What Influences Banks’ Lending? Evidence from Nepal

Abstract

This study assessed the factors influencing bank lending behavior in Nepal. It is primarily focused on the bank-specific variables such as capital adequacy, profitability, bank size, and liquidity. The study in developing economies like Nepal helps to fill the gap in understanding how these factors affect lending practices in the commercial banking sector. This study used a quantitative approach with a panel data regression model spanning ten years (2013-2022). The data were selected from ten commercial banks purposively. This study used an explanatory research design to examine the causal relationship between banks’ lending and its determinant factors. The investigations concluded that capital adequacy has a positive but statistically insignificant effect on bank lending. Conversely, return on assets has a negative and statistically significant association with lending. Likewise, liquidity has a positive and significant relationship with bank lending behaviors. Finally, size showed a strong and significant positive impact on lending. The study concludes that maintaining adequate capital and larger bank sizes are crucial for enhancing lending capabilities in Nepalese banks. Additionally, while profitability is essential for overall financial health, it may not directly correlate with increased lending activities. The study suggests that policymakers and banks prioritize the enhancement of capital requirements and promote larger banks to cultivate competitive lending environments within Nepalese commercial banks.

Keywords

• bank lending
• capital adequacy
• profitability
• bank size
• liquidity