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CHAPTER-1 Introduction

1.1. Background of study
The bank is an institution established by law, which deals with money and credit is called banking. In other words, it is obvious that an institution which deals with money, receiving it on deposits from customers, honoring customers drawings against such deposits and demand, collecting cheques from customers, and lending or investing surplus deposits until they are required for repayment. In common sense, financial institution which deals with monetary transaction by accepting various types of deposits, distributing various types’ loans and rendering other financial services. There is several definition of a bank by different authors and scholar’s .some of them is as follows:According to Oxford Dictionary “A bank is an establishment for the custody of money received from or on its customers, its essential duty is to pay their draft on it, its profit arises from its use of money left unemployed by them.”

According to Dr. Hart
“A person or company carrying on the business of receiving money and collecting drafts, for customers subject to the obligation of honoring cheques upon them from time to time by the customers to the extent of the amounts available on their current accounts”

As per Kent
“Bank is an organization whose principle operation is concerned with accumulation for the temporarily idle with money of the general public for the purpose of advancing to other expenditure.”

According to Hals bury laws of England
“A banker is defined as an individual partnership or corporation, whose sole or predominating business banking”.

According to the commercial bank act 2031

“A commercial bank is a bank, which deals in exchanging currency, deposits, giving loans and doing commercial transactions”. So bank is an organization, which deals with deposits, lends money and renders a wise range of financial services.

Origin of Banking
The term “bank” was originated from the Latin word “BANCUS”, and the Italian word “BANCO”, the German word “BACK” and French word “BANKE”.regarding the origin & banking institution in the world, the bank established was “Bank of Venice” of Italy. The second bank established in Spain in 1401 A.D. as “the bank of Barcelona”. Then after, Bank of Geneva &Bank of England as a joint venture bank in 1401 &1694 A.D. respectively. Several national and foreign banks were established in India & other countries subsequently.

Banking in Nepal
In Nepalese banking concept, the history of banking is not long. But it is found that the banking transactions are conducted in ancient time. Nepal bank limited was the first bank in Nepal established in 1994b.s .later Nepal Rastra Bank ,central bank was established in 2013 b.s with an objective to provide the policy decision, guidance and control the banking and to monitor this sector.Rastriya Banijya Bank is a government owned commercial bank was established in 2022b.s. NIDC(Nepal industrial development corporation) and agriculture development bank limited(ADBL) was established in 2020b.s.the joint ventures bank’s increased dramatically after restoration of democracy when the government adopted liberal and market oriented policy.

Nowadays following commercial banks are in operation
5 6 7 8 9 Agriculture development bank limited (ADBL) Bank of Asia Nepal limited Bank of Katmandu limited Citizen international bank limited Development credit bank limited

10 Everest bank limited 11 Global bank limited 12 Himalayan bank limited

13 Janata bank limited 14 Kumari bank limited 15 Kist bank limited 16 Laxmi bank limited 17 Lumbini bank limited 18 Machhapuchhre bank limited 19 Nabil bank limited 20 Nepal bank limited 21 Nepal Bangladesh bank limited 22 Nepal SBI bank limited 23 Nepal investment bank limited 24 Nepal industrial and commercial bank limited 25 Nepal credit and commercial bank limited 26 NMB bank limited 27 Prime commercial bank limited 28 Rastriya Banijya bank limited 29 Siddhartha bank limited 30 Sunrise bank limited 31 Standard chartered bank Nepal limited

Latest performance of commercial banks sub-groups
The average of the listed commercial banks’ key indicators-NPA,P/E ratio,RoA ,RoE, EPS,NWPS and profit margin- since last five years. in the five year 2004-05 and 200506 there were only 17 listed commercial banks whereas in 2006-07,the number increased to 18 and in 2007-08 and 2008-2009, there were 23 listed and in the mid of 2009-10 there were 26 commercial banks were listed.

Figure no.-1 Not performing assets
7 6 5 4 3 2 1 0 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

NPA in percent The average NPA was 1.98 percent in 2008-09 against 3.58 percent in 2007=08.NPA is an assets or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss assets. Lower the NPA better the institution. Figure no.-2

P/E ratio
70 60 50 40 30 20 10 0 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

P/E ratio in times During the fiscal year 2007-08,the overpopulation of the shares have been raised the P/E ratio to an average of 65.60 times that came down to an average of 56.28 times in 2008-09.a high P/E ratio suggests that investors are expecting higher earnings growth in the future. Figure no.-3

Return on assets (RoA)
2.5 2 1.5 1 0.5 0




2007/2008 2008/2009

Return on total assets in percent The average RoA,however,almost doubled in 2008-09 to 2021 percent from 1.76 percent a year ago.RoA gives an idea as to how efficient management is at using to generate profits. Figure no. - 4 Return on equity (RoE)
45 40 35 30 25 20 15 10 5 0






Return on equity in percent The average RoE stood at 24.73 percent in reveals how much profit a company earned in comparison to the total amount of shareholders equity found on the

balance sheet. Figure no.-5 Profit margin
30 25 20 15 10 5 0 -5 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Profit margin in percent In 2007-08, the average profit margin of the 23 listed commercial banks was 27.09percent but in 2008-2009, it posted a profit of only 27.86 percent. The competition among commercial banks-the key player in the Nepse –and lack of market expansion pulled the profit margin down. Figure no.-6 Earning per share (EPS)
45 40 35 30 25 20 15 10 5 0 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

Earning per share in rupees The EPS has slowed due issuance rights and bonus shares. It is generally considered to be single most important variable in determining a share’s price. Figure no.-7

Net worth per share (NWPS)
160 155 150 145 140 135 130 125 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009

NWPS in rupees Due to the increasing rights and bonus shares net worth per share has slowed down.NWPS is a measurement of the net worth of the company for each share of stock that has been issued. (Sources: - Security Research Centre and services)

1.2 Introduction of Himalayan Bank Limited
Himalayan bank limited is a joint venture bank with Habib bank of Pakistan, was established in 1992ad, under the company act 1964.this is the first joint venture bank managed by Nepali chief executive officer. The bank had started its operation from February 1993. The main objective of the bank is to provide modern banking facilities like banking to businessman, industrialists and other professionals and to provide for commercial, agriculture, and industrial sectors. Despite the cut-throat competition in Nepalese banking sector, Himalayan bank has been able to maintain a lead in the primary banking activities-loans and deposits. The bank’s vision Himalayan bank limited holds of a vision to become a leading bank of the country by providing premium products and services to the customers, thus ensuring attractive and sustainable returns to shareholders of the bank. The bank’s mission The bank’s mission to become preferred provider of quality financial services in the

country .there are two components in the mission of the bank; preferred provider and quality financial services; therefore we HBL that the mission will be accomplished only by the satisfying these two importants.components with the customer at focus. The bank’s objective To become the first choice is the main objective of the bank.

1.2.1 Share subscription of HBL
Table no.-1 Share subscription of HBL Promoter shareholders Habib Bank, Pakistan Financial institutions(employers provident fund) Nepalese shareholder’s Total public 15% 100% 51% 20% 14%

In the above share subscription of HBL,promoters shareholders own more than 50%of total shares.Similarly,Habib Bank limited, Pakistan owns 20% total shares, financial institutions (employee provident fund )own 14% of total shares and 15%of total shares are owned by Nepalese public shareholders.Therefore,promoters of HBL own the majority of shares. 1.2.2 Capital structure of Himalayan bank limited Capital structure of Himalayan bank is as follows: Authorized capital (Divided into 10000000@Rs.100 each) Capital (Divided into 8108100@Rs.100 each) Paid up capital (Divided into 8108100@Rs.100 each) = Rs.81, 08, 10,000 = Rs.81, 08, 10,000 = Rs.1, 00, 00, 00,000

1.2.3 Services offered by Himalayan Bank Limited
Himalayan bank offers various types services to its valuable customers, which

promotes bank competitiveness, credit worthiness and attraction. Some services and technologies, which may provide by Himalayan bank limited, are as follows:1) Accepting deposits -current deposits -fixed deposits -saving deposits 2) Granting loan - Overdraft - Demand loan -Time loan -term loan 3) Transferring funds 4) Premium saving accounting 5) Bills discounts 6) Bank guarantee 7) Issued of honors of travelers cheques 8) Inward and outward remittance 9) Issuance of bank draft and bankers cheques 10) ATM, debit card, credit card facilities 11) Inter banking services 12) Any branch banking system (ABBS) The bank is the first joint venture bank managed by Nepalese chief executive. Its head office is based in the capital city of the country, Kathmandu in “Karmachari Sanchaya Kosh Building”Thamel, has 26 branches out of which 910 are in Katmandu valley and remaining 17 branches are outside the valet spread in the main cities of the country. The bank adopting modern technologies such as computer system in each branch, credit card, master card and visa international card etc.recently this bank has an agreement with Smart Choice Technology Pvt. Ltd. for expanding ATM network in Katmandu valley

1.3 Introduction of Nepal Bangladesh bank limited

Nepal Bangladesh bank was established in 1994 with an authorized capital Rs.240 million and paid up capital Rs.60 million as a joint venture with IFIC Bank Ltd.It has head office situated at Baneshwor Katmandu .the prime objective of this bank is to render banking sources to different sector, small entrepreneurs and the weaker society of society and every people who need banking services .during the period of 15 years of its operation .it has accommodated a large number of clients and has been able to provide excellent services to its clients. Bank has a network of 18 branches. The bank has earned the glory of making available the services almost all the top business houses of the leading, positions among the joint ventures in Nepal, the bank is still purshing to accommodate as many clients as far as possible. The exporters and importers of the country have established banking relationship with the bank and sub stainable volume of foreign business which has enhanced the bank’s popularity in the international trade front. Bank has developed agency and correspondent relationship with more than 200 prominent foreign banks in the world. This is the first only bank entrusted by the World Bank and government of Nepal to be the Power Development Fund (PDF) administrator for the development of small and middle level of the hydropower projects in the country. The bank is the first joint venture bank, the government revenue transactions in the country.Tatopani branch is solely dealing with the government revenue account of Tatopani revenue office.

The bank’s vision
NB banks holds a vision to become a leading bank of the country by providing premium products and services to the customers, thus ensuring attractive and substantial returns to the stakeholders of the banks.

The bank’s mission
The bank mission is to provide their clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make unique position in giving quality services to all institutions and individuals.

The bank’s objective
To become a legend and first selection bank is the objective of the bank.

1.3.1 Share subscription of Nepal Bangladesh bank limited Table no.:-2 Share subscription of NB Bank Promoter shareholders IFIC Bank, Pakistan Financial institutions(employers provident fund) Nepalese public shareholder’s Total 51% 20% 14% 15% 100%

1.3.2 Capital structure of Nepal Bangladesh bank limited
Capital structure of Nepal Bangladesh bank limited is as follows:Authorized capital (Divided in to 2400000@Rs.100 each) Issued capital (Divided in to 600000@Rs.100 each) Paid up capital (Divided in to 600000@Rs.100 each) =Rs.6, 00, 00,000 =Rs.6, 00, 00,000 =Rs.24, 00, 00,000

1.3.3 Products and services of Nepal Bangladesh bank
Nepal Bangladesh bank limited provides following services and products:32 Loan and advance 33 Deposit scheme 34 Automated teller machine(ATM) 35 Education loan 36 Housing loan 37 Hire purchase loan for professionals 38 Saving plus deposit scheme 39 Locker facility 40 Any branch banking system(ABBS)

1.4 Statements of Problems
The problem of the study lies on the issues related to the strength and weakness of “a

comparative evaluation of financial performance of Himalayan bank limited and Nepal Bangladesh bank limited”. It also tries to seek the answers to the following questions:What is the comparative evaluation financial performance of the bank in terms of liquidity, EPS, DPS, payout ratio, debt management and profitability ratio over fiver different years?

1.5 Objective of study
Each activity of human being is driven to world the following objective; 41 To evaluate liquidity, leverage, capital adequacy and profitability ratios Nepal Bangladesh bank and Himalayan bank limited. 42 To study the comparative cash flow statement of banks. 43 To make necessary suggestions and recommendations for effective financial performance in future. of

1.6 Limitations of study
The major limitations of this research are related with the ratio analysis of financial performance of Nepal Bangladesh bank and Himalayan bank limited. Various limitations have been faced while preparing this report which is expressed below: 44 This study is conducted mainly based on secondary type of data i.e. annual reports and textbooks factors. 45 Study conducted to five years beginning from fiscal year 059/060 to 064/065. 46 This study only explains about ratio and cash flow statements of two banks. 47 Study and results of two banks may or may not be applicable to others banks. 48 This study is only conducted only within Katmandu valley.

1.7 Concept of cash flow statement
Cash flow statements indicates where funds came from during the year (from sales, receivable or sales of property) and where they are spent (for purchase of equipment, payment of dividends reducing accounts payable) cash flow statements shows 49 How the firm’s operation have affected its liquidity. 50 The relationship among cash flow from operating, investing and financing activities.

1.8 Significance of study

Mainly the study covers the financial analysis, which covers the liquidity, profitability, solvency and efficiency ratios of the bank over five different years. The comparative study with five years from data of the bank has been analyzed so far. Hence, it has been own importance and significance for policy makers, professionals, shareholders, management and general public.

1.9 Organization of study
This study has been divided in to five chapters. Chapter:-1 Introduction Chapter:-2 Research Methodology Chapter:-3 Presentation and Analysis Of data Chapter:-4 Summary, Conclusion and Recommendation

This chapter covers the general background of the general performance analysis, introduction of the organization, statement of problem, objective and limitations of the study and organization of the research study of Himalayan bank limited and Nepal Bangladesh bank limited.

This chapter focuses the research design, sample data analysis tools and their using techniques.

This chapter concern with measurement of financial performance using ratio analysis tools and their trend analysis.

This chapter gives summarization, conclusion and recommendation of the study.

51 Research methodology
Research methodology refers to the various sequential steps to be adopted by a researcher in studying a problem with certain objectives in view. This chapter explains the methodology used for this research in the following order.

52 Research design
Financial tools are used to ensure the relationship between variables in terms of ratio, percentage and times. Here for this research work both analytical and descriptive research design is applied.

53 Population and sampling
The study is done to taking an account of two organizations i.e. Himalayan bank limited and Nepal Bangladesh bank limited. In this study, overall financial performances of both banks are taken into consideration. The reason selecting these banks as sample for many study are predominant. 54 Convenience accessibility. 55 Easy data availability. 56 Good record of banks and recognition. 57 Welcome environment of banks. The joint ventures commercial banks, established year and head office of population are given below: Table no.:-3

List of joint ventures commercial banks
Commercial Banks S.N 1 2 3 Nepal Arab bank limited Nepal investment bank limited Standard chartered bank Nepal limited Established year 2041-03-29 2042-11-16 2043-10-13 Head Office Katmandu Katmandu Katmandu

4 5 6 7 8 9 10 11 12 13 14

Himalayan bank limited Nepal SBI bank limited Nepal Bangladesh bank limited Bank of Katmandu limited Everest bank limited Nepal credit and commerce bank limited Lumbini bank limited Nepal industrial and

2049-10-05 2050-03-23 2051-02-23 2021-11-28 2051-07-01 2053-06-28 2055-04-01 2055-04-05 2057-06-17 2056-08-24 2058-06-11 2058-06-12

Katmandu Katmandu Katmandu Katmandu Katmandu Siddharthna gar Narayangad h Biratnagar Pokhara Katmandu Katmandu Katmandu

commercial bank limited Machhchhapuchhre bank limited Kumari bank limited Laxmi bank limited

15 Siddhartha bank limited Sources- Newspaper and Magazines

58 Sources of data
The research is based on primary as well as secondary data. Primary data collected are personally collected through questionnaires, direct observations and interviews, which have conducted with the concerned staffs and customers of the concerned banks. The secondary data are collected from annual report of banks, broachers, balance sheet and from the website.

59 Method of data analysis
“The term data analysis refers to the computation of certain measures along with searching for patterns of relationship that exit among data group. thus in the process of analysis, relationship of different supporting or conflicting with original or new hypothesis and should be subjected to statistical lest of significant to determine with what validity can be said to indicate any conclusion.” Analysis may be categorized as descriptive analysis and inferential analysis. To achieve the predetermined objective of the research, certain tools are used. The tools are categorized as; 1. Financial tools

2. Stastical tools 3. Graphical tools In this study, following statistical tools are used to analysis the financial performance of the bank:-

Profitability ratio
Profitability is ultimately in terms of rate of return earned by the liquidity by the equity investors who are the owner of the business. Profitability is the final result of the bank. There are five measures of profitability, called profit margin, net interest, the spread, the return on assets, and the return on equity. This ratio tools helps to analyzed income relations to resources committed is to measure profitability from the financial statements.

Liquidity ratio
It means the ability to meet cash obligation as they come due. Liquidity is the probably most difficult aspect of the financial performances of the institutions to measures. This report gives out the correct comparison of the maturities of assets and liabilities.

Leverage ratio
It is used to know the long term financial positions of the financial instituitions.these ratios are also called capital structure ratios. These ratios indicate the proportions of debt and equity in the capital structure of a bank. 1. Liquidity ratios Current ratio = Current assets/Current liabilities =Cash and bank balance /Total deposits Cash and bank balance to total deposit ratio (cash reserve ratio)

2. Debt management ratios
Total debt ratio Interest coverage ratio = Total debt/Total assets =EBIT/Total interest charge (times)

3. Profitability ratios
Return on total assets =Net profit/Total assets

Return on net worth ratio Return on total capital

=Net profit/Net worth =Net profit after interests and taxes/Total capital

4. Other indicators
Earning per ratio (EPS) Dividend per share (DPS) =Net profit/No. of shares =Earn paid to shareholders/No. of shares

Dividend payout ratio (DPR) =Dividend per share/Earning per share

60 Presentation and analysis of data
This chapter thesis work presents the data, facts, figures and their interpretation. This thesis work is based on the secondary data. The relevant data collected from secondary sources are presented and analyzed by using financial, statical and graphical tools and techniques. To compare the financial performance of Nepal Bangladesh bank and Himalayan bank, ratio analyses has been used. We have also compared the data collected from various using ratios formulas.

61 Liquidity ratio
Liquidity of a firm refers to the sound solvency position of a firm to meet its obligations. Liquidity ratio measures the ability of a firm to meet its short-term obligations.liquiidity of a bank should be considered as the most important factor its existence. It shows the capability of payment of current liability. High ratio indicates the liability to pay and low ratio shows scarcity of liquid assets. In this ratio we have calculated:

62 Current ratio
Current ratio is the measure of the firm’s short-term solvency .current ratio is also known as “working capital ratio” it indicates the availability of current assets in rupees for ever one rupee of current liabilities .ratio greater than unity refers that firm has more current assets than the liabilities .current ratio is simply the ratio of current assets and current liabilities. The proportion of current ratio of 2:1 is supposed to be an idle. This conventional rule is based on the assumption that even it the current assets are decreased by half the form can meet its obligations. The standard of 2:1is not hard and fast rule for current ratio. The ratio of the firm depends upon the kind of the business it does as well. If the firm is a service tendering firm it is considered to be enough to be 1; 1ratio. It can be computed by using following formula, Current ratio= current assets/current liabilities (times)

Table no. - 4

Current ratio
in million(Rs.) Bank year Himalayan bank Current Current Assets Liabiliti es 2060/2 061 2061/2 062 2062/2 063 2063/2 064 2064/2 1,92,98,89 3 2,09,97,00 4 2,39,68,10 3 2,54,30,14 4 2,45,75,52 2630294 18,30,23 0 1,98,14, 319 2,22,92, 091 2343789 Rati os (tim es) 1.05: 1 1.06: 1 1.08: 1 1.09: 1 1.09: 19,99,36 8 2,12,71, 964 2,80,01, 430 2,13,51, 840 2,78,89, 1,29,28,536 1,62,55,024 14181,310 2,08,96,,59 0 1,14,18,096 Nepal Bangladesh bank Current Current Assets Liabilities ratio (time s) 1.23: 1 1.50: 1 1.34: 1 1.87: 1 2.16:

065 1 8 1 597 1 By table no.1, we can see the current ratios of HBL from the year 206/2061 to 2064/2065 are 1.05, 1.06, 1.08, 1.09 & of NB for those years are 1.23, 1.5, 1.34, 1.87& 2.15.both banks have current ratio lower than the standard ratio 2:1.So, both banks should increase its current assets.however, looking at above table we can see that NB bank has higher current ratio. Hence, the liquidity position of NB bank in comparison to HBL.

Figure no.-8

Current ratio 63 Cash and Bank balance to total deposit ratio
The table shows the comparative cash and bank balance to deposit ratio (excluding fixed deposit).cash and bank balance to total deposit measures the percentage of cash and bank balance maintained by NB bank and HBL bank in order to honor the cheques presented by its depositors excluding fixed deposits .a high ratio represents the greater ability to meet their all type or prompt demand of cash payment. but too high ratio of cash and bank balance to total deposits may be unsuitable and harmful because it affects their profitability position and also too low ratio is unfavorable as capital will be tied up and opportunity cost will be higher .this is computed by using following formula, Cash and bank balance to total deposit (cash reserve ratio) =cash and bank balance/total deposit.

Table no.-5

Cash and Bank balance to total deposit (cash reserve ratio)
(In million Rs.) Banks Year Himalayan bank Cash Total & Bank Balanc 2060/20 61 2061/20 62 2062/20 63 2063/20 64 2064/20 65 e 14,35, 157 12,64, 672 19,79, 209 20,01, 184 20,14, 471 1,75,32, 404 1,86,19, 375 2,10,07, 379 22,10,33 3 2,48,14, 012 8.19 6.79 9.42 9.09 8.12 11,89,048 27,95,996 27,12,150 22,82,676.5 24,00,763.7 16,58,07 3 2,90,68,9 28 2,71,62,2 15 2,16,74,0 46 2,39,76,4 33 7.18 9.62 9.99 10.53 10.01 Deposit Rati o (%) Nepal Bangladesh bank Cash & Total Bank Balance Deposit Ratio (%)

This ratio shows the ability of banks funds to meet their deposits. Dividing cash and bank balance calculate this ratio by total deposit. High ratio shows the good liquidity position. the ratio of HBL from 060/2061 to 2064/2065 is 8.19,6.79,9.42,9.09 and 8.12 and NB Bank is 7.18,9.62,9.99,10.53 and looking at the above table one can say that the NB Bank is in good liquidity position because of higher cash and bank balance to total deposit ratio.

Figure no.-9

Presentation of cash and bank balance to total deposit ratio in Line diagram

64 Debt management ratio
Leverage of capital structures ratios are used to judge the long term financial position of the banks. It evaluates the financial risk. Greater the portion of equity capital in capital lesser will be the risk. Debt is more riskily but it is advantageous to shareholders. In this ratio, we calculate total debt ratio, debt equity ratio and debt to total capital ratio.

3.3.1 Total debt ratio
This ratio reflects the external obligation of the firm in relation to the total assets. It indicates the financial contribution of outsiders and owners on total assets of the firm. It also measures the financial security of outsiders.generallly creditors prefer a low debt ratio where as, owners prefer high debt ratio in order to magnify their earnings on the one hand and to maintain their concentrated control over the Firm. Higher the ratio depicts higher the contribution of debt in total assets consequently higher the risk association. Total debt ratio=total debt/total assets Table no.-6

Total debt to total assets ratio
(In million Rs.) Bank Year Himalayan bank Total Total Debt 2060/206 1 1,83,02,3 00 Assets 1,95,00,5 72 Ratio (%) 93.86 Nepal Bangladesh bank Total Total Debt 1,81,19,2 77 Assets 1,96,95,5 78 Rati o (%) 92. 00

2061/206 2 2062/206 3 2063/206 4 2064/206 5

1,98,14,3 19 2,22,92,0 91 2,34,37,8 59 2,63,02,9 48

2,13,15,8 48 2,41,97,9 74 2,57,29,7 87 2,88,71,3 43

92.96 92.12 91.09 91.10

1,96,16,1 76 2,20,69,1 70 2,32,03,4 80 2,60,39,9 19

2,15,29,0 06 24,439,9 54 2,59,87,0 85 2,91,60,0 56

91. 91 90. 30 89. 29 89. 30

This ratio is calculated by dividing total debt by total assets. A high ratio shows the contribution of creditor in financing the assets of bank. this ratio shows that both banks have comparatively equale.The ratio of HBL are 93.89,92.96,92.12,91.09 and 91.1 likes this the ratio of NB Bank are 92,91.12,90.3,89.29,89.3.both banks have proportion of assets investing by debt but Himalayan bank has more risk in relation to NB bank due to higher debt ratio.

Figure no.-10

Presentation of total debt ratio in line diagram 65 Interest coverage ratio
This ratio is also called time interest ratio (TIE).Time interest ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. failure to meet this obligation can bring legal action by the firm’s creditors, possibly resulting in bankruipty.this ratio by dividing earnings before interest and taxes(EBIT)by the charges can be presented below, Interest coverage ratio=EBIT/total interest charge (times) Table no.-7

Interest coverage ratio
(In million Rs.) Banks Year Himalayan bank EBIT Total interest 2060/206 1 2061/206 2 11,65,88 0 9,27,180 charge 7 34 518 5,78,134 Ratio (times) 1.59 1.60 1,17,73 8.80 9,36,4 51.80 Nepal Bangladesh bank EBIT Total interest charge 7,30,845.40 5,75,243.30 Ratio (times) 1.61 1.63

2062/20 63 2063/20 64 2064/20

9,14,15 6 9,12,11 7 10,84,5

5,54,1 28 4,91,5 43 5,61,9

1.65 1.86 1.93

9,23,2 97.56 9,21,2 38.17 19,53

5,51,357.40 4,89,085.30 5,59,154.20

1.67 1.88 1.96

65 06 64 1.06 The interest coverage ratio is calculated by dividing EBIT by interest expenses. And it can be shown in times. The table shows the HBL and NB bank have more than Rs.1 EBIT for 1 rupee payment of interest. The higher the ratio will be more favorable for

the organization. The times interest on ratio of both banks are in increasing trend which indicate that the EBIT of both banks are good to cover the interest expenses. Figure no.-11

Presentation of interest coverage ratio 66 Profitability ratio
Profit is the difference between revenue and expenses. A profit is necessary for the survival of the company and also meets the expectation of shareholders. It is the measure of the performance of any business, heather it is doing well or not. It is calculated to measure the operating efficiency of the firm. Profitability ratio shows the combined effects of liquidity management and debt management on operating result. Major types of profitability ratio are as under:

67 Return on total assets
This ratio measures the profitability of all invested in the firm’s assets. This ratio provides the necessary foundation for a company to deliver a good return on equity. A company with out a good return on total assets finds it almost impossible to generate a satisfactory ROE. In this study ROA is computed to measure the profitability of all the financial resources in bank assets and calculated be applying the following formula; Return on total assets=net profit/total assets Table no.-8

Net profit of total assets ratio
(In million Rs.) Banks year Himalayan bank Net Total profit 2060/20 61 2061/20 62 2062/20 63 2,77,039 2,35,023 2,12,132 assets 1,95,00,572 2,13,15,848 2,41,97,974 Rati o (%) 1.4207 1.1026 0.8767 Nepal Bangladesh bank Net Total profit 2,82,579.7 8 2,39,723.4 6 2,16,374.6 4 assets Rati o

(%) 1,96,95,578 1.4347 2,15,29,006 1.1135 2,44,39,954 0.8853

2063/20 64 2064/20 65

2,63,052 3,08,277

2,57,29,787 2,88,71,343

1.0240 1.0678

2,68,313.0 4 3,14,442.5 4

2,55,98,085 1.0485 2,91,60,056 1.0783

Return on total assets is obtained by dividing net income after tax by total assets. This ratio measures the efficiency of bank in utilization of overall assets. High ratio indicates the success of management in overall operation all low ratio means inefficient operation of bank. these ratios of HBL of 5 years 1.42,1.1,0.87,1.0024 & 1.0678 in percentage same as NB bank are 1.43,1.11,.89,1.03 &1.08. From the above table one can tell that RoA of NB bank is good because it has higher RoA. Figure no.-12

Presentation of net profit to total asset ratio in line diagram

68 Return on net worth ratio This ratio indicates that how the firms have been utilizing the owners fund. The key objective of any enterprises is t maximize the owner’s wealth. Higher this ratio is the consequences of sound management and efficiency of the management. The net profit is obtained from P/L account and net worth is the sum of paid up capital, reserves, surplus and undistributed profit. In another way it can be calculated by subtracting total liabilities by total assets. Higher the ratio indicates higher the return and lower the ratio indicates lower the return. This can be computed from the following formula, Return on net worth=net profit/net worth Table no.-9

Return on net worth ratio
(in million Rs.) Banks year Himalayan bank Net Net profit 2060/206 2,77,03 worth 11,98,29 Rati o (%) 23.1 Nepal Bangladesh bank Net Net profit 2,82,579.7 worth 12,34,240. Rati o (%) 22.9

1 2061/206 2 2062/206 3 2063/206 4 2064/206 5

9 2,35,02 3 2,12,13 2 2,63,05 2 3,08,27 7

2 15,01,52 9 19,05,88 3 22,91,92 8 25,68,39 5

2 15.6 5 11.1 3 11.4 8 12.0 0

8 2,39,723.4 6 2,16,374.6 4 2,68,313.0 4 3,14,442.5 2

80 15,46,574. 90 19,63,059. 50 23,60,685. 80 26,45,446. 90

0 15.5 0 11.0 2 11.3 7 11.8 9

Return on net worth of HBL are 23.12,15.65,11.13,11.48 & the above ratio of NB bank are 22.90,15.50,11.02,11.37&11.89.comparing both banks HBL has greater profitability on net worth than NB bank due to higher ratio. Figure no.-13

Presentation of net profit to net worth ratio in line diagram 69 Return on total capital
This ratio is calculated by dividing net income after tax by total capital .it is tasted to see how the company employ their capital and can earn. More earning is expected by the company so high ratio desirable. Return on total capital=Net profit after interest and taxes/Total capital Table no.-10

Return on total capital
(In million Rs.) Banks year Himalayan bank Net Total profit 2060/2061 2061/2062 2062/2063 2063/2064 2064/2065 2,77,039 2,35,023 2,12,132 2,63,052 3,08,277 capital 3,00,000 3,90,000 4,29,000 5,36,250 6,43,500 Rati o (%) 92.35 60.26 49.45 49.05 47.91 2,82,879.78 2,39,723.46 2,16,374.64 2,68,313.04 3,14,442.54 Nepal Bangladesh bank Net profit Total capital 3,30,000 4,29,000 4,71,900 5,89,875 7,07,850 Ratio (%) 85.63 55.88 45.85 45.49 44.42

Returns on total capital of HBL of 5 years are 92.35, 60.26, 49.45, 49.05 &47.91. Same ratios of NB bank are 85.63, 55.88, 45.85, 45.49 &44.42.comparing both banks HBL has high return to total capital i.e. utilize their capital in more productive sectors.

Figure no.-14 Presentation of return on total capital in line diagram

70 Others indicators
Others indicators like payout ratio, dividend yield ratio are calculated. Higher ratio or higher values of these indicators shown good performance of any organization. 71 Earning per share (EPS) EPS indicate the income distributed .high EPS indicates good performance and low EPS indicates low performance. EPS=net profit/no. of shares Table no.11

Earning per share (EPS)
(In million Rs.) Banks year Himalayan bank Net No. of shares 3,000 4,290 5,362 6,435 6,435 EPS 92.35 60.26 49.45 49.06 47.91 Nepal Bangladesh bank Net profit No. of 2,82,579.7 8 2,39,723.4 6 2,16,374.6 4 2,68,313.0 4 3,14,442.5 4 The earning per share of HBL are 92.34,6.26,49.44,49.05&47.906 for the fiscal year 2060/2061 to 2064/2065 and of NB bank are 85.63,55.879,45.85,45.49 &44.42.from the above table we can see the EPS of HBL’s is good because it has higher is enough to attract the investor. shares 3,300.00 4,290.00 4,719.00 5,898.75 7,078.50 EPS 85.63 55.88 45.85 45.49 44.42

profit 2060/206 2,77,039 1 2061/206 2,35,023 2 2062/206 2,12,132 3 2063/206 2,63,052 4 2064/206 3,08,277 5

Figure no-15

Presentation of earning per share in line diagram 72 Dividend per share (DPS)
Dividend per share indicates the earning paid to ordinary shareholders. High DPS can satisfy the shareholders and low DPS can unsatisfy the shareholders. DPS= earn paid to shareholders/no. of shares Table no.12

Dividend per share
(in million Rs.) banks year Himalayan bank Earn paid to No. shareholder s 2060/2061 2061/2062 2062/2063 2063/2064 22,500 97,500 5,645 0 of share s 3,000 4,290 5,362 6,435 6,435 7.50 25.00 1.3159 0 11.579 DPS Nepal Bangladesh bank Earn paid No. of to sharehold ers 33,909.57 45,547.46 71,403.63 23,343.23 40,877.30 3,300.00 4,290.00 4,719.00 5,898.75 7,078.50 10.28 10.62 15.13 3.96 5.77 shares DPS

2064/2065 74,511

The dividend per share of HBL is 7.50,25,1.3159,0 &11.597.for the fiscal year 2060/2061 to2064/2065 & NB bank are 10.28,10.62,15.13,3.96 &5.77.from the table we can say that HBL paid higher dividend for the fiscal year 2061/2062 &2064/2065 &NB bank paid more dividend for remaining fiscal,we can say that both banks have satisfactory DPS Figure no.-16

Presentation of dividend per share in line diagram

73 Dividend payout ratio
Generally most of the firms retain some portion of the earnings to strengthen the financial position of the firm and to avail fund for the future purpose. This ratio simply shows the ratio of proportion of earnings distributed to shareholders as dividend and proportion of earnings retained in the firm for the future purpose as retained earnings. Higher the ratio reflects higher the proportion of earnings is distributed as dividends. Dividend payout ratio= dividend per share/earnings per share

Table no.-13

Dividend yield ratio
Banks year Himalayan bank DPS EPS Ratio Nepal Bangladesh bank DPS EPS Ratio

2060/2061 7.50 92.35 2061/2062 25.00 60.26 2062/2063 1.3159 49.45 2063/2064 0 49.06 2064/2065 40877.30 47.91 Dividend payout ratio of HBL for

(%) (%) 8.12 10.28 85.63 12.01 41.49 10.62 55.88 19.01 42.66 15.13 45.85 33.00 0 3.96 45.49 8.71 24.17 5.77 44.42 12.99 5years are 8.12.,,0 &24.17.similarly,

DPR of NB bank is 12.01,19.01,33.00,8.71 &12.99.the DPR of HBL is higher than for the fiscal year 2061/062 &2062/063 whereas in other fiscal year NB bank has higher DPR. Figure no.-17

Presentation of dividend payout ratio in line diagram 74 Findings
The current ratios of both banks are less than the generally accepted standard of 2:1.however the current ratio never falls below the ratio 2:1. So, current ratios of both banks have satisfactory. But the current ratio of Nepal Bangladesh bank is higher so it has stronger liquidity position. 75 Cash and bank balance to total deposit of NB bank is higher than that of Himalayan bank which is not good because higher liquidity position shows the greater amount of idle money, which cannot generate the revenue. 76 Both bank’s proportion of total debt is very high in overall assets. The higher debt generates the higher EPS, which is quite good but from the view point of organization, both banks are in risk. 77 Return on total assets of NB bank is slightly higher than that of HBL, which also shows that the both banks are earning equal profit ratio. 78 The return on net worth of both banks are almost equal where as return on total capital of HBL is higher than NB bank, it shows that the profitability rate of HBL is

good due to sound performance. 79 EPS of HBL is higher than NB bank where as DPS of is higher than HBL.both the banks have regularity in the payment of dividend but NB pays more amount of dividend than HBL bank. 80 The no. of outstanding shares of HBL is increasing every year to minimize the risk that is caused by the high amount of debt.

Summary, conclusion and recommendation 81 Summary
In the last two decades, the financial scenario of Nepal has dramatically changed. The vast development industrial sector or due to the presence of different kinds of risk in the economy brings so many banking institutions from private as well as public sector in Nepal. The first banking of Nepal, Nepal bank limited from government sector was established in 1994. Presently 27 commercial banks are in operation in the country, among 24 banks are listed in NEPSE.out of 27 commercial banks, two joint ventures are selected as the sample banks for this thesis work. The objectives, functions, policies and strategies of joint ventures banks have been emphasized and the performances of the two sample banks have been analyzed. The main purpose of selecting these two banks is, they have been offering all kinds of available facilities available in banking sectors in the country. The study is mainly based on the secondary data publicly available in the NEPSE data base and the annual report of respective banks. for the study, the five year’s data of the banks have been pooled starting from FY 2060/2061 to 2064/2065.the collected data of the banks for the study purpose are thoroughly processed, tabulated for the required format; different measures of the data have been calculated using different statistical tools and financial tools with the best effort.

82 Conclusion
While going through the study, it is found that both banks have sound performance but Nepal Bangladesh bank has more sound performance than Himalayan bank. All the debt management ratio and profitability ratio of Nepal Bangladesh bank are slightly better than of Himalayan bank ltd. Liquidity ratio of both banks is not so good. At last, from the study of NB bank and Himalayan bank, we can conclude that the banks are performing their business with the fast success in Nepal. However liquidity ratio and debt ratio of NB bank is higher. But when we take in to consideration EPS and DPS, the Himalayn bank has higher EPS but lower DPS.So, Himalayan bank is

better in terms of EPS but Nepal Bangladesh bank is better in terms of DPS.

83 Recommendation
Based on the analysis conducted on previous chapters, some shorts are found. Thus, following recommendations could be possibly helpful to improve their future financial performance. 84 Profit is essential for the survival and growth of banks. As per the findings, profits of both of the sampled banks are not at satisfactory level.therefore, they are suggested to generate higher profit for the survival and growth of the firm. 85 Investors of any firm are always fascinating towards the EPS and DPS of the firm. Here is the observed that the EPS and DPS of Himalayan bank are quite low.therefore, the bank should think to improve these financial indicators so that it could convey the right message in the market. 86 In order to be able to pay the liabilities both the banks should have to increase their current assets by investing in marketable securities because their current ratios are less than the conventional standard 2.1. 87 In both banks the proportion of total debt is very high in their overall assets. It will be riskier. The proportion of total debt must be reduced. If not possible, they should increase their share in order to rescues from their risk. 88 Cash and bank balance to total deposit ratios or Nepal Bangladesh bank is much higher than its necessity. So it should its cash and bank balance and should invest them in to earning assets to increase income.