Abstract
This study aims at examining the impact of capital adequacy and bank operating efficiency on financial performance of Nepalese commercial banks. For the purpose of this study, the secondary data have been used. The dependent variables are return on assets and return on equity while the independent variables are loan ratio, bank operating efficiency, total deposit, loan loss provision/total loans, loan loss provision/equity, core capital, risk based capital and total capital ratio. The data are collected from the Banking and Financial Statistics, Bank Supervision Report published by Nepal Rastra bank and annual reports of selected banks for the period of 2005/6 to 2012/13. The regression models are applied to test the significance and importance of capital adequacy of commercial and development banks. The result shows that total deposits to total asset and banks operating efficiency are the major variables determinant of financial performance of commercial banks in Nepal. Bank operating efficiency, loan ratio, total deposit to total assets, loan loss provision to total equity have significantly positive impact on financial performance of commercial banks. Loan loss provision to total loan, core capital ratio, risk weighted ratio, total capital ratio have negative impact on financial performance of Nepalese commercial banks.
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