Credit Risk Management and Profitability of Commercial Banks in Nepal: A Comparative Study of NABIL Bank and Kumari Bank (2020–2024)

Abstract

This paper examines how changes in credit risk management affected the profits of two banks in Nepal from 2020 to 2024. This study takes NABIL Bank Limited to represent a top-tier performer and Kumari Bank Limited (KBL) as a mid-tier example. The main goal was to see what happens to a bank's money when borrowers stop paying back their loans. To find out, this study analyzed four specific indicators: non-performing assets (NPAs), capital adequacy ratios (CAR), and the return on both assets (ROA) and equity (ROE). The research used basic statistical tools like correlation and regression to measure the relationship between these risk factors and the banks' earnings. The results show a very clear trend. When NPAs go up, bank profits drop fast. This proves that bad loans are the biggest enemy of profitability for these specific banks. However, the data also shows that keeping a high capital ratio helped protect the banks from these financial losses. The findings suggest that careful borrower assessment and constant loan monitoring are necessary in the Nepalese context. If these banks do not improve how they watch over their loans, their long-term stability will be at risk. These results provide basic knowledge for bankers and investors to help strengthen the commercial banking sector. The study suggests that banks in Nepal must stop focusing only on how many loans they issue and start focusing on the quality of their borrowers. Managers should use much stricter checks before approving credit. For the Nepal Rastra Bank (NRB), these results show that keeping high capital requirements is essential to safeguard the entire banking system from collapse. These findings may provide the basic knowledge for bankers, investors, and regulators to strengthen profitability and stability in commercial banks.