The subject of the presentation is on the corporate governance issues and its impact on the bank's financial performance.

1. And Bank Performance in Nepal
Group Members:
Anjana Joshi
Ashik Basel
Ashrit Maskey
Bandana Khadka
Bijay Pandey

2. Presentation Outline
Introduction
Purpose of the study
Significance of the study
Methodology
Data Analysis Presentation
Conclusion and Finding
Limitations
Critical Appreciation

3. • Living legend in financial management and related
disciplines.
• Ph. D. degree from Delhi University in 1986.
• Visiting Fulbright faculty to college of business,
Florida State University from Aug 1992 to 1993.
• Received ‘Dirgha Sewa Padak’ 2061.
• Mahendra Vidya Bhushan A-Class medal from
the Late King Birendra.
• Chairman of Finance Instruction Committee,
Tribhuvan University.
About the Author
Prof. Dr. Radhe S. Pradhan

4. Corporate
Governance
company’s
management
Board
Members
Shareholders
Other
stakeholders
Corporate governance involves a set of relationships between a company’s management,
its board, its shareholders and other stakeholders. Corporate governance also provides
the structure through which the objectives of the company are set, and the means of
attaining those objectives and monitoring performance are determined."
What is CG?

5. • CG is the set of processes, customs, policies, laws, & institutions
affecting the way a corporation (or company) is directed,
administered or controlled.
• According to Cadbury Report 1992 define “corporate governance is
system by which companies are directed and controlled”
• Ruin(2001) stated that corporate governance as a group of people
getting together as one united body with task and responsibility to
direct, control and rule with authority.
Introduction

6. Purpose of the study
• To investigate the relationship between corporate governance and bank
performance in Nepal.
• To test the impact of board size, board composition, number of directors’
meetings, and leverage on bank performance.

7. • This study aims to improve standard in business and minimize
corporate fraud.
• This study will help the banks to find out the appropriate measures
of different corporate governance variable.
• To safeguard the interests of shareholders’.
• To ensure accountability of different individuals in organization.
• To encourage FDI.
• This study helps to ensure transparency which ensures strong and
balanced economic development.
Significance of the study

8. Methodologies
• This study is based on the secondary data which were gathered for
23 banks in Nepal.
• This study is casual comparative type as it deals with relationship of
corporate governance and control variables with bank performance.
• The study examines the effect of board size , number of executives
directors in the board, number of board meetings held in the last
fiscal year at the time of gathering data and leverage.

9. S.No. Name of the commercial banks Study period Observations
1 Rastriya Banijya Bank 2006/07-2010/11 5
2 Nepal SBI Bank 2006/07-2010/11 5
3 Bank of Kathmandu 2006/07-2010/11 5
4 Citizens Bank International 2006/07-2010/11 5
5 Laxmi Bank 2006/07-2010/11 5
6 DCBL 2006/07-2010/11 5
7 Agricultural Development Bank 2006/07-2010/11 5
8 Bank of Asia 2006/07-2010/11 5
9 Nepal Investment Bank 2006/07-2010/11 5
10 Nepal Standard and Chartered Bank 2006/07-2010/11 5
11 Himalayan Bank 2006/07-2010/11 5
12 NMB Bank 2006/07-2010/11 5
13 Lumbini Bank 2006/07-2010/11 5
14 NABIL Bank 2006/07-2010/11 5
15 NIC Bank 2006/07-2010/11 5
16 Global Bank 2006/07-2010/11 5
17 Kumari Bank 2006/07-2010/11 5
18 Everest Bank 2006/07-2010/11 5
19 Machhapuchhre Bank 2006/07-2010/11 5
20 Prime Bank 2006/07-2010/11 5
21 Sidhartha Bank 2006/07-2010/11 5
22 Sunrise Bank 2006/07-2010/11 5
23 Nepal Bangladesh Bank 2006/07-2010/11 5
Total number of observations 115

10. • The model estimated in this study assumes that the bank performance
depends on several corporate governance and control variables.
• Corporate governance variables considered are board size, number of
executive directors, number of independent directors and number of
board meetings.
• Bank Performance=f(CG variables, Control variables)
More specifically,
Bank Performance = β0 + β1 BS + β2 NED + β3 NID + β4NOM + β5
LEV + e
• The bank performance is used as dependent variable and is
measured in terms of: ROA, ROE and NPL
The Model

11. Contd…
• The independent variable consists of corporate governance variables and
control variable as under:
Corporate governance variables
BS, NED, NID, NOM
Board of directors
H1: Board size is negatively related to bank performance
Board of independence
H2: Board independence is positively related to bank performance.
H3: Board dependence on executive directors is negatively related to bank
performance.
Number of board meetings
H4: Number of Board meetings is positively related to bank performance.

12. Control Variables
Leverage
H5: If leverage of a firm increases, it would improve the firm performance.
Therefore, the model assumes the following priori hypothesis for return on
assets and return on equity models:
β3, β4, β5>0 and β1, β2<0
The model assumes the following priori hypothesis for non- performing loans:
β2 and β5 >0 and β1, β3 and β4 <0

13. Descriptive Statistics
Ratio Minimum Maximum Mean Standard
deviation
ROE 0.000 0.931 0.158 0.198
ROA 0.000 0.192 0.141 0.021
NPL 0.000 0.102 0.0325 0.156
BS 5.000 9.001 7.431 1.456
LEV 0.651 0.924 0.824 0.105
NED 0.000 8.150 6.235 1.251
NID 0.000 2.000 1.0000 0.001
NOM 2.000 26.000 12.975 2.356

14. ROE ROA NPL BS LEV NED NID NOM
Minimum 0 0 0 5 0.651 0 0 2
Maximum 0.931 0.192 0.102 9.001 0.924 8.15 2 26
Mean 0.158 0.0141 0.0325 7.431 0.824 6.235 1 12.975
Sd.dev 0.198 0.021 0.156 1.456 0.105 4.251 0.001 4
0
5
10
15
20
25
30
Minimum
Maximum
Mean
Sd.dev

15. Ratios ROE ROA NPL BS LEV NED NID NOM
ROE 1
ROA 0.281 1
NPL -0.183 -0.325 1
BS -0.056 -0.172 -0.361 1
LEV 0.101 0.095 0.412 0.213 1
NED -0.054 -0.142 0.235 0.432 0.201 1
NID 0.029 0.116 -0.258 0.423 0.092 -0.079 1
NOM 0.134 0.145 -0.015 0.067 0.087 0.047 0.068 1
Correlation matrix for the dependent and
independent variables

16. Models Intercept
Regression Coefficient of Adj. R-
bar2 SEE F
BS LEV NED NID NOM
1.
5.13
(10.13)
-0.05
(0.89)
0.18 10.12 15.12
2.
11.13
(8.12)
1.69
(2.45*)
0.23 9.89 14.32
3.
13.58
(7.26)
-1.17
(3.17*)
0.15 23.57 18.25
4.
8.39
(4.29)
1.12
(3.17*)
0.19 27.65 14.56
5.
21.13
(3.56)
0.34
(0.89)
0.13 16.65 19.19
6.
12.67
(3.35)
-0.18
(1.12)
1.52
(3.58*)
0.28 32.59 25.68
7.
6.79
(5.45)
-0.15
(0.89)
0.68
(3.12*)
0.37 45.26 36.49
8.
16.36
(3.68)
-0.81
(0.95)
1.24
(2.82*)
0.69
(2.25*)
0.69
(2.25*)
0.46 56.38 43.36
9.
18.93
(3.86)
-0.23
(1.23)
1.19
(2.51*)
0.21
(2.37*)
0.21
(2.37*)
1.05
(0.93)
0.54 53.28 53.23
Regression of corporate governance and control variables on
return on equity

17. Models Intercept
Regression Coefficient of Adj. R-
bar2 SEE F
BS LEV NED NID NOM
1.
2.02
(5.32)
-0.25
(1.43)
0.23 4.91 35.05
2.
21.05
(4.35)
2.56
(3.02*)
0.15 5.89 10.23
3.
4.43
(3.27)
-4.08
(2.23*)
0.31 7.45 19.32
4.
1.59
(3.53)
0.38
(2.23*)
0.28 8.32 26.54
5.
18.59
(1.32)
1.27
(1.59) 0.32 6.67
21.58
6.
10.26
(2.93)
-0.13
(0.35)
3.37
(4.02*)
0.34 10.34 35.61
7.
14.56
(3.16)
-0.51
(0.34)
1.77
(2.58*)
-2.13
(3.12*)
0.45 28.89 38.43
8.
11.36
(2.15)
-0.23
(1.12)
1.61
(3.12*)
1.15
(3.26*)
0.52
29.92 56.78
9.
23.16
(2.08)
-0.31
(0.83)
1.63
(3.56*)
2.27
(2.91*)
0.78
(1.27)
0.60 34.51 86.76
Regression of corporate governance and control variables on
return on assets

18. Models Intercept
Regression Coefficient of Adj.
R-
bar2
SEE F
BS LEV NED NID NOM
1.
12.36
(5.68)
-1.15
(1.12)
0.20 8.86 12.14
2.
9.78
(3.45)
0.25
(3.18*)
0.19
10.82 10.13
3.
13.15
(6.38)
2.25
(3.15*)
0.16 9.17 21.16
4.
10.15
(7.68)
-0.79
(2.57*)
0.26 15.16 27.68
5.
15.35
(6.57)
-1.11
(1.02)
0.09 12.14 21.19
6.
19.16
(5.25)
-2.01
(0.92)
0.26
(0.92)
1.10
(2.13*)
0.18 21.15 32.65
7.
12.37
(5.36)
-0.56
(1.16)
-0.56
(1.16)
2.12
(3.61*)
0.24 32.32 31.82
8.
6.79
(4.47)
-1.16
(1.12)
-1.61
(1.12)
-1.16
(3.10*)
-0.72
(.89)
0.37 43.15 38.38
9.
12.13
(5.52)
-0.72
(0.86)
-0.72
(0.86)
-2.21
(3.12*)
-0.92
(1.04)
0.43 36.12 36.56
Regression of corporate governance and control variables on return on
Non-performing loan to total loans

19. • Administration system of the banks has been weakened these days.
• Need for sound corporate governance.
• There is a significant impact of corporate governance on ROA as well as
ROE in the financial institutions mainly commercial banks.
• The impact of board size and total assets are positively significant with
return on assets whereas the executive CEO has insignificant effect on return
on assets.
• Board size and executive CEO have significant effect on ROE but total asset
has insignificant effect on ROE.
• The results show that larger the number of executive directors, higher would
be the non-performing loans to total loans and larger the number of
independent directors, lower would be the non-performing loans.
Conclusion and Findings

20. • The study relies only on financial accounting reports which are
subject to manipulation.
• The article contains the information only on 23 banks which does
not cover the wider area.
• The study has been done on the basis of quantitative data ignoring
qualitative perspectives.
• The articles have not considered all the possible independent
variables.
Limitations

21. • The above limitations won’t compromise on the validity of the
conclusion drawn based on the result.
• This study will put light on the major problems between the
different stakeholders and enhancing for the better corporate
governance system in upcoming days by minimizing the unethical
and unfair practices.
• The article will serve as a base for further research and investigation
on corporate governance to different institutions, graduates in the
context of Nepal.
• It will also help the government in setting up various forth polices
and regulation for good corporate governance.
Critical Appreciation/Future Scope