Role of macroeconomic factors predicting financial performance of commercial banks in Nepal

Gautam, Prakash Kumar; Gautam, Tenish

doi:10.3126/irjms.v6i1.42337

Cited by 5 publications

(6 citation statements)

References 23 publications

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“…Surprisingly, the study result contrasts Abner & Ferrer's (2018) conclusion that larger firms have a higher profitability ratio. Also, in contrast, Gautam & Gautam (2021) concluded that the inflation rate and nominal GDP growth rate have a significant negative relationship with return on equity, while there is a positive relationship between the unemployment rate with return on equity. Overall, only the firm age positively moderates (p = 0.032) the key financial ratios and PFRS 16 adoption in terms of return on equity ratio.…”

Section: Inferential Statisticsmentioning

confidence: 91%

PFRS 16 Compliance

Dayag,

Latosa,

Dimatulac

2023

IJFBS

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IFRS 16 addresses the criticisms against IAS 17 that allowed lessees not to recognize assets and liabilities related to operating leases. This study analyzed the impact of operating lease capitalization on 38 selected Philippine-listed companies' key financial ratios from the service sector from 2016 - 2021 under PFRS 16. Key financial ratios were calculated and compared to the changes that happened due to the adoption of PFRS 16 – Leases with firm size, firm age, inflation rate, nominal GDP growth rate and the unemployment rate as moderating variables. Mann-Whitney U Test was employed to analyze the impact of pre-and post-PFRS implementation on financial ratios. The impact of predictor variables on PFRS 16 and key financial ratios were examined using Ordinary Least Squares (OLS) regression analysis. The study result revealed a significant negative influence of PFRS 16 implementation on return on equity, price-earnings ratio, and price-to-book ratio; and a significant positive influence on the debt-equity ratio, and earnings per share. Firm age positively moderates the return on equity and PFRS 16 adoption (p = 0.032). Only the nominal GDP growth rate moderates the key financial ratio and PFRS 16 in terms of the price-earnings ratio (p = 0.019). This implies that PFRS 16 adoption significantly influences some key financial ratios. Management should reconsider their business model, especially on lease transactions, as it will impact their financial reporting. The new accounting standards must be well communicated to stakeholders considering the firm-level and macroeconomic indices for better decision making.

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Section: Inferential Statisticsmentioning

confidence: 91%

PFRS 16 Compliance

Dayag,

Latosa,

Dimatulac

2023

IJFBS

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“…Islam, Islam, Soumia, Apon, and Tarin (2022) explored that there was significant corelation between the macroeconomic factors & Banks' profitability in banks of Bangladesh and further discovered significant effects of GDP growth rate & Unemployment on ROA. Gautam and Gautam (2021) focused on the role of macroeconomic determinants on profitability of the commercial banks in Nepal & their results were found insignificant with ROA whereas, "GDP", "Interest rate" and "Inflation" were found to have predicting ability for ROE. Yuan, Gazi, Harymawan, Dhar, and Hossain (2022) discovered that the Debt-to-the-asset ratio, Bank Size, GDP growth rate & inflation have positive impact whereas Loan-to-the-deposit ratio & Depositto-asset ratio has negative & significant effecton ROA in South Asian Countries.…”

Section: Literature Reviewmentioning

confidence: 98%

The Impact of Macroeconomic Factors on the Banking Sector’s Profitability in Pakistan

Ayub,

Bilqees,

Shah

2024

Pak. J. Humanit. Soc. Sci

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This research aims to study and analyze the impact of macroeconomic factor on the banking sector’s profitability in Pakistan. Banking sector of Pakistan is the backbone of its economy. The study explains the importance of banking industry of Pakistan and its achievements and evolvement throughout the years. The objective of the study is to examine the macroeconomic factors’ influence on the banking sector in Pakistan and to investigate that whether the profitability is only determined by the bank-specific internal factors or if it is also influenced by macroeconomic shocks and factors of the economy. The study is quantitative and secondary data is employed in order to conduct this paper. The sample size is financial data of scheduled banks in Pakistan from the year 2000 to2022, which is converted in quarter data and 84 observations have been incorporated in the study. “Returns on Assets” (ROA) is selected as dependent variable of this study since it measures profitability of banks. Whereas “Foreign Direct Investment” (FDI), “Exchange rate” (LER), “Inflation” (INF), “GDP growth” (GROWTH), “Liquidity” (LLIQ), “Total Deposits” (LT_DEP) and “Credit’s ratio” (CREDIT) of the banks are selected as independent variables. The data for bank specific variables is collected from the websites of “State Bank of Pakistan” (SBP) and “Federal Reserves of Economic Data” (FRED) while the data for macroeconomic variables is derived from the database of “World Bank” and “Macrotrends”. For empirical analysis, we have applied “Vector Autoregression” (VAR) model, followed by “Multivariate Granger Causality test”, “Impulse Response Function” (IRF) and “Forecast Error Variance Decomposition” (FEVD). The main findings of study reveals that the profitability of Banking sector in Pakistan is more influenced by its own internal factors rather than the external / macroeconomic factors. Amongst macroeconomic variables, “Foreign Direct Investment” (FDI) and “Inflation” (INF) are found to have the significant impact, while “Exchange rate” (LER) and “GDP growth rate” (GROWTH) are found to have insignificant impact on banks’ “Return on Assets” (ROA). All the internal factors of our study i.e. “Liquidity” (LLIQ), “Deposits” (LT_DEP) and “Credit ratio” (CREDIT) are found to have significant impact on profitability, which is measured through “Return on Assets” (ROA). In short, the profitability of banking sector in Pakistan is mainly influenced by bank-specific internal factors of the industry. The macroeconomic factors are only 50 percent % affective on the banks’ performance.

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“…Return on Assets (ROA). ROA is the return of the organization over an interval based on asset and costs of other factors of production (Gautam & Gautam, 2021). It is the ratio of net income and total assets of the company which measures the efficiency of banks management in generating profit out of its scare resources.…”

Section: Study Variables and Hypothesismentioning

confidence: 99%

Impact of Credit Risk and Macroeconomic Variables on the Profitability of Commercial Banks in Nepal

Niraula,

Maharjan

2024

The Batuk

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This study was conducted to examine the impact of credit risk and macroeconomic variables on the profitability of commercial banks in Nepal. Return on assets and earnings per share of the banks were taken as regrassands. Whereas, as regressors, non-performing loan, capital adequacy ratio and credit to deposit ratio were taken as the proxies of credit risk, and GDP growth rate, consumer price index and base rate were studied as indicators of macroeconomic variables. Following simple random sampling techniques, 14 commercial banks were selected as sample for the study. The required quantitative data were retrived from annual financial reports of the banks. Data were analyzed on Gretl software. The Pearson correlation and Ordinary Lease Square model for regression resulted that the GDP growth rate was insignificant in defining the variation on return on assets. Likely, inflation and base rate were not significant in defining the variation on earning per share. Result of this study provided sufficient scope to bankers in developing their growth strategies.

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Role of macroeconomic factors predicting financial performance of commercial banks in Nepal

Cited by 5 publications

References 23 publications

PFRS 16 Compliance

PFRS 16 Compliance

The Impact of Macroeconomic Factors on the Banking Sector’s Profitability in Pakistan

Impact of Credit Risk and Macroeconomic Variables on the Profitability of Commercial Banks in Nepal

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