Effect of Liquidity on Financial Performance of Nepalese Commercial Banks

Abstract

The main aim of this research is to explore the effect of liquidity on financial performance of commercial banks in Nepal. The study used correlation and regression analysis to analyze and interpret the result. This research used secondary data from 2015/016 to 2019/020. In this research dependent variables’ ROA and ROE are used and independent variables; CAR, CRR, LDR and LR. The result shows that there is a positive and significant effect of CRR on both ROA and ROE. The variable CAR has positive and significant effect on ROA but negative and significant effect on ROE. Moreover, variables LDR has negative and significant effect on both ROA and ROE. In addition, variable LR has positive and significant effect on ROA and negative and significant effect on ROE. The finding shows that the CAR has highly significant and negative effect on ROE, it means that in Nepalese financial market equity are less profitable. Furthermore, variable CRR has positive and significant effect on both ROA and ROE, it indicates that the strength of cash deposit to central bank play vital role to stabilize the financial performance of commercial banks in Nepal.