DETERMINANTS OF LENDING BEHAVIOR: EVIDENCE FROM NEPALESE COMMERCIAL BANKS

This study examined the determinants of lending behavior in Nepalese commercial banks. This study is based on secondary data collected from 17 commercial banks operating in Nepal for the period of 2007/08 to 2015/16. The data were collected from annual reports of commercial banks and banking and financial statistics of NRB published by Nepal Rastra bank. The regression model is used to test the impact of bank specific and macroeconomic determinants of lending of commercial banks in Nepal. The study reveals that bank size, volume of deposit and cash reserve requirement ratio is the major determinant of loan and advances of Nepalese commercial banks. It shows that larger the bank size, higher would be the loan and advances. Similarly, volume of deposit has positive and significant impact on loan and advances. It shows that higher the volume of deposit, higher would be the loan and advances. Likewise, increase in cash reserve requirement ratio leads to decrease in loan and advances. The negative relationship between liquidity ratio and loan and advances shows that when the loan amount provided by banks increase, the amount of illiquid assets in the total assets portfolio of banks increase which leads to the reduction in the level of liquid assets held by the banks. Inflation rate and loan and advances have negative relationship which indicates higher the inflation rate, it leads to decrease in loan and advances. Similarly, GDP has positive relationship with loan and advances. The study suggests that Nepalese commercial banks should make strategy on how to retain more deposit so as to improve on their lending performance.