Article Published In Vol.6 (Sept-Oct-2018)

Influence of Liquidity on Profitability: Evidence from Nepalese Banks

Author : Sahadev Bhatt and Dr. Nikhil Verghese

This study seeks to examine the relationship between the liquidity and the profitability of commercial Banks in Nepal. In this connection, 14 Nepalese commercial banks were selected as study samples and their financial data were gathered from the annual reports of concerned banks for the period of 2008-2017. In this study, Return on assets and net profit margin were used as indicator of profitability while liquidity ratio, investment ratio and capital ratio were used as a proxy of liquidity measures. This study used inferential statistics to explain the main features of a collection of data in quantitative terms while correlation and linear regression analysis are used for analyzing the data. Results showed that more than 49 percent bank profitability measured by return on assets and net profit margin is predicted by the liquidity variables. This empirical analysis reveals that there is insignificant positive relationship between liquidity ratio and return on assets. Similarly, there is insignificant negative relationship between investment ratio and capital ratio with return on assets. It is also found that there is insignificant positive relationship of net profit margin with liquidity ratio and investment ratio. However the net profit margin is significantly negatively related with capital ratio. Based on the results it is concluded that the liquidity measure are not statistically significant in determining the profitability of commercial banks in Nepal except the capital ratio.

Keywords: Banks, Leverage, Liquidity, Profitability.