Influence of Liquidity on Profitability: Evidence from Nepalese Banks (original) (raw)
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Impact of Liquidity on Bank Profitability in Nepalese Commercial Banks
SSRN Electronic Journal, 2017
This study examines the effect of liquidity on the performance of Nepalese commercial banks. Investment ratio, liquidity ratio, capital ratio and quick ratio are the independent variables used in this study. The dependent variables are return on equity (ROE) and return on assets (ROA), while one year lagged variables for independent variables are also used to determine the more specific result of the previous year's effect on the current years ROE and ROA. The secondary sources of data have been used from annual reports of the banks and supervision report of Nepal Rastra Bank. The regression models are estimated to test the significance and effect of bank liquidity on performance of Nepalese commercial banks. Correlation between capital ratio and return on equity found to be positive indicating higher the capital ratio higher would be the return on equity. However, the correlation between return on equity and liquidity ratio is found to be negative indicating higher the liquidity in the bank lower would be the return on equity. Further, the correlation is found to be negative for quick ratio with return on equity. Beta coefficients for investment ratio and capital adequacy are positively significant with bank performance, which indicate that increase in investment ratio and capital ratio leads to increase the performance of the banks. However, beta coefficients for liquidity ratio and quick ratio are negative with return on assets and return on equity indicating increased liquidity ratio and quick ratio decreases the return on assets and return on equity of the bank.
Impact of Liquidity on Profitability of Nepalese Commercial Banks
This paper seeks at investigating the relationship between the liquidity and the profitability of commercial banks in Nepal. Ten out of Twenty seven listed commercial banks were involved in the study covering the period from 2013 to 2019. This study is based on the secondary data, which are extracted from Bank Supervision Reports published by Nepal Rastra Bank and annual reports of the selected commercial banks. The liquidity indicators are credit-deposit ratio (CDR), cash-deposit ratio (CADR) and assets quality (AQ), while return on equity (ROE) and return on assets (ROA) are the proxies for profitability. By using Hausman test and thereafter fixed effects approach, the result showed that assets quality (AQ) has negative and significant relationship with return on assets (ROA) whereas it has positive and significant relationship with return on equity (ROE). Cash-deposit ratio (CADR) has positive and insignificant relationship with return on assets (ROA) and return on equity (ROE). However, the study reveals that credit-deposit (CDR) has positive but insignificant relationship with ROA and has negative and insignificant relationship with return on equity (ROE).
Assessing the Impact of Liquidity on Profitability: Specific to the Banking Industry of Bangladesh
The present study investigates whether liquidity positively or negatively stimulates the profitability of commercial banks of Bangladesh. Methodology: The analysis has been performed on 5 randomly selected banks over a period of 10 years (2011-2020). The respective banks' annual reports were the sources of secondary data based on which the study has been performed. For study purpose, dominant profitability ratios are studied along with the calculation of liquidity. ROA served profitability measures being considered as dependent variables whereas Loan-Deposit, Deposit-Assets, & Cash-Deposit ratios served liquidity measures being considered as independent variables. Ordinary Least Square Models have been made use of testing how liquidity affects the banking sector's profitability. Findings: From the analysis, it is founded that a rise in the banks' aforementioned liquidity ratio would escalate the Return on Assets i.e. profitability. Practical Implications: The study has evident that commercial banks of Bangladesh might have a better balance between the profitability and liquidity. Originality: The impact of liquidity on profitability has been stated in this paper which considered data from randomly selected 5 banks. The outcomes of the paper will demonstrate valuable addition to the existing research work in the related field. Research Limitations: Only 5 randomly selected commercial banks among 61 scheduled banks of Bangladesh were the study samples for which the overall financial scenario is difficult to know. It is also quite impossible to comment on the liquidity and profitability position as well as their relationship by considering only 5 banks.
Social Science Research Network, 2018
This paper seeks at investigating the effect of liquidity management on profitability in the Jordanian commercial banks during the time period (2005-2012). Thirteen banks have been chosen to express on the whole Jordanian commercial banks. The liquidity indicators are investment ratio, Quick ratio, capital ratio, net credit facilities/ total assets and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) were the proxies for profitability. Augmented Dickey Fuller (ADF) stationary test model was used to test for a unit root in a time series of the research variables and then testing hypothesis by using regression analysis. The empirical results show that an increase in the quick ratio and the investment ratio of the available funds leads to an increase in the profitability, while an increase in the capital ratio and the liquid assets ratio leads to decrease in the profitability of the Jordanian commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations more efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.
Influence of Liquidity on Profitability of Commercial Bank’s in Bangladesh
2020
This paper aims to drill down the impact of liquidity on commercial bank’s profitability in the banking sector of Bangladesh. To attain a sound outcome this paper used a sample of 10 commercial banks that are enlisted in Dhaka Stock Exchange. The duration of collecting data was from 2012 to 2019. For attaining the objective properly the paper used four measures of liquidity such as loan to deposit ratio, deposits to assets ratio, loan to asset ratio, and cash deposit ratio. Return on equity (ROE) and return on asset (ROA) is another measure to analyze the impact on profitability. The outcome of this paper states that the impact of liquidity on commercial bank’s profitability in Bangladesh is not statistically significant. Keywords: Profitability, ROE, ROA, Liquidity, loan to deposit ratio, deposits to assets ratio, loan to asset ratio, and cash deposit ratio. DOI: 10.7176/RJFA/11-14-11 Publication date: July 31 st 2020
Liquidity-Profitability Relationship in Bangladesh Banking Industry
This study explored the relationship between liquidity (measured as current ratio) and profitability (measured as return on assets) in the banking industry in Bangladesh. We have considered twelve banks in four different sectors (Government banks, Islami banks, multinational banks and private commercial banks). We tried to figure out how much liquidity of a bank can explain its profitability. We ran linear regression to find out the extent of relationship between bank's liquidity and profitability (significance level was 10%). Individually all the sectors show no significant relationship between liquidity and profitability. Even the overall banking industry shows the same result. We considers year just before recession (2006) to post-recession (2011). We showed graphically how liquidity and profitability of these sectors varied over last couple of years. Government banks showed variable liquidity, while other sectors were steady. But, there were much fluctuations in profitability in between these times in all the sectors. Finally, we concluded that based on our sample and category, there is no significant relationship between liquidity and profitability in banks of different sectors in Bangladesh.
Investigating Relationship Between Liquidity and Profitability Ratios in Banks
International Journal of Social Science Research and Review
There is no doubt that with the intensification of the financial and political crisis in recent years in Afghanistan, many banks faced a severe financial and profitability crisis, in general, among many registered and official banks in the Central Bank of Afghanistan, a large number it suffers from liquidity problem and lack of profitability. Liquidity refers to how assets can be converted into cash at the earliest time or at the lowest cost, which is called an asset with high liquidity. In terms of liquidity, the asset's liquidity is high, so it can be converted into cash at a very low cost and quickly. The higher the liquidity of an asset, the more useful it will be. Also, profitability shows the bank's ability to earn income from its assets. After examining variables such as (benefit or profitability, return on capital and liquid assets), this research examines the relationship between banks' liquidity ratios and profitability using multivariable linear regression dur...
The Relationship between Liquidity and Profitability of Listed Banks of Bangladesh
The main purpose of this study is to examine the impact of liquidity on firm’s profitability. All the listed banks of DSE are selected for this purpose. Here we have find out the effect of independent variable (Temporary Investment Ratio) and control variable (Firm Size) over the dependent variables (ROA). For this study we have used panel data which includes 30 banks’ 5 year analysis. Trends of the ratios and element were examined. A model have been used to make the regression analysis. Here, secondary data have been used which were collected from the annual reports and calculated for 5 year period (2012-2016). We have found that there is a significant positive association between the performance of firms’ profitability and the liquidity of the sampled firms in Bangladesh. That means liquidity is relevant to profitability.
Effect of Liquidity on Financial Performance of Nepalese Commercial Banks
National College of Computer Studies Research Journal, 2021
LDR and LR. The result shows that there is a positive and significant effect of CRR on both ROA and ROE. The variable CAR has positive and significant effect on ROA but negative and significant effect on ROE. Moreover, variables LDR has negative and significant effect on both ROA and ROE. In addition, variable LR has positive and significant effect on ROA and negative and significant effect on ROE. The finding shows that the CAR has highly significant and negative effect on ROE, it means that in Nepalese financial market equity are less profitable. Furthermore, variable CRR has positive and significant effect on both ROA and ROE, it indicates that the strength of cash deposit to central bank play vital role to stabilize the financial performance of commercial banks in Nepal.
2019
This paper makes an attempt to explain the impact of liquidity management on the profitability of private sector banks in India. For this purpose, 10 private sector banks have been considered for the period from 2013 to 2017. Cash-Deposit Ratio (CDR), Credit-Deposit Ratio (CRDR) and Investment-Deposit Ratio (IDR) have been used as independent variables to denote the liquidity management of the banks, while Return on Assets (ROA) and Return on Equity (ROE) have been used as dependent variables for the profitability of the banks. It is found that there is a significant negative effect of CDR and IDR on ROA. However, in the case of ROE, it is found that there is no significant relationship between banks’ profitability and liquidity taking all the variables into consideration with respect to all the selected commercial banks in India. This leads to the conclusion that the commercial banks can focus on increasing their profitability without affecting their liquidity and vice versa.