Impact of Capital Adequacy Ratio and Non-Performing Loans on Return on Assets in Nepalese commercial banks

Abstract

The study examines the impact of the capital adequacy ratio and non-performing loans on the Return on assets of Nepalese commercial banks. The dependent variable is Return on assets, and the independent variables are capital adequacy ratio and non-performing loans. The study is based on secondary data from 19 commercial banks for the period from 2019/20 to 2023/24, with 95 observations. The data were collected from the bank reports published by Nepal Rastra Bank (NRB) and the annual reports of the selected commercial banks. To test the significance and importance of the capital adequacy ratio and non-performing loans on the Return on assets of Nepalese commercial banks, correlation analysis and multiple linear regression models were used. The study showed that non-performing loans negatively affect Return on assets, indicating that an increase in non-performing loans leads to a decrease in Return on assets. Similarly, capital adequacy ratio has a positive impact on Return on assets, suggesting that a higher capital adequacy ratio is associated with higher Return on assets.