Analysis on Liquidity and Profitability of Development Banks in Nepal
Sarkar, Bikram (2025)
2025
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https://urn.fi/URN:NBN:fi:amk-2025091624736
https://urn.fi/URN:NBN:fi:amk-2025091624736
Tiivistelmä
This research investigates the connection between profitability and liquidity in Nepali development banks, with a particular emphasis on Muktinath Bikas Bank Limited (MNBBL) and Garima Bikas Bank Limited (GBBL). The study examines important financial indicators such as the li-quidity ratio, earnings per share (EPS), dividend per share (DPS), price-to-earnings (P/E) ratio, return on assets (ROA), and return on equity (ROE) using secondary data from annual reports covering a nine-year period (2015/16 to 2023/24).
The results suggest that both banks kept solid liquidity situations, but GBBL liquidity management was marginally superior. Nonetheless, there was a notable inverse relationship between profitability and liquidity, indicating that greater liquidity would limit earnings potential. In terms of favorably influencing both ROA and ROE, earnings per share (EPS) was found to be the most significant component. DPS and the P/E ratio, on the other hand, have no effect on profitability.
Although liquidity is necessary for stability, the study finds that having too many liquid assets can reduce profitability. To increase profitability, development banks should thus find a balance between preserving sufficient liquidity and making the most use of their assets. For bank managers, investors, and legislators involved in the banking industry in Nepal, the findings offer insight-ful information.
The results suggest that both banks kept solid liquidity situations, but GBBL liquidity management was marginally superior. Nonetheless, there was a notable inverse relationship between profitability and liquidity, indicating that greater liquidity would limit earnings potential. In terms of favorably influencing both ROA and ROE, earnings per share (EPS) was found to be the most significant component. DPS and the P/E ratio, on the other hand, have no effect on profitability.
Although liquidity is necessary for stability, the study finds that having too many liquid assets can reduce profitability. To increase profitability, development banks should thus find a balance between preserving sufficient liquidity and making the most use of their assets. For bank managers, investors, and legislators involved in the banking industry in Nepal, the findings offer insight-ful information.