth of risk management in Russian banks encourages compliance with the
requirements imposed by Basel and the Bank of Russia. The advancement of hazard the
board implies both the improvement of authoritative and useful designs and the expansion
in the nature of the executives, as well as the presentation of current frameworks of ID,
estimation, assessment, and checking of different kinds of chance (Kargi, 2018).

2.1.5 Concept of Credit Management

Credit management is the strategy your business uses to prevent late payments or
client defaults. A proactive, ongoing process of risk identification, loss assessment, and
planned credit extension risk mitigation is the foundation of every successful credit
management plan. A credit management strategy enhances performance, safeguards cash
flow, and lessens the likelihood that a default may negatively affect your company.
Situations involving late payments and payment defaults occur much too
frequently; it is imperative for your company's financial stability to reduce them. The
sustainability of your company may be directly threatened by customers who either delay
or refuse to pay their invoices, which is why a credit management system is crucial. It
might be difficult for many firms to accurately assess and monitor the creditworthiness of
new clients. Furthermore, customer risk management becomes much more complicated
when doing business with overseas clients since it can be challenging to understand and
depend on data that other nations use to determine creditworthiness.

Overcoming the obstacle is essential. Customer nonpayment accounts account for

one out of every five small-to-medium business bankruptcies. Non-payment events can
 15

nevertheless wipe out revenues and stymie expansion plans, even though larger and
medium-sized organizations may be better equipped to handle a bad debt loss than
smaller ones. By employing effective credit management techniques, you may assist your
organization in receiving the funding it is due and ensuring long-term business continuity.
Efficient policies enable commercial banks to optimize both the volume and quality of
their investments, which in turn helps them accomplish their goals of societal welfare and
profit maximization. The forces of economic progress are propelled ahead by the
development of sensible investment plans and by organized, well-planned activities. As
financial entities, commercial banks carry out a variety of internal tasks. Among them,
providing credit is considered the most important one. Commercial banks issue credit in
the form of loans and investments to create demand deposits, which make up the majority
of the money supply.

2.1.6 Credit Management Strategies

Credit the board systems are strategies banks take on to relieve or lessen the adverse
consequences of credit risk. An extensive credit the executives structure is fundamental in
light of the fact that, as expressed, it helps increment income and endurance. A few
methodologies for forestalling credit incorporate the accompanying (Radhaswamy and
Vasudevan, 2012).
i. Selection. A sound CRM starts with a legitimate selection of borrowers and the
items that suit them. Effective risk-estimating models and competent loan officers are
necessary for this to be possible. This is an exceptionally significant stage since choices
are taken by the whole council. Here, borrowers that are probably going to default are
either denied or requested to protect the advance with more security to restrict the impact
of default.
ii. Limitation. By minimizing a borrower's loss, this strategy benefits the bank. It
forestalls the occasion where the disappointment of the counterparty to meet their
commitment will vigorously influence the monetary exhibition of the bank. The quantity
of more hazardous exchanges is kept to a base (Richard, 2013).
iii. Diversification. Banks ought to manage different counterparties, going from
people to ventures. This helps spread the gamble across different borrowers so that banks
can lessen the effect of misfortunes. It is considerably more useful for enormous and
global banks.
 16

iv. Credit Enhancement. A bank acknowledges it is presented to an excess of

chance while managing a specific sort of borrower; it tackles this by obtaining an
insurance contract to cover any future misfortunes. Through this, the nature of the credit
office is moved along. It is called credit risk alleviation. These methods do not completely
eliminate credit risk; notwithstanding, they can diminish the degree of credit risk the
banks are presented to. What's more, this will expand the productivity of the banks.

2.2 Empirical Review

Empirical review refers to a systematic and objective evaluation of existing

research studies and data to draw meaningful conclusions. It involves analyzing and
synthesizing empirical evidence from various sources to gain insights into a specific topic
or research question. This process helps researchers identify patterns, trends, and gaps in
knowledge, ultimately contributing to the advancement of scientific understanding in a
particular field.

2.2.1 Review of Articles

A critical evaluation and analysis of the existing literature or research papers on a

particular subject is referred to as a review of articles. It includes methodicallly analyzing
and summing up the key discoveries, philosophies, and contentions introduced in
different articles.
Raad (2015) investigated the credit policies of Bangladeshi commercial banks.
Credit risk the board covers the recognizable proof, estimation, matching relief, checking,
and control of credit risk openings. The specialist utilized auxiliary information
connecting with the monetary status of Premise Bank Ltd. furthermore, did an exhaustive
outline of CRM in an alternate period of the report. The scientist utilized MS Succeed as
well as SPSS programming to lay out a connection among CRM and bank productivity.
Discoveries uncovered that credit risk the board in banking is crucial since banks create a
gain from their credit distributions. A bank's current and future monetary presentation has
been displayed to improve with successful CRM. The connection among CRM and bank
productivity was viewed as sure, subsequently compelling CRM adds to bank monetary
execution.
Alshatti (2015) analyzed the impacts of credit the executives on the monetary
execution of Jordanian business banks from 2005 to 2013, utilizing the capital ampleness
proportion, credit proportion, arrangement for advance misfortune proportion, influence
 17

proportion, and non-performing credit proportion as autonomous factors. The reliant

factors were ROE and ROA. Benefit proportions and numerous relapse models are
utilized to break down the information. The creator reasons that all the credit risk the
board pointers utilized in the review fundamentally affect the monetary exhibition of the
Jordanian business banks. Banks should take into account the indicators of non-
performing loans and gross loans, provision for facility losses and net facilities, and the
leverage ratio, which were found to be significant in determining credit risk management,
according to the researcher in order for banks to increase profits.
Bayyoud and Sayyad (2015) concentrated on the impact of credit on the
presentation of the main five Nigerian business banks. The basis for providing
stakeholders with policy measures on how to deal with the credit risk that is permissible
to increase the value of bank assets and reduce bank risk was the credit risk that affects
banks' profitability and outcomes. A speculation test and a straight relapse model are
utilized to dissect the information. They utilized the non-performing endlessly credit to-
progresses proportion as proportions of acknowledge risk and ROA as proportions of
benefit. The outcome showed that the proportion of non-performing credits to credits and
advances and advances and advances to add up to stores adversely affected productivity.
Credit risk the board and bank execution are altogether associated, as indicated by this
review. The capital adequacy ratio and non-performing loans have an impact on bank
performance, according to this empirical study.
Echobu and Philomena (2019) researched the effect of credit on the monetary
execution of Chinese banks. The bank's essential business is credit creation, which
unavoidably opens the bank to credit risk. The study used panel data regression analysis
to investigate the eight-year impact of credit risk on the financial performance of small
Chinese banks. In light of the utilization of prudential procedures to decrease the adverse
consequence of credit risk on banks' monetary execution, the outcomes showed an
improvement in credit risk the board over the earlier years. The review found non-
performing credits and capital sufficiency as proportions of credit chance to altogether
affect monetary execution. Furthermore, he proposes that directors ought to focus harder
on working on capital ampleness since it emphatically improves monetary execution
while diminishing nonperforming advances by applying current systems and procedures
for credit risk the board.
 18

"The impact of credit management on financial performance of commercial banks

in Nepal" was the topic of Poudel's (2020) investigation. This study attempt to investigate
different boundaries relevant to acknowledge the board as it influence banks‟ monetary
execution. Such boundaries canvassed in the review were; default rate, cost per advance
resources and capital ampleness proportion. For eleven years (2009-2019), 31 banks'
financial reports were used to compare the profitability ratio to the default rate, cost of
loan assets per loan, and capital adequacy ratio. The data were analyzed using descriptive,
correlation, and regression methods. According to the study, all of these parameters have
a negative effect on the bank's financial performance; However, the default rate is the best
indicator of how well a bank will do financially. The suggestion is to counsel banks to
plan and figure out techniques that isn't just limit the openness of the banks to credit yet it
improves productivity.
Gauchan and Upadhyaya (2020) concentrated on the title of "Credit The
executives and Productivity of Joint Endeavor Business Banks of Nepal". The paper
shows the proof of credit portfolio the board and its relationship with banks‟ monetary
execution. Month to month monetary report of joint endeavor business banks were
utilized to break down by looking at area wise portfolio the board of bank's credit and its
relationship with return on resources. Elucidating and fixed impact relapse was utilized to
dissect the board information. It uncovers that every one of the areas affect banks‟
monetary execution with the exception of utilization and others. The review infers that the
JVBs of Nepal have dealt with their portfolio according to the standard boundary
dispensed by Nepal Rastra Bank (NRB) orders. The most elevated part of credit in JVBs
is 34 put resources into administration area and least in agribusiness and mining area.
Likewise, the benefit of bank has positive connection to the whole area with the exception
of utilization and other area characterizing the area wise portfolio the board gives a decent
system to keep up with the manageability of bank.
Anteneh (2021) inspected the effect of credit the board on the monetary execution
of Ethiopian business banks. The goal of the review is to observationally look at the
impact of credit risk on the benefit of private business banks in Ethiopia by considering
factors connected with loaning exercises to decide bank-explicit, industry-explicit, and
large scale monetary elements that influence banks monetary execution over a time of
nine years (2009-2017). The exact examination utilizes the bookkeeping proportion of
return on value (ROE), which is the made sense of variable, to address banks'
presentation, while seven free factors have been taken as illustrative factors. Auxiliary
 19

information are utilized for nine banks that have remained in the business for over nine
years among sixteen confidential banks that are utilitarian right now in the Ethiopian
financial industry. Information utilized for this examination is gotten from banks' yearly
reports, NBE yearly reports, and the Service of Money and Financial Turn of events. To
this end, relationship and numerous relapse investigation are finished with a proper
impact model, and Survey 9 programming is utilized to relapse the information. NPL,
LTDR, Gross domestic product, EXRA, and DEPG fundamentally affected banks' benefit
at a 10% level. LTDR and DEPG have a negative relationship with benefit, while the rest
have a positive relationship.

2.2.2 Review of Thesises

The review of the previous dissertations gives a comprehensive analysis of credit

management backed by extensive research and well-structured arguments. The author
effectively establishes the significance of the research question and provides a clear
roadmap for the subsequent chapters. The literature review is thorough, highlighting key
studies and theories that contribute to the understanding of the topic. Additionally, the
methodology section is detailed and transparent, ensuring the reliability and validity of
the research findings. Overall, this thesis contributes significantly to the field and
provides enlightening findings that help to fill the knowledge gap for the study.

Koirala (2020) inspected a relative report on the momentary loaning of the

SCBNL and NBL. The fundamental targets are to think about the venture approaches of
concern banks, figure out the experimental relationship among absolute speculation store,
store usage credit and advance, net benefit, and outside resources, and look at SCBNL
and NBL. It expresses that the mean current proportion of NBL is somewhat higher than
that of SCBNL, and the changeability of the proportion of NBL is more predictable than
that of SCBNL in correlation. The mean proportion of money and bank equilibrium to
add up to store at SCBNL is lower in contrast with NBL. SCBNL has a preferable
liquidity position over NBL on the grounds that the high volume of liquidity shows the
powerlessness of the bank to prepare its ongoing resources. Additionally, SCBNL's ratios
are more consistent than NBL's. The mean proportion of case and bank equilibrium to
current resources of SEBNL is lower in contrast with NBL. Additionally, SCBNL's
proportions for the review time frame are more reliable than those of NBL. At NBL,
loans and advances have a higher mean ratio to total deposits than at SCBNL. One might
 20

say that NBL used to incite a more prominent credit and advance in contrast with its all
out store than SCBNL. Similarly, SCBNL's proportion is by all accounts more factor than
NBL. The mean proportion of interest in government protections to the absolute working
asset of SCBNL is higher than that of NBL. Subsequently, it has more consistency in
keeping up with the proportion than NBL. The mean proportion of return borrowed and
advances of SCBNL has been viewed as fundamentally more noteworthy than that of
NBL, with more consistency than that of NBL. In comparison the NBL's mean credit risk
ratio, which is more in line with SEBNL's, SCBNL's is lower. The development
proportion of store is more predictable than that of SCBNL, which is lower, i.e., 19.28%,
in contrast with NBL, which is 76.46%.

Mahat (2018) endeavors to uncover the connection among credit and the
productivity of a few chose banks. A decent board of information from seven chose banks
covering the nine-year time frame (2005-2013) was examined utilizing fixed and irregular
impacts methods. The two vital proportions of benefit (subordinate factors) utilized in the
review were return on resources (ROA) as model 1 and return on value (ROE) as model
2. The credit risk estimates utilized in the review included non-performing credits to add
up to advances, credit misfortune arrangements proportion, and credits and advances
proportion. Likewise, a few inner and outside determinants of productivity were caught in
the model. The outcomes showed that non-performing credits are adversely connected
with benefit, while credit misfortune arrangement proportion and credit and advances
proportion are decidedly vital for the bank's productivity. Likewise, the scientist found
that both capital sufficiency and age have a positive relationship with productivity, while
bank size has a converse relationship. Every one of the outside factors were genuinely
inconsequential. The review recommended the requirement for the administration of the
banks to place in powerful measures to further develop their credit risk the board systems
to upgrade their productivity.

Khadgi (2018), in the review named "Credit The board of Business Keeps money
Concerning Nepal Bangladesh Endlessly bank of Katmandu," expresses that business
banks are those banks that work according to a business perspective. They play out a wide
range of banking capabilities, like tolerating stores, propelling credits, making credit, and
overseeing credit and advances. Portfolio the executives assists with limiting or oversee
credit gambles, spreading the dangers to different portfolios. Banks acquire revenue on
 21

layaway and propels, which is one of their significant kinds of revenue. By and large,
following 5 years of exploration, the money and bank adjusts to add up to stores
proportions of NB Bank and BOK are 12.75% and 14.12%, individually. Similarly, NB
Bank has a money and bank equilibrium of 1.584 times the ongoing stores, and BOK has
a money and bank equilibrium of 1.14 times the ongoing resources. The majority of the
credit and advances, practically 70%, are furnished with security, as a resource ensure.
Credit is expanding, period by period. After the resource ensure, the bank has given credit
in view of bills. The credit is 3421.3 million (76.1% of absolute credit), and in the last
period it was 3347.99 million (58.2% of complete credit).

Thapa (2019) investigated in his examination "Loaning strategy and recuperation

the board of Standard Sanctioned Bank Nepal Ltd. furthermore, NABIL Bank
Restricted." The fundamental goals of the review were loaning arrangements and the
recuperation of the advance misfortunes of the example banks in Nepal. The discoveries
of the banks were that the store assortment by the banks shows that it is expanding
however in a fluctuating pattern. The pattern examination of store assortment shows that
the expansion in store assortment in the impending years will proceed. Out of various
kinds of store assortment accounts, a higher sum has been gathered in the reserve funds
store account. Out of the all out store assortment, SCBNL has dispensed 36% of the
normal as a credit, and NABIL has dispensed 52% of its store assortment as a credit
payment. The store assortment proportion of business banks is around 60%.
Consequently, this proportion is very low for the example bank, particularly SCBNL. It is
additionally demonstrated by the computation of the relationship coefficient, which is
0.75 and 0.23 for SCBNL and NABIL, individually. The loan loss provision and NPL of
these banks were analyzed in order to examine their recovery management. While taking
a gander at the credit misfortune arrangement of SCBNL, it is in a diminishing pattern
starting around 2002. The connection coefficient between advance misfortune
arrangement and credit dispensing in SCBNL is diminishing. While taking a gander at the
future pattern of credit misfortune arrangement, it shows a rising pattern on account of
SCBNL and a diminishing pattern consistently on account of NABIL, which is given by
the pattern examination. The relationship between advance misfortune arrangement and
credit dispensing in NABIL is negative.
 22

Shrestha (2020) focused on Nepal SBI Bank Limited as an example of how credit
management affects profitability. The primary goal of the review is to show that credit the
board is the embodiment of business banking. This study delineates that loaning is one of
the main pieces of the capability of a business bank, and the creation of credits and
advances straightforwardly influences the presentation and benefit of the bank. There is
serious contest in the financial business, with a restricted market and less venture valuable
open doors accessible. Each bank is dealing with the issue of default credits, and there is
dependably the chance of a specific piece of the advance and advances. The productivity
stores position of Nepal SBI Bank Restricted has been broke down, and its commitment
to add up to benefit has been estimated. The credit quality, productivity, and commitment
to benefit, liquidity position and its impact using a loan execution, and estimating the
development rate and inclination of development in light of pattern examination are the
primary targets of his paper.

Basnet (2020) inspected the similar credit the board of NABIL, SCBL, and HBL.
Optional information was recovered from test business banks for the time of a long time
from the yearly reports of these banks. Elucidating insights and board information relapse
are utilized to examine the information. The investigation discovered that the chose
factors — arrangement to add up to advances, advance to add up to resource, credit
organization (cost to add up to credits), and size (financial matters of scale) — essentially
affect the presentation of banks. In any case, there is a sure variety in the extent and
heading of their impact on the chose benefit measure, return on resource. In light of the
review, it is suggested that Nepalese banks foster their credit risk the executives limit;
there ought to likewise be command over above costs connected with loaning; what's
more, expanding the credit book size without compromising sound credit arranging ought
to be really important errand.

Defeat (2021), in his exposition Credit The executives of NABIL Bank Restricted,
featured the total execution and state of NABIL Bank. The principal targets of the
exploration study are to assess the monetary proportions of the NABIL bank, examine the
portfolio loaning of chosen areas of banks, concentrate on the effect of stores on liquidity
and their impact on loaning practices, and give ideas in light of the discoveries of this
review. Cash and bank balance reserve ratios indicate a stronger liquidity position in the
aspect of liquidity position. The NPA to TA proportion is diminishing. The bank can
 23

acquire higher loaning open doors during the review time frame. The bank is therefore in
good hands when it comes to credit management. The influence proportion and obligation
to value proportion are in a rising pattern. Financial risk increases with a higher debt-to-
total assets ratio, and vice versa. It addresses the state of TA to NWR. In the part of
benefit position, NP to net pay, the absolute premium pay to add up to pay proportion of
the bank is in a rising pattern. According to the study, NABIL has a limited capacity to
earn money from loans and advances. EPS and the PER of NABIL are in a rising pattern.
The average mean, correlation analysis, and trend analysis have all been calculated in the
statistical tools analysis. There is a strong positive correlation between total assets and
total credit in terms of the correlation coefficient. The relationship coefficient between all
out stores and credits and advances has a serious level of positive connection, so it is
presumed that rising complete stores will decidedly affect advances and advances.

Thakur (2021) has tried to look into how credit management affects how
profitable commercial banks in Nepal are. Her primary goal is to examine the effect of
credit risk the executives on the productivity of Nepalese business banks. The board
information from a five-year time frame from the chose banks was utilized to inspect the
connection between credit hazard and execution. Further, a relapse was utilized to
investigate the information. She reasons that credit risk the board altogether affects the
productivity of Nepalese business banks. The discoveries demonstrate that the inclusion
proportion, capital sufficiency proportion, and bank size helpfully affect the exhibition of
the bank; be that as it may, the non-performing credit proportion, influence proportion,
and the presence of female board individuals make a negative difference. However, the
bank's performance was not significantly influenced by the liquidity ratio, asset quality,
or cash reserve ratio. Consequently, the review recommends that business banks in Nepal
ought to carry out effective credit risk the executives systems that maintain an optimal
degree of capital ampleness proportion, direct and follow non-performing advances,
further develop inclusion proportion, balance influence proportion, motivate female board
individuals, and develop bank sizes to work on monetary execution.

2.3 Research Gap

The past examinations depended on factors like capital sufficiency, non-

performing credits, advance misfortune arrangement, and advance and advance to store
corresponding to the presentation of the banks. In the previous study, these variables were
 24

not taken into account, but they were given careful consideration in this one. The
examination fills the variable holes, and it is additionally trusted that such a review, with
acknowledgment of these factors, would add to policymaking and devise risk-relieving
instruments. It is a main pressing issue of investors to know the portfolio conduct of the
bank; this study invests energy into figuring out factors are connected with the
speculation of the bank. An examination of loaning effectiveness shows the adequacy of
the bank. No contextual analysis has yet been directed about the credit the board of NBL.
This study attempts to show how banks stand as far as credit the board contrasted
with driving business banks. Consequently, this study satisfies the overall exploration
hole about the top to bottom examination of loaning effectiveness and interest in need and
denied areas by the banks. At this point, the review mentioned above is merely an
overview of the relevant topic. Based on the audit, it tends to be presumed that there are
still some strange exploration issues on the proposed subject. The targets of this
exploration are to figure out what new can be added to the field and to assemble data,
experiences, and proposals about what credit risk openness and the board methods mean
for business banks' primary concerns. However, the earlier research cannot be ignored
because they provided the foundation for the current study. This study guarantees
progression in research by connecting the current review with past examination studies.
Obviously there is an absence of studies in view of ongoing information. Numerous
scientists have underscored the impacts of credit risk in their own nation settings or with
different factors. This study attempts to finish the exploration function as numerous
diaries and articles are adhered to as rules to make the examination more straightforward
and smoother. Various financial and statistical tools are used to achieve the main goals.
Consequently, this study is valuable to the concerned bank as well as partners.
 25

Chapter III: Research Methodology

3.1 Introduction

Research methodology refers to the systematic and organized approach used to

conduct research. It encompasses the techniques, tools, and procedures employed to
gather and analyze data in order to answer research questions or test hypotheses. Research
methodologies provide a framework for researchers to plan, design, and execute their
studies effectively, ensuring the reliability and validity of their findings. It involves
selecting appropriate research methods, collecting relevant data, analyzing and
interpreting the results, and drawing meaningful conclusions. Additionally, research
methodology also involves ethical considerations, such as ensuring participant
confidentiality. Research methodology refers to the systematic approach and techniques
used to conduct a study or investigation. It encompasses the overall design, data
collection methods, and analysis procedures employed in order to obtain reliable and
valid results (Kothari, 2008). Additionally, research methodology plays a crucial role in
ensuring the accuracy and credibility of the findings, as it provides a framework for
researchers to effectively address their research questions or objectives.

3.2 Research Design

Research configuration is the undertaking of characterizing the exploration issue.

To put it another way, a research design is the way the conditions for collecting and
analyzing data are set up so that they are both relevant to the research goal and efficient.
As a matter of fact, the examination configuration is the calculated construction inside
which the exploration is directed. The overall target of this examination study is to
inspect the credit the board of Nepal Bank Restricted. Both descriptive and analytical
research designs will have been used to accomplish the goal. The review will zero in on
the assessment of the connection between those factors that impact the monetary choices
of the examined bank. The plan, structure, and strategy of an investigation that is
designed to answer research questions and control variance is called a research design.
Research is the particular of strategies and methods for gaining the data required. The
project's overall operational pattern or framework dictates which sources and methods of
information collection are required. A descriptive research design will be applied to
gather information and provide a detailed analysis of the subject being studied. By using
 26

various methods such as surveys, observations, and interviews, descriptive research helps
researchers gain a comprehensive understanding of the subject under investigation.

3.2.1 Nature and Sources of Data

Nature refers to the characteristics or qualities of something. In the context of

data, nature refers to the type or form of data, such as numerical, categorical, textual, or
multimedia. Sources of data are the origins or places from which data is collected or
obtained. These sources can include surveys, experiments, observations, existing
databases, social media platforms, or even sensors and devices that generate data
automatically. Various data and information will be collected from secondary sources
while conducting the research. The required data will be collected from NRB directives,
annual reports, and publications of the selected banks. Other required information is
collected from libraries, websites, and from prior reports related to the study.

3.2.2 Populations and Sample

In research, populace alludes to the whole gathering of people or items that share
a typical trademark and are important to the scientist. It addresses the bigger objective
gathering from which an example is drawn. Then again, an example is a subset of the
populace that is chosen for study and is utilized to make deductions or reach inferences
about the whole populace. Testing permits specialists to assemble information
proficiently and cost-successfully while as yet guaranteeing that the discoveries can be
summed up to a bigger populace. There are 21 business banks working in Nepal. The
investigation of this multitude of banks inside this examination was inordinately difficult.
Subsequently, taking into account this number of banks as the all out populace, just a
single business bank, specifically Nepal Bank Restricted, will be chosen as an example
for the review. An irregular examining strategy will be applied for the concentrate on the
subject. The selection of Nepal Bank Limited as a sample bank allows for a focused
analysis of key objectives within the limited scope of this research. By studying this one
bank, valuable insights will be gained that may provide a representative understanding of
the broader commercial banking landscape in Nepal.

3.2.3Data Collection and Processing Techniques

Data collection refers to the systematic gathering of information from various

sources, such as surveys, observations, or experiments. It involves the collection of raw
data that can be analyzed and processed to derive meaningful insights. On the other hand,
 27

data processing techniques involve transforming and organizing collected data into a
format that is suitable for analysis. This may include cleaning and validating the data,
performing calculations or statistical analyses, and generating visualizations or reports to
aid in decision-making. Overall, data collection and processing techniques are essential
components.

3.2.4 Tools for Analysis

Data analysis tools refer to a variety of software applications and techniques that
are used to process, interpret, and visualize data in order to gain insights and make
informed decisions. These tools enable users to manipulate and analyze large volumes of
data from various sources, such as databases, spreadsheets, or even social media
platforms. By employing statistical algorithms, data visualization techniques, and
machine learning models, these tools help businesses and researchers uncover patterns,
trends, and correlations within their datasets.

3.2.4.1 Financials tools. Financial tools refer to various instruments, strategies,

and techniques used in managing and analyzing financial activities. These tools are
designed to assist individuals, businesses, and organizations in making informed
decisions regarding investments, budgeting, risk management, and financial planning.
They can include software applications, calculators, spreadsheets, financial models,
investment portfolios, and other resources that help users understand and navigate the
complexities of the financial world. The financial tools will be as follows:.
Loans and Advances to Total Assets Ratio. Financial analysis is essentially
made easier with the aid of financial tools. The process of analyzing a company's or
industries financial statements as a whole, particularly to make decisions about output and
credit, includes ratio analysis. Ratio analysis is used to compare a firm's financial position
and performance to those of other companies. The following ratios are generated and
evaluated, despite the fact that there are several ratios to understand and analyze while
looking at the financial statement.
𝐿𝑜𝑎𝑛 𝑎𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒
Loan and advance to total assets = 𝑡𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Total investment to total deposit ratio. A commercial bank's funds can be used
to buy securities issued by the government, other financial institutions, and non-financial
companies. Measurements have been made to determine how effectively banks can
 28

mobilize total deposits on investments. A high ratio indicates that banking funds will be
successfully mobilized for investment, and vice versa.
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Total investment to total deosit ratio =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡
Loan and Advances to Total Deposit Ratio. This ratio is calculated to determine
how effectively banks use their deposits on loans and advances for profit-generating
activities. A higher ratio indicates that total deposits are being used more effectively.
𝐿𝑜𝑎𝑛 𝐴𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒
Loan and Advances to Total Deposit Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡
Investment to Loan and Advances Ratio. This ratio calculates the contribution
of investment to the total amount of loans, advances, and investments. The proportion of
investment to loan measures management's attitude toward risky and safe assets. Overall,
investments, loans, and advances do not provide the quality of assets that a bank has
created. The ratio represents the mobilization of funds in the safe zone and vice versa.
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Investment to Loan And Advances Ratio = 𝐿𝑜𝑎𝑛 𝐴𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒

Loan Loss Provision to total Loans and Advances ratio. Commercial banks are
required by the NRB to categorize their loans and advances as pass, substandard, dubious,
or loss. Pass and inadequate credits are classified by the NRB as performing advances,
while the other two kinds of credits are arranged as non-performing advances. The
general credit misfortune arrangement made against the pass and inadequate advance is
known thusly, yet the particular credit misfortune arrangement made against the
questionable and misfortune credit is known accordingly. The remittance for advance
misfortune addresses the probability of nonperforming credits rising. Credit accessibility
demonstrates that the banks' net benefit will diminish by that amount. Albeit an expansion
in advance misfortune arrangements brings down profit and thus brings down profits, it
has the constructive outcome of advancing banks' monetary circumstances by lessening
store chance and managing credit risk. Partition the credit misfortune arrangement by the
absolute advance and advances to get the credit misfortune arrangement to the complete
advance and advances proportion. The high asset quality of the loans and advances in
general is reflected in the low ratio.
𝐿𝑜𝑎𝑛 𝐿𝑜𝑠𝑠 𝑃𝑟𝑜𝑣𝑖𝑠𝑖𝑜𝑛
Loan Loss Provision to Loan And Advances =
𝐿𝑜𝑎𝑛 𝐴𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
Non-performing loan to total loan and advances. The percentage of non-
recoverable loans in total loans and advances is shown by the ratio of nonperforming
 29

loans to total loans and advances. Non-performing loans are divided by the total amount
of loans and advances to determine this ratio.
𝑁𝑜𝑛−𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝑙𝑜𝑎𝑛
NPL to Loan Andadvances =
𝐿𝑜𝑎𝑛 𝐴𝑛𝑑𝑎𝑑𝑣𝑎𝑛𝑐𝑒
Net profit to loan and advance ratio. By using the money that commercial banks
have raised through loans and advances, this ratio gauges their ability to make money.
Greater success in obtaining funds as loans and advances is indicated by higher ratios,
and vice versa. The majority of loans and advances include loan cash credits, overdrafts,
and discounted and purchased bills.
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Return on loan and advances =
𝐿𝑜𝑎𝑛 𝑎𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒

Interest Income to Total Loan and Advances. Interest revenue is the main
source of income for banks. Interest incomes are the proceeds of loans and advances that
have been mobilized under various credit titles. Higher bank profits result from higher
interest earnings. The interest revenue-to-credit ratio is calculated by dividing interest
income by all loans and advances.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Interest on Lending =
𝐿𝑜𝑎𝑛 𝑎𝑛𝑑 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
Interest Expenses to Deposit Ratio. Interest expenses are the goals of various
deposit products, such as corporate, individual, saving, fixed deposit, call, and so on.
Because the bank pays interest on deposit funds, this cost or expense accounts for a
significant portion of the bank's overall expenses. Market activity, on the other hand,
determines the cost of a deposit and the interest income on a loan. As a result, the bank's
ability to control interest costs is restricted.
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
Interest expenses to deposit =
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡

3.2.4.2 Statistical Tools

The statistical tools used in this research study are essential for ensuring accurate
data analysis. These tools include regression analysis, which helps identify relationships
between variables, and hypothesis testing, which allows for the evaluation of research
hypotheses. Additionally, the study also employs descriptive statistics to summarize and
present the data in a meaningful way.
Mean ( X ).The math mean, or normal, is the amount of complete qualities
separated by the quantity of perceptions in the example. It addresses the whole
 30

informational collection, which lies nearly between the two limits. As a result, a measure
of central tendencies is frequently referred to as an average. In this review, it is utilized in
information connected with the profits of test banks more than five years.
x
Mean ( X ) =
n
x
Or, X =
n
Where,
X = Arithmetic Mean return
x = Sum of given Observation
N = Total number of Observations
Standard Deviation (SD). The estimation of the scatterings of the mass of figures
in a series about a normal is known as scattering. S.D. is an absolute measure of
dispersion that eliminates the limitations of other dispersion measures. The high measure
of scattering reflects exclusive requirement deviation. The little standard deviation
implies the serious level of homogeneity of the perceptions. In simple term high SD
means very less similarity in the values and low SD means high similarity among the
values. SD gives the accurate result between

 X  X 
2

Standard Deviation (S.D.) =

n
Where, X = Mean
X = number of observations in the sample
n = number of years
Coefficient of Variation (CV). The standard deviation's relative measure, known
as the coefficient of variation (CV), is the standard deviation to mean ratio, represented as
a percentage. It is unaffected by units. As a result, it is an appropriate metric for assessing
the variability of two series with the same or different units. A series having a lower
coefficient of variation (C.V.) is thought to be less changeable, more consistent,
homogenous, uniform, or more stable than the others, and vice versa. Coefficient of
S.D
Variation (C.V.) =  100
X

Where,

X = Mean
 31

SD = Standard Deviation
CV = Coefficient of Variation
Coefficient Correlation Analysis. Out of a few numerical technique for
estimating connection the Karl Pearson prominence known as Pearson's coefficient of
connection broadly utilized practically speaking to quantify the level of connection
between two factors. Two factors are said to have relationship when the worth of one
variable is joined by the adjustment of the worth of the other. Accordingly, it is estimated
by following equation utilizing two factors. It is denoted by small ' r'.
nxy – xy
Correlation Coefficient (r) =
nx – (x)2 ny2 – (y)2
2

Where,
r = Coefficient of correlation
ΣXY = Sum of product of two series.
ΣX2 = Sum of squared in X series
ΣY2 = Sum of squared in Y series
n = number of years
The value of this coefficient can never be more than + 1 or less than -1. Thus, + 1 and -
1arethelimitofthiscoefficient.Ther = +1impliesthatcorrelationbetween variables is positive
and vice- versa. And zero denoted no correlation.
Regression Analysis. Relapse is a numerical idea that portrays the typical
connection between at least two factors with regards to the first units of information.
Regression is the estimation or prediction of an unknown variable from a known variable.
Obscure factors are alluded to as reliant factors, while referred to factors are alluded to as
autonomous factors. Foreseeing the worth of ward factors (Productivity) from known
upsides of various factors is the essential objective of different relapse investigation
(NPLR, Vehicle, CDR, and LLPR). This study utilizes two relapse models to look at the
impact of credit risk on bank benefit.
Model 1
ROAit = β0 + β1NPLR + β2CAR + β3LAR + β4LLPR + e (1)
Model 2
ROEit = β0 + β1NPLR + β2CAR + β3LAR + β4LLPR + e (2)
Where,
ROA = Return on Assets
ROE = Return on Equity
 32

CAR = Capital Adequacy Ratio

NPLR = Non-Performing Loan Ratio
CPL = Cost Per loan
CRR = Cash Reserve Ratio
BS = Bank Size
e = Error Term

3.3 Conceptual Framework

A conceptual framework refers to a theoretical structure or model that helps guide

and organize the understanding of a particular topic or subject. It provides a set of
concepts, principles, and assumptions that form the foundation for analyzing and
interpreting data or information within a specific field of study.

Figure 3.1 Conceptual Framework

Independent Variables Dependent Variables

Capital Adequacy

Non-performing loan ratio

Return on assets (ROA)
Cost per Loan Assets Return on equity (ROE)

Cash Reserve Ratio

Bank Size

Independent variables are the variables that cause changes in other variables. The
variable acts as a stimulus or operates on other variables. Zikmund (2016) the
independent variable is the variable that is expected to influence the dependent variable in
some way. This kind of factor is in many cases called an indicator since it affects
different factors. While Capital ampleness proportion, non-performing advance
proportion, cost per capital sufficiency proportion Non-performing advance proportion
Cost per advance resource Money Hold Proportion Bank Size Return on resources Return
on value Credit resource proportion, cash save proportion, and bank size are autonomous
factors of credit risk the executives and the exhibition of business banks.
 33

Capital adequacy ratio. It demonstrates that a bank has a satisfactory measure of

funding to manage unforeseen misfortunes. A bank may be required by regulatory
authorities to increase its capital when the ratio is low because it faces a higher failure
risk. A bank's capital is expressed as a percentage of its risk-weighted exposure in this
figure. It is made up of the types of financial capital that are thought to be the most
dependable, most notably shareholders' equity. Hypothetically, keeps money with a
decent capital sufficiency proportion have great benefit. A keep money with solid capital
sufficiency is likewise ready to ingest conceivable credit misfortunes and hence keep
away from bank "runs, indebtedness, and disappointment. Bank capital improves a
foundation's capacity to raise non-safeguarded obligation, hence moderating the effect of
a decrease in stores on loaning (Ashcraft, 2001). Because it reduces bank risk and
provides a safety net against losses, higher capital makes funding with non-insured debt
less information-sensitive (Admati et al., 2010). Subsequently, capital sufficiency can
upgrade bank execution. In any case, experimental examinations on the connection
between firm execution and the capital sufficiency proportion have shown blended
results.

Non-performing loan ratio. A non-performing credit is one in which the

borrower is in default and has not paid the month to month head and interest
reimbursements for a predetermined period. Credits that are non-performing emerge
when borrowers can't make advance installments because of monetary limitations or
different conditions. The non-performing advance proportion (NPLR) mirrors the bank's
credit quality and is viewed as a mark of credit risk the executives. NPLR, specifically,
demonstrates how banks deal with their credit risk since it characterizes the extent of
advance misfortunes corresponding to the absolute advance sum (Hosna et al., 2009).
Gizaw, Kebede, and Selvaraj (2015) declare that the non-performing advance proportion
(NPLR) is the significant mark of business banks' credit risk.

Cost per loan asset. The cost per loan asset is considered a determinant of bank
performance and is viewed as an indicator of credit risk. Banks that are efficient in
managing their expenses (costs) and holding other factors constant earn high profits. This
serves to highlight the effectiveness of loan distribution to clients . Cost per loan asset
(CPL) is a financial metric that measures the cost of providing loans as a percentage of a
company's total loan assets. Financial organizations use it to assess how profitable and
efficient their lending operations are. A lower CPL indicates that a company is able to
 34

generate more revenue from its loan portfolio, while a higher CPL suggests higher costs
and potentially lower profitability.

Cash reserve ratio. Every commercial bank is required to keep a certain

minimum amount of deposits as a reserve, which is referred to as the cash reserve ratio
(CRR). CRR is to guarantee that banks don't hit a financial dead end when contributors
require the assets for their own necessities. The size of the bank can be estimated in more
ways than one, for instance, through turnover, settled up capital, capital utilized, complete
resources, net deals, market capitalization, and so on. In this current review, bank size is
estimated by all out resources scaled by regular capitalization. Bank size, as estimated by
complete resources, is one of the control factors utilized in dissecting the presentation of
the bank framework. By and large, size is utilized to exploit potential scale economies or
diseconomies in the financial business. This variable controls for cost contrasts in items
and hazard enhancement as per the size of the monetary foundation.

Dependent variable

The dependent variable is the response variable, or output. Variables are

dependent on the independent variables, which mean any change in the dependent
variable is due to the independent variable. Return on equity and return on assets are
dependent variables of a bank's performance.

Return on equity. The return on equity essentially measures the rate of return that
the owners of common stocks of a company receive on their shareholding. Return on
equity (ROE) is a measurement of how effectively a business uses equity, or the money
contributed by its stockholders and cumulative retained profits, to produce income. Stated
differently, return on equity (ROE) is a measure of a company's capacity to convert equity
capital into profit.
Return on assets. Return on assets is an indicator of how profitable a company is
relative to its total assets and how profitable a bank is relative to its total assets. Analysis
gives an idea of how efficient a 21-bank's management is at using its assets to generate
earnings. ROA measures the profit earned per dollar of assets and reflects how well bank
management uses the bank's real investment resources to generate profits. When
comparing the profitability of banks, ROA is a helpful metric because it eliminates
distortions caused by variations in financial leverage, especially for banks with
 35

comparable business risk profiles. Return on assets (ROA) is a comprehensive measure of

overall bank performance from an accounting perspective
 36

Chapter IV: Results and Discussion

The result and discussion section presents the findings of the study and provides
an analysis and interpretation of these results. This section is crucial, as it allows
researchers to explain the significance of their findings and how they relate to existing
literature or theories. Additionally, it provides an opportunity to discuss any limitations or
weaknesses in the study design or methodology that may have influenced the results.
In order to achieve the study's objectives, this part manages the show,
examination, and translation of important information from an inspected business bank.
The information were dissected utilizing the exploration procedure depicted in the third
part to accomplish the best outcomes. The mechanisms of data analysis and interpretation
will be discussed in this chapter. The comparative credit management status of a few
banks was brought to light through this analysis. Different insightful strategies and
instruments, like monetary proportion examination and factual devices, are utilized to
reach the review's inference. Comparatively broke down results are graphically addressed
for lucidity and straightforwardness of end.

4.1 Analysis of Credit Management of Nepal Bank Limited

Credit management indicators are crucial tools used by financial institutions to

assess and monitor the potential risks associated with lending activities. These indicators
provide valuable insights into the creditworthiness of borrowers, helping banks and other
lenders make informed decisions about granting loans. By analyzing factors such as the
borrower's credit history, debt-to-income ratio, and collateral value, these indicators help
in evaluating the likelihood of default and estimating potential losses.

4.1.1 Capital Adequacy Ratio

The capital adequacy ratio plays a crucial role in safeguarding depositors and
ensuring the resilience of financial systems globally. It assesses a bank's ability to
withstand potential losses by measuring two types of capital: tier-1 and tier-2. Tier-1
capital serves as a buffer that allows banks to absorb losses without having to halt their
operations, thus ensuring uninterrupted trading activities. On the other hand, tier-2 capital
provides a lower level of protection to depositors as it can absorb losses only in the event
of winding-up procedures. This regulatory framework ensures that banks maintain
 37

adequate levels of capital to support their operations and honor their obligations,
ultimately contributing to a robust and resilient financial system on a global scale.
Table 4.1
Capital Adequacy Ratio (In %)

Banks NBL
2012/13 10.43
2013/14 11.02
2014/15 11.59
2015/16 11.15
2016/17 13.33
2017/18 12.66
2018/19 14.69
2019/20 14.2
2020/21 13.74
2021/22 13.38
Mean 12.62
S.D. 1.48
C.V. 0.12
Max 14.69
Min 10.43
Note. Appendix A
Table 4.1 displays the NBL capital adequacy ratio from 2012/13 to 2021/22. The
NBL has a capital adequacy ratio of 12.62 percent on average. The NBL capital adequacy
ratio is 1.48%, according to the standard definition. The NBL's Capital Adequacy Ratio
has a coefficient of 0.12 for various versions. The maximum capital adequacy ratio of the
NBL is 14.69%.The minimum capital adequacy ratio of the NBL is 10.43 percent. In
2012/13, the NBL's capital adequacy ratio was 10.43 percent, and in 2014/15, it was
11.59 percent. The NBL's capital adequacy ratio was 14.69% in 2018/19 and 13.38% in
2021/22.
The capital adequacy ratio is an important measure of a bank's financial strength
and ability to withstand potential losses. It is calculated by dividing the bank's capital by
its risk-weighted assets. The NBL has consistently maintained a capital adequacy ratio
above the minimum requirement of 10.43 percent, indicating its strong financial position.
 38

However, there has been some fluctuation in the ratio over the years, with a peak of 14.69
percent in 2018/19 and a slight decrease to 13.38 percent in 2021/22. This suggests that
the NBL has been able to effectively manage its capital and maintain a healthy level of
risk coverage.

4.1.2 Non-performing Loan Ratio (NPLR)

A nonperforming resource (NPA) alludes to a characterization of credits or

advances that are in default or unfulfilled obligations. When principal and interest
payments are late or missed, a loan is in arrears. Banks chiefly bring in cash from the
premium they charge on advances, and when they can't gather the owed revenue
installments from NPLs, it implies that they have less cash accessible to make new credits
and pay working expenses.
Table 4.2
Non-performing Loan Ratio (In %)
Banks NBL
2012/13 35.12
2013/14 86.18
2014/15 64.14
2015/16 99.19
2016/17 67.11
2017/18 39.14
2018/19 26.12
2019/20 20.09
2020/21 16.14
2021/22 22.78
Mean 47.60
S.D. 29.54
C.V. 62.07
Max 99.19
Min 16.14
Note. Appendix A

Table 4.2 provides a comprehensive overview of this ratio for selected sample
banks from 2012/13 to 2021/22. The NBL's average NPL ratio is 47.60%. The standard
deviation of the NPL ratio of the NBL is 29.54%. The coefficient of variation of the NPL
 39

ratio of the NBL is 0.62. The NBL's maximum NPL ratio is 99.19%. The minimum NPL
ratio of the NBL was 16.14% in 2012/13. The NBL's NPL ratio is 35.12 percent, up from
64.14 percent in 2014/15 to 35.12 percent in 2018/19. The non-performing loan ratio of
the NBL will be 26.12% in 2022. The NPL ratio of the bank is 22.78%. The NPL ratio of
the NBL has experienced fluctuations over the years, with a significant decrease from
64.14 percent in 2014/15 to 35.12 percent in 2018/19. However, it is projected to further
decrease to 26.12 percent in 2022. Despite these changes, the current NPL ratio of the
bank stands at a relatively stable rate of 22.78 percent.

4.1.3 Cost per loan asset Ratio

The cost per loan asset is seen as a measure of credit risk and is seen to be a factor
in the bank's success. High profits are obtained by banks that effectively control their
costs while maintaining other variables constant. Its primary goal is to show how well
loans are distributed to clients. The cost per loan asset is an important metric for banks, as
it helps assess the efficiency of their credit risk management.
Table 4.3
Cost Per Loan Assets Ratio (In %)
Banks NBL
2012/13 2.14
2013/14 2.24
2014/15 2.19
2015/16 2.18
2016/17 2.24
2017/18 1.89
2018/19 1.99
2019/20 2.29
2020/21 2.24
2021/22 2.17
Mean 2.16
S.D. 0.12
C.V. 5.77
Max 2.29
Min 1.89
Note. Appendix A
The table above depicts the cost per loan asset ratio of NBL from 2012/13 to
2021/22. The NBL has maintained a relatively stable average cost per loan asset ratio of
 40

2.16% from 2012/13 to 2021/22. However, there has been some variation in this ratio,
with a standard deviation of 0.12%. Additionally, the coefficient of variations indicates
that the NBL's cost-per-loan-assets ratio is 5.77%, suggesting some level of volatility in
this metric. Despite this variability, the NBL has managed to keep its maximum cost per
loan asset ratio at 2.29% and its minimum at 1.89%. In specific years, the bank's cost per
loan asset ratio was recorded at 2.14% in 2012/13 and slightly increased to 2.19% in
2014/15. Notably, there was a decrease in the cost-per-loan-assets ratio in 2018–19 to
1.99%, but it rebounded to reach 2.17% in fiscal year 2021–2022.

4.1.4 Cash Reserve Ratio

One of the control variables used to examine how credit risk affects banks'
performance is the cash reserve ratio. The money save proportion (CRR) has generally
been one of the national bank's financial instruments. The minimum percentage of all
client deposits that commercial banks are required to retain as reserves with the central
bank is known as the cash reserve ratio, or CRR. Raising the reserve requirement will
result in banks having less money available for lending, which will lower the money
supply since it would effectively diminish the quantity of capital in the economy.
Table 4.4
Cash Reserve Ratio (In %)
Banks NBL
2012/13 9.55
2013/14 17.22
2014/15 15.19
2015/16 16.91
2016/17 24.27
2017/18 16.61
2018/19 16.52
2019/20 17.75
2020/21 18.56
2021/22 14.43
Mean 16.70
S.D. 3.66
C.V. 21.93
Max 24.27
Min 9.55
Note. Appendix A
 41

The below table shows the cash reserve ratio of the NBL from 2012/13 to
2021/22. The average CRR of the NBL is 16.70%. The standard deviation of the cash
reserve ratio of the NBL is 3.66%. The coefficient of variation of the CRR of the NBL is
21.93%. The maximum CRR of the NBL is 24.27%. The minimum cash reserve ratio of
the NBL was 9.55% in the years 2012–13. The NBL's cash reserve ratio is 9.55%, up
from 15.19% in 2014/15 to 9.55% in 2018/19. The CRR of the NBL is 16.52 percent in
the years 2022–2022. The cash reserve ratio of the bank is 14.43%. The CRR of the NBL
has fluctuated over the years, with a minimum of 9.55% in 2012–13 and a maximum of
24.27%. In recent years, it has decreased from 15.19% in 2014/15 to 9.55% in 2018/19.
Currently, the cash reserve ratio stands at 14.43%.
4.1.5 Bank Size
Bank size is one of the most important controlling variables used to analyze the
banking system's performance. An essential financial metric for expressing a bank's
volume is its size. There are several methods to gauge a company's size, including
turnover, market capitalization, paid-up capital, capital employed, total assets, and net
sales. The current analysis uses total assets scaled in natural logarithms to determine the
size of banks.
Table4.5
Bank Size
Banks NBL
2012/13 24.56
2013/14 24.75
2014/15 24.91
2015/16 24.98
2016/17 25.32
2017/18 25.46
2018/19 25.48
2019/20 25.70
2020/21 25.86
2021/22 25.94
Mean 25.30
S.D. 0.48
C.V. 0.02
Max 25.94
Min 24.56
 42

Note. Appendix A

The table 4.5 shows the bank size of the NBL from 2012/13 to 2021/22 in natural
logarithm. The NBL's average bank size is 25.30 percent. The NBL's standard definition
of bank size is 0.48 percent. The NBL's bank size verification coefficient is 0.02. The
NBL has a maximum bank size of 25.94%. The NBL requires a minimum bank size of
24.56%. In 2012/13, the NBL had a bank size of 24.557 percent, and in 2014/15, it had a
bank size of 24.9089 percent. In 2018/19, the bank's size is 25.4812 percent; in 2021/22,
it is 25.9437 percent. The NBL's bank size has consistently remained within the required
range over the years, with slight fluctuations observed. The bank's size has gradually
increased from 2012/13 to 2021/22, indicating a positive trend in its growth.

4.2 Profitability Analysis

Profitability is the ability of a business to generate financial gains or profits from

its operations. It is a key indicator of a company's success and sustainability, as it
determines the level of return on investment for shareholders and other stakeholders.
Profitability is often measured through various financial ratios, such as net profit margin,
return on assets, and return on equity. These metrics help assess how efficiently a
company is utilizing its resources to generate profits and can be compared across
industries to evaluate performance. Ultimately, profitability plays a crucial role in
determining the long-term viability and growth potential of a business.

4.2.1 Return on Equity

Return on equity (ROE) refers to the operating efficiency of the banks. This ratio
indicates return to equity. How much revenue is generated by utilizing the equity fund is
an issue to be examined the ratios for the banks are fluctuating. It is also known as net
profit to net worth ratio. The returns on equity of sample commercial banks have been
shown in the following table.
 43

Table 4. 6
Return on Equity NBL ( in %)
Years NBL
2012/13 34.62
2013/14 31.40
2014/15 30.47
2015/16 28.40
2016/17 22.84
2017/18 20.32
2018/19 17.38
2019/20 22.40
2020/21 25.30
2021/22 26.40
Mean 25.95
S.D 5.37
C.V 21
Note. Appendix [A]

The above table presents the results of the return on equity of the sample banks.
The average ROE of the sample bank is 25.95%. This indicates that the return on equity
of the NBL is at a satisfactory level. The standard deviation for the NBL is 5.37% and its
CV is 21%, respectively. The coefficient of variation indicates the fluctuating trend or
measures the uniformity of the bank. There is a higher fluctuation in the return on equity
of NBL during the study period. But the returns on equity investments for both banks are
in good shape. Overall, the NBL's return on equity is performing well, with an average of
25.95%.

4.2.2 Return on Assets

The return on assets is evaluated in order to determine the effectiveness of

investment in total assets with respect to net profit. It is a financial metric that helps
determine how efficiently a company is utilizing its assets to generate profits. By
comparing the net profit to the total assets, it provides insight into the company's ability
to generate earnings from its investments. Additionally, a higher return on assets indicates
better profitability and efficiency in asset utilization. The following table shows the return
on assets of the sample commercial banks.
 44

Table 4.7
Return on Assets NBL (in %)
Years NBL
2012/13 2.4
2013/14 2.2
2014/15 2.3
2015/16 1.9
2016/17 2.0
2017/18 2.1
2018/19 2.1
2019/20 2.4
2020/21 3.20
2021/22 3.40
Mean 2.40
S.D 0.50
C.V 25
Note. Appendix [A, B]
The above table presents the results of the return on assets of the sample banks.
The average ratio of return on assets of the sample bank is 2.40%. This indicates that the
return on assets for both banks is not satisfactory. Likewise, the standard deviation is
0.50% for both sample banks. The C.V. of the sample bank indicates the fluctuating trend
or measures the uniformity of the banks, which is 25%. The per-unit risk return on assets
is higher than NBL in general. This suggests that the sample banks are not effectively
utilizing their assets to generate profits. Additionally, the higher per-unit risk return on
assets indicates that the banks are taking on more risk in their asset management
compared to NBL.

4.2.3 Return on Loan and Advances

The return on loans and advances ratio is an important financial metric that
indicates the profitability of a company's lending activities. It provides insight into how
effectively a company is generating profits from its loan portfolio. This ratio is computed
by dividing net profit (loss) by the total amount of loans and advances, and the return on
loans and advances ratio is shown in the following table.
 45

Table 4. 8
Return on Loan and Advances Ratios NBL (In %)
Years NBL
2012/13 3.12
2013/14 3.20
2014/15 3.20
2015/16 2.84
2016/17 2.57
2017/18 2.65
2018/19 2.71
2019/20 2.98
2020/21 4.20
2021/22 3.26
Mean 3.07
S.D 0.47
C.V 15
Note. Appendix A
The above table shows the analysis of the return on loan and advances of NBL,
and they fluctuated a little bit during the study period. During the study period, the
average return on loans and advances of the bank was 3.07%; its SD and CV were 0.47%
and 15%, respectively. NBL has the highest ratio of return on loan and advance of 3.2%
and the lowest ratio of 2.57%. This indicates that NBL has been able to consistently
generate a higher return on its loans and advances compared to other banks in the study.
The fluctuation in the ratios suggests that NBL's performance in this area may have been
influenced by various factors, such as market conditions and lending practices.

4.3 Correlation Analysis

A method of statistics for determining the relationship between two or more

quantitative variables is correlation analysis. A high degree of correlation proves a
significant relationship between two or more variables, while a weak correlation suggests
little to no relationship at all between two or more variables. A correlation analysis is
acknowledged as a helpful method for providing a single value between -1 and +1 that
represents the relationship between two variables. For a ten-year period, the cash reserve
ratio, non-performing loan ratio, capital adequacy ratio, cost per loan asset, and bank
 46

sizes are the independent factors, while ROA and ROE are the dependent variables. To
find any kind of relationship, correlation coefficients between each variable are
calculated. The correlation matrix provides a partial indication of the degree and direction
of the relationship between the variables. In other words, a complete connection between
ROA and ROE—where the independent variables are the bank sample from the BS,
CAR, NPL, CLA, and CRR—has been seen.

Table 4. 9
Correlation Matrix between Variables
Variables ROA ROE CAR NPL CLA CRR BS
ROE .572** 1
CAR -0.048 -0.305 1
NPL 0.004 -0.187 -0.028 1
CLA 0.076 -0.071 0.151 -0.033 1
CRR 0.247 0.192 .362* -0.31 .420** 1

BS 0.169 -0.142 .686** -359* 0.212 0.209 1

**. The correlation is significant at the 0.01 level (2-tailed).

*. The correlation is significant at the 0.05 level (2-tailed).
Note. Results from SPSS
According to Table 9, the correlation matrix provides some insights into the
independent variables that are significantly correlated to the dependent variables ROA
and ROE. The result shows that the bank has negative related dependent variables ROA
and ROE with an independent variable capital adequacy ratio, which indicates that the
relationship is not strong. The bank's performance return on assets (ROA) is significantly
positively correlated with the non-performing loan ratio. The result implies that as the
value of the NPL ratio increases, the performance of the bank will increase, and the return
on equity (ROE) is negatively correlated with the NPL, which implies that as the non-
performing loan ratio increases, the performance of the bank will decrease. The results
reveal that cost per loan asset, cash reserve ratio, and bank size have significantly
positively correlated with the bank's ROA, which implies that as the value increases, the
performance of the bank also increases. There is also a significantly positive correlation
between ROE and CRR. And the return on equity (ROE) is insignificant with the cost per
 47

loan asset and bank size, which indicates that as the value of CLA and BS increases, the
bank's ROE will decrease.

4.4 Analysis of impact of Variables on profitability

Relapse investigation is worried about the investigation of the reliance of one

variable, the reliant variable, on at least one different factors, the free factor, with the end
goal of assessing the typical worth of the reliant variable from the known upsides of the
autonomous variable. In relapse examination, there are two kinds of factors. The variable
whose worth is affected or is to be anticipated is known as the reliant variable, and the
variable that impacts the qualities or is utilized for expectation is known as the free factor.
Capital adequacy ratio, non-performing loan, cost per loan asset, cash reserve ratio, and
bank size are independent variables in this study, while ROA and ROE are dependent
variables.

4.4.1 Analysis of ROA on CAR, NPL, CLA, CRR, and BS

The analysis of return on assets (ROA) on the capital adequacy ratio (CAR), non-
performing loans (NPL), cost-to-liquid asset ratio (CLA), cash reserve ratio (CRR), and
balance sheet (BS) provides valuable insights into the financial performance and risk
management of a company. By examining the relationship between ROA and these key
indicators, we can assess the efficiency of asset utilization, the level of credit risk, the
cost-effectiveness of liquidity management, regulatory compliance, and overall financial
health. This analysis helps stakeholders make informed decisions regarding investment
opportunities, risk mitigation strategies, and potential areas for improvement in a
company's operations.
Table 4. 10
Model Summary
Model R R Square Adjusted R Square Std. Error of the estimate

1 .531a 0.282 0.176 0.3660563

a. Predictors. (Constant), BS, CRR, NPL, CLA, and CAR
Note. Results from SPSS
The model summary, which accounts for the overall variance in ROA explained
by CAR, NPL, CLA, CRR, and bank size, is displayed in Table 10. The independent
variables CAR, NPL, CLA, CRR, and BS may account for 28.2% of the variance in ROA
at a 95% confidence level, according to the coefficient of multiple determinations of.282.
 48

The estimated chance of error is 36.605663. The coefficient of multiple determination R-

square shows that 28.2% of changes in the ROA of Nepalese commercial banks could be
accounted for by changes in CAR, NPL, CLA, CRR, and BS, and the remaining 71.8%
are contributed by other factors. The relationship between the study variables is displayed
by the correlation coefficient. Above the table, a significant positive relationship is shown
between the study variables, as shown by 0.531a.
Table 4. 10
Analysis of Variance (ANOVA)
Model Sum of Squares df Mean Square F Sig.
1 Regression .380 4 .095 1.062 .462b
Residual .447 5 .089
Total .827 9
a. Dependent Variable: ROA
b. Predictors: (Constant), BS, CRR, NPL, CPLA, CAR
Note. Result from SPSS-26
In the table shown of the ANOVA, The processed data, which are the population
parameters, had a significance level of.039b%. This indicates that the data are ideal for
determining the parameters of the population because the value of significance (p-value)
is lower than the usual 5%. The Fisher's proportion (i.e., the F-measurement), which is the
evidence of the legitimacy of the assessed model as reflected in the above table (model
rundown), The F esteem is around 2.669 and the P worth, or F (sig), is 0.039b. This
perpetually proposes that all the while, the informative factors are altogether related
factors. That is, they strongly determine the behavior of the return on assets.
Table 4. 11
Regression Results of ROA on Independent Variables
Model Unstandardized Standardized t Sig. Collinearity
1 Coefficients Coefficients Statistics
B Std. error Beta Tolerance VIP
(Constant) -7.772 3.412 -2.278 0.029
CAR -0.268 0.091 -0.709 -2.958 0.006 0.368 2.717
NPL 0.084 0.038 0.413 2.232 0.032 0.617 1.62
CAL -0.021 0.018 -0.193 -1.145 0.26 0.744 1.344
CRR 0.033 0.011 0.561 2.914 0.006 0.571 1.753
BS 0.488 0.164 0.727 2.979 0.005 0.355 2.817
 49

a. Dependent Variable: ROA

Note. Result from SPSS-26
From the table of the regression model, the beta coefficient of the CAR, NPL,
CLA, CRR, and BS of Nepalese commercial banks is equal to zero. Return on assets of
Nepalese commercial banks would be -7.772. It is laid out that a unit decline in Vehicle
would cause a lessening in ROA by a variable of - .268, a unit expansion in NPL
proportion prompts an expansion in ROA by a component of.084, a unit decline in CLA
would cause a reduction in ROA by an element of - .021, a unit expansion in CRR
proportion prompts an expansion in ROA by a component of.033, and a unit expansion in
BS prompts an expansion in ROA by a component of.488 of Nepalese business banks.
The outcomes show there is a positive connection among ROA and four free factors
(Vehicle, NPL, CRR, and BS). Furthermore, there is a negative connection among ROA
and CLA. Cost per loan asset and performance do not have a relationship because the
relationship is not significant. The table also shows the VIF, or multicollinearity test,
which indicates the relationship between independent variables and each other. Here, the
variables' tolerance value is greater than 0.2, which means there are no multicollinearity
problems. And if the variance inflation factors are greater than 1 and less than 5, as a
result, if the VIF value is greater than 1, the predictors may be moderately correlated.

4.4.2 Analysis of ROE on CAR, NPL, CLA, CRR, and BS

The analysis of return on equity (ROE) on the capital adequacy ratio (CAR), non-
performing loans (NPL), credit loss allowance (CLA), cash reserve ratio (CRR), and
balance sheet (BS) provides valuable insights into the financial health and performance of
a company or financial institution. By examining the relationship between ROE and these
factors, one can assess the efficiency of capital utilization, the level of risk associated
with loan portfolios, the adequacy of provisions for potential credit losses, the liquidity
position, and the overall strength of the balance sheet.
Table 4. 12
Model Summary
Model R R Square Adjusted R Square Std. Error of the estimate

1 .497a 0.247 0.136 4.7921865

a. Predictors. (Constant), BS, CRR, NPL, CLA, and CAR
Note. Results from SPSS
 50

Table 13 shows the model outline, which makes sense of the absolute variety in
ROE made sense of via Vehicle, NPL, CLA, CRR, and bank size. The worth of the
coefficient of numerous judgments, R square, is. 247. This suggests that the variety in
ROE can be made sense of by 24.7% free factors (Vehicle, NPL, CLA, CRR, and BS) at a
95% certainty span. The assessed opportunity of mistake is 4.7921865. The coefficient of
different judgments R-square shows that 24.7% of changes in the ROE of Nepalese
business banks could be represented by changes in Vehicle, NPL, CLA, CRR, and BS,
and the excess 75.3% are contributed by different variables. R is the connection
coefficient, which shows the connection between the review factors. Over the table, a
fundamentally sure relationship is displayed between the review factors, as shown by
0.497a. This outcome is supplemented by a R square of around 24.7%, which is crucial
for the extent of complete fluctuation that is made sense of by the model.
Table 4.13
Analysis of Variance (ANOVA)

Model Sum of Squares df Mean Square F Sig.

1 Regression 256.25 5 51.25 2.232 .044b
Residual 780.812 34 22.965
Total 1037.06 39
a. Dependent Variable: ROE
b. Predictors: (Constant), BS, CRR, NPL, CPLA, CAR
Note. Result from SPSS-26
In the table shown of the ANOVA, The processed data, which are the population
parameters, had a significance level of.044b%. This indicates that the data are ideal for
determining the parameters of the population because the value of significance (p-value)
is lower than the usual 5%. The Fisher's proportion (i.e., the F-measurement), which is the
evidence of the legitimacy of the assessed model as reflected in the above table (model
rundown), The F esteem is around 2.232 and the P worth, or F (sig), is 0.044b. This
constantly proposes that all the while the illustrative factors are essentially related factors.
That is, they determine the behavior of the return on equity.
 51

Table 4.14
Regression Results of ROA on Independent Variables
Model Unstandardized Standardized t Sig. Collinearity
1 Coefficients Coefficients Statistics
B Std. error Beta Tolerance VIP
(Constant) 3.571 44.667 0.08 0.937
CAR -2.783 1.186 -0.576 -2.346 0.025 0.368 2.717
NPL 0.008 0.491 0.003 0.015 0.988 0.617 1.62
CAL -0.303 0.242 -0.216 -1.253 0.219 0.744 1.344
CRR 0.333 0.146 0.449 2.278 0.029 0.571 1.753
BS 1.766 2.146 0.206 0.823 0.416 0.355 2.817
a. Dependent Variable: ROE
Note. Result from SPSS-26
The beta coefficients of the Nepalese commercial banks' CAR, NPL, CLA, CRR,
and BS can be found in the regression model's table. Return on value of Nepalese
business banks would be 3.571. It's laid out that a unit decline in Vehicle would cause a
diminishing in ROE by a component of - 2.738, a unit expansion in NPL would cause an
expansion in ROE by a variable of.008, a unit decline in CLA prompts a lessening in
ROE by an element of - .303, a unit expansion in CRR would cause an expansion in ROE
by a variable of.333, and a unit expansion in BS prompts an expansion in ROE by an
element of 1.766 of Nepalese business banks. The result shows there is a positive
relationship between ROE and two independent variables (CAR and CRR). There is a
negative relationship between ROE and three independent variables (NPL, CLA, and BS),
which indicates there is no relationship between bank performance. The table also shows
the VIF multicollinearity test, which indicates the relationship between independent
variables and each other. Here, the variables' tolerance value is greater than 0.2, which
means there are no multicollinearity problems. And if the variance inflation factors are
greater than 1 and less than 5, as a result, if the VIF value is greater than 1, the predictors
may be moderately correlated.

4.5 Major Findings

The NBL's strong financial position is evidenced by the fact that it has
consistently maintained a capital adequacy ratio higher than the minimum requirement of
10.43 percent. Notwithstanding, there has been some variance in the proportion
 52

throughout the long term, with a pinnacle of 14.69 percent in 2018/19 and a slight
diminishing to 13.38 percent in 2021/22. This proposes that the NBL has had the option
to really deal with its capital and keep a sound degree of chance inclusion.
The NBL's NPL proportion has encountered critical variances throughout the long
term, with a huge lessening from 64.14 percent in 2014/15 to 35.12 percent in 2018/19.
Regardless of these changes, the NPL proportion remains moderately stable at 22.78%,
with a coefficient of variety of 0.62 and a limit of 99.19%.
The NBL keeps a steady typical expense for every credit resource proportion of
2.16% from 2012/13 to 2021/22, with some unpredictability. Despite this, the cost per
loan asset ratio can only go up to 2.29 percent, with a minimum of 1.89 percent. The ratio
changes from one year to the next.
The NBL's money hold proportion (CRR) has varied throughout the long term,
with a greatest CRR of 24.27%. The standard deviation of the CRR is 3.66%, and the
average CRR is 16.70%. The CRR has expanded from 15.19% in 2012-13 to 9.55% in
2018/19, and presently remains at 14.43%.
With only minor fluctuations, the NBL's bank size has remained within the
required range. The typical bank size is 25.30 percent, with a check coefficient of 0.02.
The bank's size has progressively expanded from 2012/13 to 2021/22, showing a positive
pattern in development.
The NBL's typical ROE is 25.95%, showing acceptable profit from value. The
returns on equity investments of both banks are in good shape, despite the fact that they
fluctuate more than other banks. The standard deviation is 5.37% and the CV is 21%. The
coefficient of variety estimates the bank's consistency.
The example bank's typical proportion of return on resources is 2.40%, showing
inadmissible execution contrasted with NBL. The standard deviation is 0.50%, and the
C.V. measures fluctuating patterns. The higher per-unit risk return demonstrates more
gamble in resource the executives contrasted with NBL.
NBL reliably produces higher normal profit from credits and advances, with a CV
of 15.0%, contrasted with different banks. This exhibition might be impacted by
economic situations and loaning rehearses, with a 3.2% proportion.
From the bivariate relationship investigation, the profit from resources (ROA) of
inspected banks is decidedly associated with ROE, NPL, CPL, CRR, and bank size. It
suggests that ROA rises in tandem with an increase in commercial banks. What's more,
 53

the profit from value of examined banks is adversely related with Vehicle, which suggests
that a decline in Vehicle prompts an expansion in ROA.
There is a negative relationship among ROA and Vehicle of business banks (for
example ,.048). There is a positive connection among ROA and NPL of business banks
(i.e., 0.004). There is a positive relationship among ROA and CPL of business banks (i.e.,
0.076). There is a positive connection among ROA and CRR of business banks (i.e.,
0.247). There is a positive relationship between the ROA and BS of business banks (i.e.,
0.169).
From the bivariate connection examination, the profit from value (ROE) of
inspected banks is emphatically associated with CRR and adversely corresponded with
Vehicle, NPL, CPL, and bank size.
There is a positive connection among ROE and CRR of business banks (i.e.,
0.192), and there is a negative relationship among ROE and Vehicle, NPL, CPL, and BS,
separately (i.e., - 0.305, - 0.187, - 0.71, and - 1.42).
The coefficient of different assurance of the situation is 0.282. This indicates that
28.2% of the variables that influence bank performance are CAR, NPL, CPL, CRR, and
BS, while the remaining 71.2 percent have no explanation.
For every independent variable (CAR, NPL, CPL, CRR, and bank size), the
multiple regressions demonstrate that the regression for determining is positive.
The coefficient of numerous assurance of the situation is 0.247. This implies the
factors Vehicle, NPL, CPL, CRR, and BS are liable for deciding bank execution, and
24.7% of them are unexplained in the decided bank execution. The numerous relapses
show that the relapse for deciding is positive for autonomous factors. The trial of P-
esteem make sense of that the relationship of ROA with Vehicle, NPL, CPL, CRR, and
BS of the bank at the 5% level is critical. Since the p-upsides of Vehicle, NPL, CRR, and
BS are under 0.05, this implies that Vehicle, NPL, CRR, and BS essentially influence the
ROA. The p-worth of the CPL of the bank is more than 0.05, and that implies that the
CPL of the bank irrelevantly affects the ROA. What's more, ROE with autonomous
factors Vehicle and CRR is under 0.05, and that implies it's fundamentally affecting ROE.
The p-upsides of NPL, CPL, and BS are more than 0.05, and that implies NPL, CPL, and
BS Bank inconsequential affect the ROE. If the tolerance value for the variables is greater
than 0.2, then there are no issues with multicollinearity. Furthermore, in the event that the
change expansion factors are more noteworthy than 1 and under 5, subsequently,
 54

assuming the VIF esteem is more prominent than 1, the indicators might be decently
connected.

4.6 Discussion

The review utilized illustrative and different relapse examinations to inspect the
elements influencing the credit risk the executives and bank execution of business banks.
The fitting examination procedure has utilized auxiliary information gathered for the
yearly reports of chosen business banks. To acquire the aftereffect of the review, different
monetary and measurable devices are utilized.
From the relapse model, the outcomes uncovered that the capital sufficiency
proportion, non-performing credit, cash hold proportion, and bank size have a huge
positive relationship with the profit from resources (ROA) of Nepalese business banks.
Also, the expense per credit resource has an immaterial relationship with the profit from
resources of business banks. In addition, the regression model reveals that the results of
the capital adequacy ratio and the cash reserve ratio have a significant positive
relationship with non-performing loans and return on equity (ROE), whereas the cost per
loan asset and the size of the bank have no effect on the return on equity of particular
commercial banks.
The consequences of the capital sufficiency proportion (Vehicle) having a positive
relationship with ROA and ROE are reliable with Bhattarai (2016), Paudel (2012), and
Ekinci and Kenet (2019). This might be on the grounds that high capital ampleness
proportions deal with the credit risk and the bank's exhibition.
The results of the non-performing loan ratio having a negative relationship with
ROA and ROE are not consistent with Bhattarai's (2016) findings. The results of non-
performing loan ratios having a positive relationship with ROA and ROE are consistent
with Abiola and Olausi (2014). The results of cost per loan asset having a positive
relationship with ROA and ROE are consistent with Bhattarai's (2016) findings. CPL
having a negative relationship with ROA is not consistent with the findings of Paudel
(2012). It indicates no relation between CPL and performance.

The results of the cash reserve ratio having a positive relationship with ROA and ROE are
consistent with Bhattarai's (2016) findings. It indicates CRR has an impact on bank
performance. By changing the CRR, the central bank can control the amount of liquidity.
The amount of capital in the economy is essentially reduced when the reserve
 55

requirement is raised, which means that banks will have less money to lend out and lower
the money supply.
The results of bank size having a positive relationship with ROA are consistent
with Bhattarai's (2016) findings. Bank size controls for cost differences in products and
risk diversification according to the size of the financial institution. This is included to
control for the possibility that large banks are likely to have greater product and loan
diversification.
 56

Chapter V: Summary and Conclusions

This is the final chapter that involves a summary, conclusions, and implications
of the research work. The facts and findings from secondary data analysis are presented in
this chapter.

5.1 Summary

This part gives a concise synopsis of the whole body and features the significant
discoveries of the review. The goal of the review was to explore the inside factors
influencing the credit risk the board and bank execution of Nepal Bank Restricted. Part
one gives a point by point foundation on the impact of credit risk on bank execution and
the targets of the review.

The part one likewise centered around the meaning of the review, its restrictions,
and the association of the review. The particular goals of this study are (1) to explore the
effect of credit risk on the exhibition of Nepal Bank Restricted; ( 2) to examine the effect
of Vehicle, NPLR, CLA, CRR, and bank size on the ROA of Nepal Bank Restricted;
furthermore (3) to look at the effect of Vehicle, NPLR, CLA, CRR, and bank size on the
ROE of Nepal Bank Restricted.

Section two presents a survey of the hypothetical writing on layaway risk the
executives and bank execution of business banks. There are various hypotheses of
conversation in this part; This section also looks at a lot of national and international
articles about factors that affect commercial banks' credit risk management and bank
performance. This chapter also defined the theoretical framework, as well as the summary
and gaps that the study will fill.

The three chapters were organized according to research design, sample design,
population design, procedures and instruments for data collection, data analysis, and
presentation. The example comprised of one tested business bank (i.e., Nepal Bank
Restricted) from an all out populace of 20 business banks by utilizing a helpful inspecting
technique that met the qualification models. To accomplish the targets of the review, an
enlightening and causal relative examination configuration has been utilized.
 57

Part four presents and examines the aftereffects of experimental testing of

elements influencing the credit risk the executives and bank execution of business banks.

Information are dissected utilizing suitable monetary expressive and scientific

instruments. Significant discoveries of the review were additionally brought up in this
section.

5.2 Conclusions

The study's primary goal is to examine Nepal Bank Limited's credit risk
management. Ten observations covering the years 2012–13 through 2021–22 were
analyzed for this study utilizing secondary data from a single commercial bank. The
findings demonstrated that credit management is a significant predictor of bank financial
performance, meaning that risk management is essential to bank performance.
One crucial indicator of a bank's soundness and capacity to absorb losses is the
capital adequacy ratio. By dividing the bank's capital by its risk-weighted assets, it is
computed. As a sign of its sound financial standing, the NBL has continuously kept its
capital adequacy ratio above the required minimum of 10.43 percent. This implies the
NBL's ability to.
The NPL ratio of the NBL has experienced fluctuations over the years, with a
significant decrease from 64.14 percent in 2014/15 to 35.12 percent in 2018/19. However,
it is projected to further decrease to 26.12 percent in 2022. Despite these changes, the
current NPL ratio of the bank stands at a relatively stable rate of 22.78 percent.
The fluctuation in the NBL's cost-per-loan-assets ratio over the years suggests that
the bank's expenses related to loan assets have varied. This could be due to factors such as
changes in interest rates, economic conditions, or the bank's lending practices. However,
it is worth noting that despite this volatility, the NBL has managed to maintain a
relatively low maximum and minimum cost per loan asset ratio, indicating some level of
stability in managing its expenses.
The NBL's cash reserve ratio has experienced significant fluctuations over the
years, reaching a minimum of 9.55% in 2012–13 and a maximum of 24.27%. However,
in recent years, there has been a downward trend, with the ratio decreasing from 15.19%
in 2014/15 to its current level of 14.43%. The positive trend in the NBL's bank size
growth suggests that the bank has been able to maintain a stable and healthy financial
position. The slight fluctuations observed within the required range indicate that the NBL
 58

has effectively managed its assets and liabilities to meet regulatory standards while also
allowing for growth. Overall, the NBL's return on equity is performing well, with an
average of 25.95%. However, it is important to note that there is a higher level of
fluctuation in its returns compared to other banks in the sample. Despite this, both banks'
returns on equity investments are still considered to be in good shape.
The per-unit risk return on assets is higher than NBL in general. This suggests that
the sample banks are not effectively utilizing their assets to generate profits. Additionally,
the higher per-unit risk return on assets indicates that the banks are taking on more risk in
their asset management compared to NBL. The study indicates that NBL has been able to
consistently generate a higher return on its loans and advances compared to other banks in
the study. The fluctuation in the ratios suggests that NBL's performance in this area may
have been influenced by various factors, such as market conditions and lending practices.
Since credit management in general has a very significant relationship and impact
between the dependent and independent variables on In order to minimize loan risk and
optimize bank performance, the bank is recommended to prioritize risk management.
5.3 Implications
Additionally, this work has a number of ramifications that suggest intriguing directions
for further investigation. Here are some implications and recommendations for further
study..
a. Based on the findings of the study, for banking investment, customer The
knowledge on the aspects analysts should take into consideration might be useful
in investment decisions while predicting the credit risk management and bank
performance of banks. The results of the study suggest bankers should pay
attention to CAR, NPLR, CLA, CRR, and bank size before making any decisions
regarding investment.
b. This study examined the internal factors that affect the credit risk management
and bank performance of Nepalese commercial banks. The factors included were
firm-specific and might not be the only ones that have an impact on bank
performance. It is recommended that further research be conducted to establish
whether there are other external factors.
c. This concentrate on has been directed with regards to Nepalese business banks,
with a brief timeframe and a little size. Future examinations might manage a large
number of firms over a significant stretch of time.
 59

d. There is a need to direct an occasion concentrate on the variables that effect credit
risk the board and bank execution for Nepal Bank Restricted. Inward factors like
Vehicle, NPLR, CLA, CRR, and bank size are indispensable components of
banks. This study reveals a lot of insight into the variables that influence the credit
risk the board and bank execution of Nepal Bank Restricted and, subsequently,
has added to the financial area in Nepal.
e. This concentrate on guides expected financial backers' choices in Nepal to zero in
on the elements talked about above prior to pursuing venture choices. It lessens
credit chance and increments bank execution and benefit.
f. This study has shown important results, and expanding the study to other
emerging markets could be a direction for future research.
g. This result is fundamentally from an "A" class monetary establishment in Nepal,
Nepal Bank Restricted. Subsequently, the future review might consolidate other
monetary areas, for example, improvement banks, protection finance
organizations, and microfinance organizations. The review is altogether founded
on optional information. In this way, future examinations can be founded on
utilizing essential information or both essential and optional information. Due to
the limited sample size and time frame of the study, it is possible to conduct
additional studies with a larger sample size over a longer time frame.
h. The concentrate on model utilized in the review is restricted to different direct
relapses. In this manner, different models can be utilized to set a model and look
at the effect of corporate administration on the capital design of Nepalese business
banks. At long last, future examinations can utilize a few high level factual
instruments.
 60

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 64

Appendices

Appendix A
Variables/ Years 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
/ / / / / / / / / /
13 14 15 16 17 18 19 20 21 22
Capital Adequacy Ratio 10.4 11.0 11.5 11.1 13.3 12.6 14.6 14.2 13.7 13.3
3 2 9 5 3 6 9 4 8
Non-performing Loan Ratio 35.1 86.1 64.1 99.1 67.1 39.1 26.1 20.0 16.1 22.7
2 8 4 9 1 4 2 9 4 8
Cost Per Loan Assets Ratio 2.14 2.24 2.19 2.18 2.24 1.89 1.99 2.29 2.24 2.17

Cash Reserve Ratio 9.55 17.2 15.1 16.9 24.2 16.6 16.5 17.7 18.5 14.4
2 9 1 7 1 2 5 6 3
Bank Size 24.5 24.7 24.9 24.9 25.3 25.4 25.4 25.7 25.8 25.9
6 5 1 8 2 6 8 6 4
Return on Equity NBL 34.6 31.4 30.4 28.4 22.8 20.3 17.3 22.4 25.3 26.4
2 7 4 2 8
Return on Assets NBL 2.4 2.2 2.3 1.9 2 2.1 2.1 2.4 3.2 3.4

Return on Loan and Advances 3.12 3.2 3.2 2.84 2.57 2.65 2.71 2.98 4.2 3.26

Ratios
 65

Appendix B
Correlation Matrix between Variables
Variables ROA ROE CAR NPL CLA CRR BS
ROE .572** 1
CAR -0.048 -0.305 1
NPL 0.004 -0.187 -0.028 1
CLA 0.076 -0.071 0.151 -0.033 1
CRR 0.247 0.192 .362* -0.31 .420** 1

BS 0.169 -0.142 .686** -359* 0.212 0.209 1

**. The correlation is significant at the 0.01 level (2-tailed).

*. The correlation is significant at the 0.05 level (2-tailed).
 66

Model Summary
Model R R Square Adjusted R Square Std. Error of the estimate

1 .531a 0.282 0.176 0.3660563

a. Predictors. (Constant), BS, CRR, NPL, CLA, and CAR

Analysis of Variance (ANOVA)

Model Sum of Squares df Mean Square F Sig.
1 Regression .380 4 .095 1.062 .462b
Residual .447 5 .089
Total .827 9
a. Dependent Variable: ROA
b. Predictors: (Constant), BS, CRR, NPL, CPLA, CAR

Regression Results of ROA on Independent Variables

Model Unstandardized Standardized t Sig. Collinearity
1 Coefficients Coefficients Statistics
B Std. error Beta Tolerance VIP
(Constant) -7.772 3.412 -2.278 0.029
CAR -0.268 0.091 -0.709 -2.958 0.006 0.368 2.717
NPL 0.084 0.038 0.413 2.232 0.032 0.617 1.62
CAL -0.021 0.018 -0.193 -1.145 0.26 0.744 1.344
CRR 0.033 0.011 0.561 2.914 0.006 0.571 1.753
BS 0.488 0.164 0.727 2.979 0.005 0.355 2.817
a. Dependent Variable: ROA
 67

Model Summary
Model R R Square Adjusted R Square Std. Error of the estimate

1 .497a 0.247 0.136 4.7921865

a. Predictors. (Constant), BS, CRR, NPL, CLA, and CAR

Analysis of Variance (ANOVA)

Model Sum of Squares df Mean Square F Sig.

1 Regression 256.25 5 51.25 2.232 .044b
Residual 780.812 34 22.965
Total 1037.06 39
a. Dependent Variable: ROE
b. Predictors: (Constant), BS, CRR, NPL, CPLA, CAR
Regression Results of ROA on Independent Variables
Model Unstandardized Standardized t Sig. Collinearity
1 Coefficients Coefficients Statistics
B Std. error Beta Tolerance VIP
(Constant) 3.571 44.667 0.08 0.937
CAR -2.783 1.186 -0.576 -2.346 0.025 0.368 2.717
NPL 0.008 0.491 0.003 0.015 0.988 0.617 1.62
CAL -0.303 0.242 -0.216 -1.253 0.219 0.744 1.344
CRR 0.333 0.146 0.449 2.278 0.029 0.571 1.753
BS 1.766 2.146 0.206 0.823 0.416 0.355 2.817
a. Dependent Variable: ROE
 68

Credit Management of Nepal Bank limited

A Dissertation Proposal Submitted to the Office of the Dean, Faculty of Management

in Partial Fulfillment of the Requirements for the
Master’s Degree

By
Ankita Adhikari
Exam Roll No: 7894/18
T.U. Reg.: 7-2-580-4-2013
Mahendra Multiple Campus, Dharan

Dharan, Nepal
August, 2023
 69

1.1 Background of the Study

The term bank credit refers to the amount of credit available to a business or individual
from a banking institution in the form of loans. Bank credit, therefore, is the total amount of
money a person or business can borrow from a bank or other financial institution. A borrower's
bank credit depends on their ability to repay any loans and the total amount of credit available to
lend by the banking institution. Types of bank credit include car loans, personal loans, and
mortgages (Pandey, 2009). The credit of commercial banks refers to the ability of these banks to
extend loans and provide financial resources to individuals, businesses, and other entities. This
credit is typically granted based on the bank's assessment of the borrower's creditworthiness,
which includes factors such as their income, assets, and repayment history. By offering credit,
commercial banks play a crucial role in stimulating economic growth by facilitating investment,
consumption, and business expansion.
Credit is generally defined as a contractual agreement in which a borrower receives
something of value now and agrees to repay the lender at a later date, generally with interest.
Sometimes, it may even involve crediting someone, for instance. Credit also refers to the
creditworthiness or credit history of an individual or company. It also refers to an accounting
entry that either decreases assets or increases liabilities and equity on a company's balance sheet
(Wagner, 2012). Credit is regulated as the most income-generating asset, especially in
commercial banks. Credit is regarded as the heart of commercial banks in the sense that it
occupies a large volume of transactions; it is the main part of investment; most of the investment
activities are based on credit; it is the main factor for achieving profitability; it is the main source
of creating profitability; it determines profitability. It affects the overall economy of the country.
In today’s context, it also affects the national economy to the same extent. If the bank provides
credit to the retailer, it will encourage customer loyalty. Similarly, if credit facilities are provided
to trade and industry, the government will get taxes from them, which will help stimulate the
national economy. It is a security against depositors. It is proven from the very beginning that
credit is the shareholder’s wealth maximization derivative. However, other factors can also affect
profitability and wealth maximization, but the most effective factor is regarded as credit. It is the
most challenging job because it is the backbone of three commercial banks. Thus, effective
management of credit should be seriously considered. Management is the system that helps to
 70

complete every job effectively. Credit management is also a system that helps manage credit
effectively. In other words, credit management refers to the management of credit exposures
arising from loans, corporate bonds, and credit derivatives. Credit exposures are the main source
of investment in commercial banks, and the return on such investments is supposed to be the
main source of income. Credit management strongly recommends analyzing and managing credit
risks (Balla, 2013). Credit risk is defined as the possibility that a borrower will fail to meet its
obligations in accordance with the agreed terms and conditions. Credit risk is not restricted to
lending activities only but includes off-balance sheet and interbank explorations. The goal of
credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining the
credit risk exposure within acceptable parameters. For most banks, loans are the largest and most
obvious sources of credit risk; however, other sources of credit risk exist throughout the
activities of a bank, including in the banking book and in the trading book, and both are
increasingly facing credit risk in various financial instruments other than land, including
acceptances, interbank transactions and guarantees, and the settlement of transactions (Pradhan,
2017). The credit policy of a firm provides the framework to determine whether or not to extend
credit and how much credit to extend. The credit policy decisions of a bank have two broad
dimensions: credit standards and credit analysis. A fire has to establish and use standards in
making credit decisions, develop appropriate sources of credit information, and develop a
method of credit analysis (Brigham, 2009).
Credit management at commercial banks in Nepal refers to the processes and strategies
implemented by these banks to effectively manage and control the credit extended to borrowers.
This includes assessing the creditworthiness of potential borrowers, setting appropriate terms and
conditions for loans, monitoring loan repayment, and taking necessary actions in case of default.
The primary objective of credit management is to minimize the risk associated with lending
while maximizing profitability for the bank.

1.2 Problem Statements

Credit management refers to the process by which commercial banks assess, monitor, and
control the risks associated with lending money to borrowers. It involves various activities such
as evaluating the creditworthiness of potential borrowers, setting appropriate interest rates,
establishing credit limits, and implementing effective collection strategies. Additionally, credit
 71

management also involves continuously monitoring the financial health of borrowers and taking
the necessary actions to mitigate any potential risks or defaults. The current situation has brought
cutthroat competition to the banking business. The success and failure of a finance company
largely depend on the total credit risk management and performance of banks. Credit risk refers
to the probability of loss due to the borrower's failure to make payments on any type of debt.
Banks should manage their liquidity problems to minimize risk. Bhattarai (2016) conducted
research on the effect of credit risk on the performance of Nepal bank Limited, and they found
that non-performing loan ratio has a negative effect on bank performance, while CLA, bank size
has a positive effect on bank performance, and CAR and CRR are not considered to influence
bank performance. This study tries to analyze the present performance of the bank, which would
give the answer to the following queries: What are the capital adequacy and asset quality of the
sampled banks?
a. What is the relationship between credit risk management and performance of commercial
bank?
b. What is the impact of CAR, NPLR, CLA, CRR and Bank size on ROA of Nepalese
commercial bank?
c. What is the impact of CAR, NPLR, CRR, CLA and Bank size on ROE of Nepalese
commercial bank?

1.3 Objective of the Study

Objectives in research refer to the specific goals or aims that a researcher sets out to
achieve through their study. These objectives outline the purpose and direction of the research,
guiding the researcher in their data collection, analysis, and interpretation. The fundamental
objective of this study is to analyze the financial performance analysis of three commercial banks
in the framework of CAMEL. The specific objectives of the study are given below:
g. To examine the credit management and Performance of Nepal bank limited.
h. To measure the relationship of CAR, NPLR, CLA, CRR and Bank size on ROA of Nepal
bank Limited.
i. To analyze the impact of CAR, NPLR, CLA, CRR and Bank size on ROE of Nepal bank
Limited.
 72

1.4. Research Hypothesis

Research hypotheses refer to specific statements or predictions that are formulated to

guide a research study. These hypotheses are based on existing theories, observations, or
previous research findings and aim to test the relationship between variables or determine the
impact of certain factors on a particular phenomenon. They provide a clear direction for the
research and help in formulating research questions, designing experiments, collecting data, and
analyzing results. By formulating research hypotheses, researchers can systematically investigate
and contribute to the existing knowledge in their field of study. The research hypothesis will be
as follows.
H1: There are significant correlations of CAR, NPLR, CLA, CRR and Bank size on
ROA and ROE of Nepal bank Limited.
H2: There is significant impact of CAR, NPLR, CLA, CRR and Bank size on ROA
and ROE of Nepal bank Limited.

1.5 Rational of the Study

The success of any organization is fundamentally linked to how well the organization
manages risk. The banking sector involves many risks, which need to be handled promptly for
the survival and growth of the institution. As this analysis is created primarily to investigate the
credit risks and their management in relation to NRB directives and measures, it gives valuable
insight to completely different stakeholders concerning the main issues of banks and the bank’s
actions for their management. The key stakeholders who are going to be, for the most part,
expedited by this analysis include: This analysis can be extremely beneficial to the business
banks under consideration.
e. This analysis will highlight their existing credit management strategies, NRB credit risk
management recommendations, and the organization's fundamental compliance with such
recommendations, among other things. Additionally, NBL is capable of recognizing not
just their performance but also the ideas around their strengths and flaws.
f. People with a great interest in the financial and economic sectors of Nepal will gain from
this. This investigation will provide an associate-level understanding of the structure of
credit management patterns at intervals of the NRB criteria is provided by this
investigation.
 73

g. This research paper will be helpful to policymakers since it outlines the problems with
credit risk management and explains why new rules need to be created or old ones
modified.
h. The credit risks associated with these banking businesses will benefit all parties involved,
including investors, depositors, and borrowers.

1.6 Limitation of the Study

Limitations in research refer to the factors or constraints that may affect the validity,
reliability, or generalizability of the findings. These limitations can arise from various sources,
such as methodological issues, sample size limitations, time constraints, funding limitations, or
even ethical considerations. It is important for researchers to acknowledge and address these
limitations in order to provide a comprehensive understanding of the study's outcomes and
implications.
f. The end result of the study will be a personal effort. Therefore, management of resource
mobilization will limit the in-depth study of credit analysis except other factors of the
study.
g. The study will be predicated on the study of secondary knowledge. Furthermore,
secondary data will be obtained in a relatively short period of time. Therefore, any
changes in the general reading, ideas, and behavior of the individuals before and once the
amount won’t be enclosed within the study.
h. In this investigation, certain financial comparison tools will be employed. Therefore, the
shortcomings and weaknesses of such techniques might negatively impact the study's
findings.
i. The study will be created through the analysis of monetary statements printed and given
by the banks. Therefore, generalization of the complete banking system will not be
achieved.
j. The secondary data of 10 years has been taken from the sample bank, i.e., from 2012/13
to 2021/22.One sample commercial banks will be taken as sample for the study (i.e
NBL).
 74

1.7 Literature Review

The review of literature could be a crucial facet of the design of the study. During
this chapter, focus has been created on the abstract framework and therefore the review of
literature relevant to the credit and profitablity of commercial banks in Nepal. It's supported
by obtainable literature within the field of analysis. For this purpose, it has to review connected
literature on the subject, which enables the researcher to achieve clear concepts, opinions, and
ideas on what different people have said. What is the difference made? and what different have
written? 'These all and different connected queries are reviewed that have
provided helpful inputs during this analysis work. Each potential effort has been created to
get data and knowledge that's obtainable from libraries, document assortment
centers, different managing bureus, printed and unpublished journals, and reports of involved
banks. Credit risk plays a crucial role in banks' gain since an outsized chunk of banks' revenue
accrues from loans from which interest springs. Credit risk could also be a significant threat to
the performance of banks. Therefore, numerous researchers have examined the impact of credit
risk on banks in various dimensions (Wolff & Pant, 2012).

1.7.1 Review of Articles

Poudel (2020) examined on the title of “The impact of credit management on financial
performance of commercial banks in Nepal”. This study try to explore various parameters
pertinent to credit management as it affect banks‟ financial performance. Such parameters
covered in the study were; default rate, cost per loan assets and capital adequacy ratio. Financial
report of 31 banks were used to analyze for eleven years (2009-2019) comparing the profitability
ratio to default rate, cost of per loan assets and capital adequacy ratio which was presented in
descriptive, correlation and regression was used to analyze the data. The study revealed that all
these parameters have an inverse impact on bank’s financial performance; however, the default
rate is the most predictor of bank financial performance. The recommendation is to advice banks
to design and formulate strategies that is not only minimize the exposure of the banks to credit
but it enhances profitability.

Gauchan and Upadhyaya (2020) studied on the title of “Credit Management and Profitability of
Joint Venture Commercial Banks of Nepal”. The paper shows the evidence of credit portfolio
management and its relationship with banks‟ financial performance. Monthly financial report of
 75

joint venture commercial banks were used to analyze by comparing sector-wise portfolio
management of bank's loan and its relationship with return on assets. Descriptive and fixed effect
regression was used to analyze the panel data. It reveals that all the sectors have an impact on
banks‟ financial performance except consumption & others. The study concludes that the JVBs
of Nepal have managed their portfolio as per the standard parameter allocated by Nepal Rastra
Bank (NRB) directives. The highest portion of loan in JVBs is 34 invested in service sector and
lowest in agriculture & mining sector. Similarly, the profitability of bank has positive relation to
the entire sector except consumption & other sector defining the sector-wise portfolio
management provides a good framework to maintain the sustainability of bank

1.8 Research Methodology

Research methodology refers to the systematic and organized approach used to conduct
research. It encompasses the techniques, tools, and procedures employed to gather and analyze
data in order to answer research questions or test hypotheses. Research methodology provides a
framework for researchers to plan, design, and executes their studies effectively, ensuring the
reliability and validity of their findings. It involves selecting appropriate research methods,
collecting relevant data, analyzing and interpreting the results, and drawing meaningful
conclusions. Additionally, research methodology also involves ethical considerations, such as
ensuring participant confidentiality. Research methodology refers to the systematic approach and
techniques used to conduct a study or investigation. It encompasses the overall design, data
collection methods, and analysis procedures employed in order to obtain reliable and valid
results (Kothari, 2008). Additionally, research methodology plays a crucial role in ensuring the
accuracy and credibility of the findings, as it provides a framework for researchers to effectively
address their research questions or objectives.

1.8.1 Research Design

Research design is the task of defining the research problem. In other words, a research
design is the arrangement of conditions for the collection and analysis of data in a manner that
aims to combine relevance to the research purpose with economy of procedure. In fact, the
research design is the conceptual structure within which the research is conducted. The general
objective of this research study is to examine and credit management of Nepal banks limited. In
order to achieve the objective, both descriptive and analytical research designs will have been
 76

followed. The study will focus on the examination of the relationship between those variables
that influence the financial decisions of the sampled bank. Research design is the plan, structure,
and strategy of investigation conceived so as to obtain answers to research questions and to
control variance. Research is the specification of methods and procedures for acquiring the
information needed. It is the overall operational pattern or framework of the project that
stipulates what information is to be collected from which sources and by what procedures. A
descriptive research design will be applied to gather information and provide a detailed analysis
of the subject being studied. By using various methods such as surveys, observations, and
interviews, descriptive research helps researchers gain a comprehensive understanding of the
subject under investigation.

1.8.2 Nature and Sources of Data.

Nature refers to the characteristics or qualities of something. In the context of data, nature
refers to the type or form of data, such as numerical, categorical, textual, or multimedia. Sources
of data are the origins or places from which data is collected or obtained. These sources can
include surveys, experiments, observations, existing databases, social media platforms, or even
sensors and devices that generate data automatically. Various data and information will be
collected from secondary sources while conducting the research. The required data will be
collected from NRB directives, annual reports, and publications of the selected banks. Other
required information are collected from libraries, websites, and from the prior reports related to
the study.

1.8.3 Populations and Sample

In research, population refers to the entire group of individuals or objects that share a
common characteristic and are of interest to the researcher. It represents the larger target group
from which a sample is drawn. On the other hand, a sample is a subset of the population that is
selected for study and is used to make inferences or draw conclusions about the entire
population. Sampling allows researchers to gather data efficiently and cost-effectively while still
ensuring that the findings can be generalized to a larger population. There are 21 commercial
banks operating in Nepal. The study of all these banks within this research was almost
impossible. Hence, considering this number of banks as the total population, only one
commercial bank, namely Nepal Bank Limited will be selected as samples for the study. A
 77

random sampling technique will be applied for the study on the topic. The selection of Nepal
Bank Limited as sample banks allows for a focused analysis of key objectives within the limited
scope of this research. By studying this one bank, valuable insights will be gained that may
provide a representative understanding of the broader commercial banking landscape in Nepal.

1.8.4 Data Collection and Processing Techniques.

Data collection refers to the systematic gathering of information from various sources,
such as surveys, observations, or experiments. It involves the collection of raw data that can be
analyzed and processed to derive meaningful insights. On the other hand, data processing
techniques involve transforming and organizing collected data into a format that is suitable for
analysis. This may include cleaning and validating the data, performing calculations or statistical
analyses, and generating visualizations or reports to aid in decision-making. Overall, data
collection and processing techniques are essential components.

1.8.5 Tools for Analysis

Data analysis tools refer to a variety of software applications and techniques that are used
to process, interpret, and visualize data in order to gain insights and make informed decisions.
These tools enable users to manipulate and analyze large volumes of data from various sources,
such as databases, spreadsheets, or even social media platforms. By employing statistical
algorithms, data visualization techniques, and machine learning models, these tools help
businesses and researchers uncover patterns, trends, and correlations within their datasets.

1.8.5.1 Financials Tools. Financial tools refer to various instruments, strategies, and
techniques used in managing and analyzing financial activities. These tools are designed to assist
individuals, businesses, and organizations in making informed decisions regarding investments,
budgeting, risk management, and financial planning. They can include software applications,
calculators, spreadsheets, financial models, investment portfolios, and other resources that help
users understand and navigate the complexities of the financial world. The financial tools will be
as follows.

 Loans and Advances to Total Deposits Ratios (LATDR)

 Loans and Advances to Total Assets Ratio
 Loan and Advances to Current Assets Ratio
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 Loan Loss Provision to Total Loan and Advances Ratio

 Non-Performing Loans to Total Loan and Advances Ratio
 Loan Loss Provision to Non-Performing Loan
 Return on Total Assets Ratio (ROA)
 Return on Equity Ratio (ROE)

1.8.5.2 Statistical Tools. Statistical tools refer to a set of techniques and methods used to
analyze and interpret data in order to make informed decisions. These tools help researchers and
analysts summarize, organize, and present data in a meaningful way. They enable the
identification of patterns, relationships, and trends within the data, allowing for the testing of
hypotheses and drawing reliable conclusions. By providing a framework for data analysis,
statistical tools play a crucial role in various fields such as economics, psychology, healthcare,
and market research. Statistical tools will be used for the evaluation of portfolio management of
sample commercial banks in Nepal. They will be as follows.

 Mean
 Standard Deviation
 Coefficient of Variation
 Correlation Analysis
 Coefficient of Determinants
 Regression Analysis

1.9 Conceptual Framework

A conceptual framework refers to a theoretical structure or model that helps guide and organize
the understanding of a particular topic or subject. It provides a set of concepts, principles, and
assumptions that form the foundation for analyzing and interpreting data or information within a
specific field of study. By establishing a conceptual framework, researchers or scholars can
establish a common language and framework for discussing and analyzing their findings,
allowing for greater clarity and coherence in their work.
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Independent Variables Dependent Variables

Capital Adequacy

Non-performing loan ratio

Return on assets (ROA)
Cost per Loan Assets Return on equity (ROE)

Cash Reserve Ratio

Bank Size

Figure 1 Conceptual Framework

1.10 Organization of the Study

Organization of a study refers to the systematic arrangement and structure of its components. It
involves determining the logical sequence and flow of information, as well as the division of the
study into distinct sections or chapters. This helps to ensure that the study is coherent, easy to
follow, and effectively communicates its purpose, objectives, methodology, findings, and
conclusions. The organization of the study will be as follows.

Chapter –I: Introduction

The first chapter will provide the introduction of banking, background of the study, an
introduction to sample banks, concept of Credit management, Focus of study, Statement of
problem, Objective of the study, limitations of the study Significance/Importance of the study
and organization of the study.

Chapter- II: Review of Literature

Chapter II will include a discussion on the conceptual framework and review of the
related and pertinent literature available. The conceptual review of related literature conducted
in this chapter provides a framework with the help of which the study has been accomplished.

Chapter- III: Research Methodology

This chapter will contain the research methodology used in the study which includes
Research Design, Population and Sample, Nature and Source of Data, Data Analysis Tools.
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Chapter-IV: Results and Discussion

The acquired data will be analyzed and presented through the way of designed methodology in
this chapter to accomplish the research objective. It will include Presentation and Analysis of
Data, Capital Adequacy, Management Quality, Earning, Liquidity, major Findings.

Chapter -V: Summary, and Conclusion

The last and fifth chapter will discuss summary, conclusion and recommendations of the overall
study. At the end an extensive bibliography and appendices are also included as a part of the
research work.
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References

Bhalla, V.K., (2013). Investment Management, Fourth Edition, New Delhi, S.

Brigham F. (2009). Financial Management, a Harcourt Publishers International
Chand and Company Ltd.
Bhattarai, Y. R. (2016). Effect of credit risk on the performance of Nepalese commercial
banks. NRB Economic Review, 28(1), 41-64.

Gauchan, A. & Upadhyaya, T. P. (2020). Credit management and profitability of joint

venture commercial banks of Nepal. SSRG International Journal of Economics and
Management Studies (SSRG-IJEMS), 6(3).
Crouhy, M. (2005). A comparative analysis of current credit risk models. Journal of
Banking & Finance, 2(4), 59–117
Garr, D. K. (2013). Determinants of credit risk in the banking industry of Ghana. Journal of
Finance,3(11), 64-67.
Kothari, C.R., (2008). Quantitative Techniques, New Delhi: Vikash Publishing house Pvt.
Ltd.
Pandey, I. M. (2008). Venture Capital for financing technology in Taiwan. Tecnovation,
16(9), 499-514.
Pandey, I.M. (2009), Financial Management. 7th Revised Edition, New Delhi: Vikash
Publishing hOuse Pvt. Ltd.
Poudel, R. P. (2020). The impact of credit risk management on financial performance of
commercial banks in Nepal. International Journal of Arts and Commerce, 5(9), 45-53.
Pradhan, R.S, (2017). Financial Management Practice in Nepal, New Delhi: Vikash
Publishing House.
Wagner, C. (2012). An Introduction to Credit Risk Modeling. Chapman & Hall/CRC. ISBN
978-1-58488-326-5.
Wolff, H. K. & Pant, P. R. (2012). A hand book for social science research and thesis Writing.
Kathmandu: Buddha Academic Enterprises.
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Tribhuvan University
Mahendra Multiple Campus, Dharan, Nepal
Management Research Committee

Letter No.: ................... Date: 2023/12/22

Plagiarism Test Report Certification

The thesis/ dissertation/ article/mini-research submitted by Mr./Ms./Mrs. Ankita Adhikari. for a

plagiarism test on titled “Credit Management of Nepal Bank limited ” has been checked by
the iThenticate plagiarism checker software as per Anti-plagiarism Software Management and
Operation Regulations, 2080. The software found an overall similarity index of 12 % based on
the following criteria:

Criteria:
Phrases Excluded
Quotes Excluded
Bibliography Excluded
Small Sources: Percentage (<1%)
Small Match: Word Count (< 10 words)
Abstract: Excluded
Methods and Materials: Included
Note. Kindly be advised that the similarity index produced by software may not comprehensively
reflect the caliber and criteria of the document. Consequently, it is highly advisable for the
appropriate authority to manually assess the examined file to ascertain its adherence to the
essential benchmarks of being articulate, well- investigated, and upholding academic integrity.

………………..
Signature
Chairperson
Prof. Dr. Ashok Kumar Jha
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