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    Relationship Between Interest Rate Spread and Profitability of Commercial Banks in Nepal

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    prajwolt0150

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    Relationship Between Interest Rate Spread and Profitability of Commercial Banks in Nepal

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    prajwolt0150
    3 views10 pages

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    1617620237539

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    3 views10 pages

    Relationship Between Interest Rate Spread and Profitability of Commercial Banks in Nepal

    Uploaded by

    prajwolt0150

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 10

    RELATIONSHIP BETWEEN

    INTEREST RATE SPREAD AND


    PROFITABILITY OF
    COMMERCIAL BANKS IN
    NEPAL
    Prepared by: Poonam Kalu
    T.U. Registration No: 7-2-25-1261-2016
    Symbol No: 17036/16
    Context Information
     Interest rate spread is the difference between interest
    rate a bank pays to its depositor and the interest rate it
    receives from loans to its customer.
     Profitability is ability of a company to use its resources

    to generate revenue in excess of its resources.


     The commercial banks make profit by paying interest

    to people who keep money there and higher rate of


    interest to borrowers who borrows money from bank.
     In commercial banks, change in interest rate has

    significant impact on profitability of banks.


    Purpose of the Study
     To examine the existing trends of interest rate spread
    and profitability position of commercial banks in
    Nepal.
     To evaluate the relationship between interest rate

    spread and profitability of commercial banks in Nepal.


     To access the effect of interest rate spread in

    profitability.
    Research Methodology
    Research Design Descriptive Research Design

    Population 27 Commercial Banks of Nepal

    Sample 2 Commercial banks of Nepal


    (Nepal SBI Bank and Everest Bank)

    Sources of Data Secondary Sources

    Data Analysis Tools Descriptive Statistics


    Correlation
    Regression
    Limitation
     The study is based on secondary data so reliability is
    based on reliability of published data.
     The sample of the study is small. So, the finding of the

    study might not represent all the commercial banks in


    Nepal and cannot be generalized.
     The study doesn’t cover all fiscal year.
    Findings
     The weighted average IRS and variables of profitability
    are observed to be in fluctuating trends.
     The average weighted IRS of all sample banks as per

    GAAP and NFRS is 4.0764% and 4.4350%


    respectively with average NPM of 17.9493% and
    23.3288% for the observed period of 10 years from
    2065/66 to 2075/76.
     Similarly, the ROA and ROE as per GAAP and NFRS

    are observed to be 1.64% and 1.7888%, and 23.2986%


    and 15.0250% respectively for the observed period.
     The study findings indicate that variables are
    statistically significant to influencing the profitability
    of banks as indicated by positive Pearson correlation
    coefficients as per GAAP and NFRS except that for
    ROE as per NFRS.
     Overall, it is found that when IRS increases, then the

    profitability of banks also increases.


    Conclusion and Action Implication
    Conclusion
     The study concluded that interest rate spread has direct

    impact in overall profitability of commercial banks in


    Nepal.
     There exists a fluctuating trends of interest rate spread

    and profitability of commercial banks.


     Banks have to maintain optimal interest rate spread to

    attract both depositors and lenders.


    Action Implications
     Optimum level of IRS should be determined by the
    bank which will attract both depositors and debtors.
     Both lending rates and deposit rates are sensitive
    factors for all the commercial banks, so banks must
    determine these rates in a competitive way as per
    NRB policy.
     Central banks should come up with different
    regulations to determine the interest rate spreads in
    banks.
     At the time of formulating policies regarding their
    interest rate and spread rate, commercial banks
    should also considered social responsibilities.
    Thank You!

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