The Impact of Foreign Bankss Presence on the Performance of Domestic Commercial Banks in Nepal

Abstract

This study examines the impact of foreign banks’ presence on the performance of Nepalese commercial banks. Specifically, the study attempts to analyze the influence of foreign banks’ presence on interest rate spreads, operating expenses, profitability and risk. The data were collected from the Banking and Financial Statistics and Supervision Report published by Nepal Rastra Bank and annual reports of the selected banks. This study is mainly based on secondary data which were collected for fourteen commercial banks established before 2000/01 for the period of 2001/02 to 2011/12. The multiple regression models were estimated to examine the impact of foreign banks’ presence on the performance of Nepalese commercial banks.This study shows that foreign banks’ presence has a strong impact on operating expenses and risk whereas their presence did not show any significant impact on interest rate spread and profitability in context of Nepalese commercial banks. Foreign entry and foreign ownership have positive and significant impact on operating expenses of Nepalese commercial banks. Likewise, the entry of foreign bank has positive and significant impact on risk.