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Effect of Credit Risk on the Financial Performance of Nepalese Commercial Banks (Summer Project)

Executive Summary

Credit risk refers to the risk that a borrower may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it. The main objective of this study is to investigate the impact of credit risk on the performance of Nepalese commercial banks. Credit risk arises because borrowers expect to use future cash flows to pay current debts, and it’s rarely possible to ensure the borrower will have the funds to repay their debts. This study had taken the Non-Performing Loan (NPL), Capital Adequacy Ratio (CAR), and Book Value Per Share (BVPS) as credit proxies whereas the Return on Equity (ROE) as a proxy of profitability or bank performance. Among 27 commercial banks in Nepal, two commercial banks, Himalayan Bank Ltd. and Nepal Investment Bank Ltd. with 20 observations were taken as a sample for this study. Secondary data were collected for the study from selected banks for a period of 2068/69 to 2077/78 which were used for the analysis. These data were analyzed using a regression model. This study focused on the effect of credit risk on bank performance in the context of Nepalese commercial banks only. This study tries to minimize the research gap by emphasizing the effects of credit risk on the financial performance of Nepalese commercial banks. Descriptive and causal-comparative were used for the study. The regression model revealed that Non-Performing Loan (NPL) has a negative and statistically significant impact on bank performance. The Capital Adequacy Ratio is not considered the influencing variable on bank performance. Book Value Per Share has a positive and statistically insignificant impact on bank performance.


Report Title: Effect of Credit Risk on the Financial Performance of Nepalese Commercial Banks

Prepared By: Aakriti Dhakal

Degree: Bachelor

Program: Bachelor of Business Administration (BBA)

Specialization: Banking and Finance

College: Birendra Multiple Campus

University: Tribhuvan University

Year: 2022


Effect of Credit Risk on the Financial Performance of Nepalese Commercial Banks | Summer Project | Research Report | 2022

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Note: This summer project (research report) was prepared by Ms. Aakriti Dhakal for the partial fulfillment of the requirement for the degree of Bachelor of Business Administration (BBA). So, it is advised to use this report only for literature review, or as guidance. Copying or practicing plagiarism is strictly forbidden.

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