Determinants of Financial Performance of Banks in Bhutan: A Case study of Bhutan National Bank Ltd

Abstract

Banking can be defined as an activity of accepting, as-well-as preserving money owned by other individuals and entities. Then banks lend out this money to other needy individuals or corporates in order to earn a profit. The economy of a country mostly depends on how strong their banking system is. This paper highlights the determinants that are responsible for the financial performance of commercial banks presently operating in Bhutan with a reference to Bhutan National Bank. The data collected for this study are from Bhutan National Bank from 2005-16. Multivariate regression analysis is performed on three dependent variables (Return on Assets, Return on Equity and Net Interest Margin) using five independent variables. The result showed that for explaining the determinants of financial performance of Banks in Bhutan, ROA model was considered to be the best as compared with ROE and NIM. The independent variables which had bearing on ROA were Interest income to total income, Interest on loan, Interest expenses to deposit and Credit to deposit ratio Banking can be defined as an activity of accepting, as-well-as preserving money owned by other individuals and entities. Then banks lend out this money to other needy individuals or corporates in order to earn a profit. The economy of a country mostly depends on how strong their banking system is. This paper highlights the determinants that are responsible for the financial performance of commercial banks presently operating in Bhutan with a reference to Bhutan National Bank. The data collected for this study are from Bhutan National Bank from 2005-16. Multivariate regression analysis is performed on three dependent variables (Return on Assets, Return on Equity and Net Interest Margin) using five independent variables. The result showed that for explaining the determinants of financial performance of Banks in Bhutan, ROA model was considered to be the best as compared with ROE and NIM. The independent variables which had bearing on ROA were Interest income to total income, Interest on loan, Interest expenses to deposit and Credit to deposit ratio.