Assets Of Commercial Bank In Nepal Analysis

Assets Of Commercial shore In Nepal AnalysisThe aim of this project is to assess the level of non-performing assets and its repercussions in oer every pecuniary stability of commercial message-grade-grade coast in Nepal done the equality between straightlaced Nepali believe and the voice gauge bank.The specific objectives ar To determine the extent to which commercial banks face latent financial instability because of non-performing assets.To range the mechanisms by which commercial banks control non-performing assets.To pick out successful and unsuccessful measures in relation to recover and mobilization of non-performing assets of commercial bank.To find out Whether or non Nepalese Commercial Banks be following rules and regulations of NRB (Nepal Rastra Bank) regarding their lending, especially to chief(prenominal)tain the provision for NPA?To enumerate and examine the level of NPA to natural assets, total lending and total deposit of these two commercial banks. To identify the internal and external factors affecting on the growth of NPA?To identify the military units of Non-Performing Assets on ROA and ROE of these two commercial banks.To identify which bank has high level of non- performing assetsTo make recommendations as to how commercial banks top executive improve their efforts in relation to minimization of non-performing assets.These objectives will be achieved by addressing the following explore questionsWhich bank, proper nepali bank or interchangeable venture bank, is actively seeking to minimize risks of non-performing assets?When did non-performing assets start showing extend tos in the bank?What resources do the banks devote to control non-performing assets?Who decides on this resource allotment?How do banks seek to control non-performing assets?Is non-performing asset increasing amongst banks? What is the degree of gain of non-performing asset in proper Nepali commercial bank and joint venture bank?What percentage of t otal assets and total lending is occupying by NPAs of Nepalese commercial banks?How does non-performing assets effects on return on total assets (ROA) and shareholders equity (ROE)?What are major(ip) internal factors, external factors and other main causes to growth of NPA?To compare the percentage of non-performing assets of these commercial banks in different season period.Which measure (or measures) in exceptional has been effective in curbing non-performing assets of commercial banks?What factors contribute to a successful management of non-performing assets? ar augmentd non-performing assets retaining nourishment considered to be good news for all banks or only for particular banks?Do the valuation implications of non-performing assets vary across banks?The Context and Background of the endThe proposal is to concentrate on two commercial banks of Nepal Rastriya Banijya Bank (a proper Nepali bank) and Everest Bank Limited (a joint venture bank) RBB and EBL respectively in a cronyms. These are the two main banks operating in the banking attention in the expanding economy of Nepal.Rastriya Banijya Bank (RBB) is fully governing possess, and the spectacularst commercial bank in Nepal. RBB was established on January 23, 1966 (2022 Magh 10 BS) chthonian the RBB Act. Now, the bank is running under bank and financial institute act 2063. RBB has been contributing to socio- sparing emergence of the earth for the last four and half decades. The Bank has currently entered into 46 long term of serve up. RBB provides various banking services to a wide range of customersthey include elite to poor individuals, existenceal customers, and the customersfrom intentness / job communities. RBB has m all correspondent arrangements with major international banks all over the world that facilitate trade finance, bank-originated individualised funds transfers and interbank funds transfer. The bank has played crucial role for the development of financial welkin i. e. bank, insurance companies by dint of with(predicate) and through its promoters role. As a bet on commercial bank of the country, the bank has been contributing in the trade, fabrication and countrified heavens of the country. The bank has also contributed in the hydropower sector. Health and Education sector are also benefitted through its disbursement. As a government owned bank the bank is also contributing towards achieving national goals as per the government directives. The bank has do signifi potfult contribution in the development of c support sector either by bestow disbursement orby active participation in the fairs organized by industrial and business communities.A leading commercial bank of Nepal established in the twelvemonth 1994 in joint venture with Punjab case Bank, India, Everest Bank Limited (EBL) started its operation with a view and objective of extending professionalized and efficient banking services to various segments of the society. Punjab Nati onal Bank (PNB), EBLs joint venture partner (holding 20% equity in the bank) is the largest nationalized bank in India. With its presence virtually in all the serious centres at Nepal, EBL offers a wide variety of banking services which include corporate and personal banking, industrial finance, agricultural finance, financing of trade and international banking. The large presence and vast resource base arrest helped the Bank to relieve oneself strong links with trade and industry.These two banks make for an followinging comparison since they are both leading commercial banks with large number of clients, screen a diverse range of commercial sectors. They both share the problematical news associated with increased purvey, preempted by loan default and increases in non-performing loans. The large(p) news in loan damage provisions is almost apparent to occur when fourth quarter audits correct under-provisioning relative to increases in non-performing loans during the kick off three quarters of the fiscal year which found the common victim in RBB and EBL. In contrast to EBL, the bad news stems from management workout power over loan- personnel casualty provisions and their engagement in protection of bigger numbers of defaulters in RBB. The disclosure of RBB as having more potential threats of increase in non-performing assets to EBL is hugely trusted to the flexibility for efficient contracting provisions. At the time when economical activities are growing rapidly throughout the country, it is most uphill task for the banks to manage and curb non-performing assets. Moreover, political instability has resulted in more cases of commercial loans defaulting. Interestingly, consumer loans are hardly non-performing given to the rise of middleclass and service industry. provided this trend differs in both EBL and RBB. This guide purposes to underscore the splendour of management of non-performing assets of RBB and EBL while comparing the provisions a nd their outcome in banking sector. prelude Literature ReviewInvestment theory defines non-performing asset as a debt obligation where the borrower has notpaidanypreviously agreed upon by-line and principal repayments to the designated lender for an extended period of time. The non-performing asset is therefore not yielding any income to the lender in the form of principal and interest payments. Non-performing asset has become the major problem in enthronement banking since the innovation of banking service itself.Literature devoted to the cause and effect of non-performing assets of banks concentrates mainly over the consequence and overall impact on the systematic wellbeing of bank due to the rise of non-performing assets. In the article Differential Valuation Implications of give Loss Provisions across Banks and Fiscal Quarters Chi-Chun Liu(1997) concentrates over the impact of loan deviation provisions in market Prior query finds that, on average, the market reacts positive ly to loan loss provisions conditional on less discretionary information about loan default, such as non-performing loans and loan write-offs (133). Lius finding holds across different model specifications and study periods, despite radical changes in the banking industry over time. Liu finds that loan loss provisions are good news only for banks with loan portfolios that master a high proportion of loans for which loss provisions require concept and discretion on a loan-by-loan basis (e.g., commercial loans) rather than utilise statistical methods (e.g., consumer loans).A substantial body of research sought to substantiate managements role regarding loan default. James M. Wahlens(1994) study in The Nature of training in Commercial Bank Loan Loss Disclosures suggests that loan loss provisions are to be maintained at levels considered adequate to conjecture managements expectations of future losses because managers pretend head-to-head information regarding default risks in dwelling in the loan portfolio (455). Wahlen finds that managers judgment is necessary in estimating the loan loss provision apiece period. Wahlen further contends, It is prohibitively costly for investors and monitors to obtain all of managements information about the loan portfolio each period . . . Thus bank managers can exercise discretion over the timing of provisions for certain loan losses (456). Wahlen examines the relations between unexpected loan loss provisions and both stock returns and changes in future cash flows, and the role of managers in handling non-performing assets, in his study.Similarly, Iftekhar Hasan and Stephen D. Smith (1997) have argued that traditional view in profitability of banking institutions does not comprehend recently developing market trends. The couple has empirically investigated the alternative opening exploitation overall profit measures the prejudicious price- soaking up relationship does not hold over the entire range of spy market c oncentration (47). They have focused on the impact of concentration and efficiency measures using price data for individual products and services. Jackson (1992) suggests that any generalization of such responsibilityments since price-concentration measures may vary substantially across time periods. Recently, in a comprehensive study, Berger and Hannan (1993) found more support for the structure-conduct-performance hypothesis than for the relative-market-power and/or efficient structure hypothesis.While concentrating over the role of banking sector in fetching the great depression of 1930s in America, whirl B. Ashcraft(2005) analyses the implication of non-performing assets in overall macroeconomic scenario in the article Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks. Ashcraft contends that direful contraction in banks results from uncontrolled lending. He writesWhile there is few disagreement in the literature over the precise mechanism through which trouble affects veridical activity it is hard to walk away without the terminal that bank failures played an important macroeconomic role in the acrimony of the economic downturn. What are the possible mechanisms? The most direct effect is through the loss of real wealth by uninsured depositors and other creditors. even so in the absence of a wealth effect, however, the creditors of a failed bank lose liquidity while they wait for assets to be liquidated, which in turn affects real spending in the presence of borrowing constraints. (1712)Ashcraft observes that when a bank fails, or so long-standing relationships with its customers are disrupted, if not destroyed. If customers are unable to replace these relationships with other lenders on equal terms, this contraction in the supply of bank credit has an effect on real activity. And finally, there is the threat of contagion, where the failure of one institution prompts a run on other banks, spreading the effect of failure throughout the economy.Literature related to non-performing assets and the Indian experience provides the glimpse of Asiatic economy and challenges of banking industry. Prashanth K Reddy(2002) makes a comparative study of Asian banking industry in A comparative study of Non Performing Assets in India in the Global context similarities and dissimilarities, remedial measures. Reddy stresses the importance of a sound intelligence of the macro economic variables and systemic issues pertaining to banks and the economy for solving the NPA problem along with the criticality of a strong legal framework and legislative framework. Reddy contendsConcerns have been raised about their relevance to India. A significant percentage of the NPAs of the PSBs are in the priority sector. Loans in rural areas are difficult to require and banks by virtue of their sheer reach are better determined to recover these loans. Lok Adalats and Debt Recovery Tribunals are other effective mechanism to do this task. ARCs should focus on the larger borrowers. Further, there is a need for private sector and contrasted participation in the ARC. Private parties will step to active resolution of the problem and not merely regard it as a book transaction. Moving NPAs to an ARC doesnt get rid of the problem. Actions and measures have to be taken to build investor confidence. (12)Reddy stresses on the need to analyze foreign experiences that must be utilized along with a clear perceptiveness of the local conditions to make up a tailor made solution which is cobwebby and fair to all stakeholders.Reducing systemic risk potential that the non-performing assets create in banks is probably the strongest economic rationale for supervision of any economic system. In that context all over the world capital adequateness has become a core instrument of effective supervision of banking system. But the lack of research in Nepali commercial banking sectors has further prompted to economic insta bility. This research proposes to study the variables behind non-performing assets and its implication in commercial banking through the comparison between EBL and RBB. Consequently, the tec hopes in treading into new avenue of research and its make recommendations for the reform process to be initiated in the Nepali banking industry as apart of the liberalisation of the economy in general and the financial stability in particular.Methodology / Sources of DataResearching NPAs of commercial banks is a subtile topic. Several parties contribute to the dynamics of the situation. These parties areBank employees and their representative from portfolios of credit (loan) department.Perspective clients of consumer loan and commercial loan investment from EBL and RBBPost-graduate students of finance and investment from various universitiesLaw professionals handling the cases of NPAs.Journalists active in featuring economic bawl out across different prominent newspapers and magazines.A compr ehensive investigation of this topics should hear to collect data from each of these parties.It is proposed that the following methods of data collection be deployedA content analysis of literature produced by these commercial banks, specially their investment literature. Much of this literature is prepared for public consumption and indeed will be readily available.Interviews with a representative sample from each of the parties identified above. Resource constraints do not allow for national coverage, thusly these interviews will be conducted in one region of the country, which will be selected on the basis of convenience for the researcher. This could well limit the generalisations that can be made from the data.The researcher will pose as a prospective client and will write a letter to each banks requesting steering for loans. This raises ethical issues since a certain amount of deception is involved. However, it is felt that it is a legitimate approach and doesnt cause pers onal harm to any party.The researcher will dispatch questionnaire selecting and identifying representative information provider from each party who in turn will provide with necessary information for the research. evaluate OutcomesThis work is essentially a comparative analysis since the issuance of loans and the state of recovery of two commercial banks are being compared. For the comparison to be meaningful and objective it is essential that a standard framework be adopted. It is proposed to structure the data collection and also the comparison and analysis using a distribution framework ofPublic Sector Units Brobdingnagian Industries mass medium IndustriesOther non priority SectorsAgricultureSmall scale industriesOther precession sectorsHence in simple terms the results of the project could be presented in the following dummy tableBorrowing Segment-wise NPAGross NPARBBEBLAmount portion of Total NPAAmountPercentage of Total NPAPublic Sector UnitsLarge IndustriesMedium Industries Other non priority SectorsAgricultureSmall scale industryOther Priority sectorsIt is envisaged that this will provide a degree of originality because the finishing of a distribution framework to an investment relations issue is novel.On the basis of the comparison of the activities of the two banks some recommendations can be made regarding the relative success of investment initiatives in this context.