Bank Stability and its Determinants in the Nepalese Banking Industry

Nirmal Singh ()
Additional contact information
Nirmal Singh: Senior Research Fellow (SRF), Department of Humanities and Social Sciences, Indian Institute of Technology, Roorkee, Uttarakhand, India.

NRB Economic Review, 2021, vol. 33, issue 1-2, 14-44

Abstract: This paper investigates bank stability and its bank-specific, industry-specific, macroeconomic and institutional determinants for the Nepalese banking industry. The study employs the system GMM to a panel of bank-level data covering the period from 2004-2018. The results show that the stability of the Nepalese banking industry improved during the early years of the study period, i.e., 2004-2007; however, it exhibited a decaying trend for the rest of the study period. The analysis reveals that the major factors responsible for this deterioration are capital adequacy, asset quality, and earnings of the banks. Most of the dimensions have shown improvements during the initial years of the study period; however, this trend reversed post-2007. The study groups the banks into three categories: stable, moderately stable, and less stable banks as per their respective stability score. The estimation results indicate that a positive bank stability persistence exists in the Nepalese banking industry. Results suggest that credit growth has a negative impact on the stability of the banks. The results of the study support the concentration-stability hypothesis. Income diversification appears to have a positive impact on the stability of the banks. Findings disclose that inflation is playing a crucial role in impacting the stability of the banks. The study reveals that the GFC had no significant impact on the stability of the Nepalese banking industry.

Keywords: Nepal; PCA; Banks; Panel Data; System GMM (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.nrb.org.np/contents/uploads/2021/10/vol-33_art2.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nrb:journl:v:33:y:2021:i:1:p:2

DOI: 10.3126/nrber.v33i1-2.47988

Access Statistics for this article

More articles in NRB Economic Review from Nepal Rastra Bank, Economic Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Publication Division NRB ().