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A Comparative Study of
Nepal Bank Limited and Nabil Bank Limited

By

S.No. Name Roll No. S.No. Name Roll No.


1. Abhishek Kharel 125 6. Prakash Shakya 125
2. Dhurba Khadka 125 7. Rabin Rana 125
3. Dipendra Bhandari 542 8. Subash Karki 542
4. Dhanesh Giri 451 9. Sujan 451
5. Madhav Ghimire 541 10. Sukra Raj Shrestha 541

Assignment Submitted to :
Madam Prerana L. Rajbhandari
Shanker Dev Campus
Tribhuvan University

In partial fulfillment of the requirements for the degree of

Master of Business Studies (M.B.S 1st year)

Kathmandu
June, 2005
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ACKNOWLEDGEMENT

This is an attempt to present the comparative analysis of financial performance of the


selected commercial banks. This study will be beneficial to the students of Finance as
they relate their classroom studies and theories on finance to the practical results
derived from the study. The comparative financial results of the selected commercial
banks, on which the study has been based, will enable the shareholders and general
public to know the best forming bank in the economy.
We are also grateful to the staff members of Nepal Bank Limited and NABIL Bank
Limited for their corporation in providing necessary information. We would like to
thank our friends for their inspiration, encouragement and assistance for this
achievement.

Last but not the least, we would like to thank the persons of different sectors who
helped us a lot by getting involved in this thesis directly or indirectly.
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Table of Contents
Chapter 1 : INTRODUCTION 1-5
1.1 General Background 1
1.2 Function of Commercial Bank 1
1.3 Nepal Bank Limited: A Glance 2
1.4 NABIL Bank Limited: A Glance 2
1.5 Restructuring of NBL 3
1.6 Statement of the problem 4
1.7 Objective of the study 4
1.8 Significance of the study 5
1.9 Limitation of the study 5
1.10 Chapter Plan 5

Chapter 2 : REVIEW OF LITERATURE 6-8


2.1 Conceptual Review of Financial Analysis 6
2.2 Review of Books and Journals 7
2.3 Review of Some acts relating to Banking in Nepal 7
2.4 Review of report 8
Chapter 3 : RESEARCH METHODOLOGY 9-14
3.1 Research Design 9
3.2 Sources of data 9
3.3 Population and Sample 9
3.4 Method of data analysis 9
3.5 Financial Tool 10
Chapter 4 : PRESENTATION AND ANALYSIS OF DATA 15-33
4.1 Financial Analysis/ Ratio Analysis 15
4.1.1 Liquidity Ratio 15
4.1.2 Activity of Turnover Ratio 20
4.1.3 Leverage / Capital Structure Ratio 23
4.1.4 Profitability Ratio 28
4.1.5 Valuation Ratio 31

Chapter 5 : SUMMARY CONCLUSION AND RECOMMENDATIONS 34-35


5.1 Summary 34
5.2 Findings 34
5.3 Recommendations 35
5.4 Conclusion 37
BIBLIOGRAPHY 38
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List of Tables

Page No.
Table 1 Current Ratio 16
Table 2 Cash and Bank Balance to Total Deposit Ratio 17
Table 3 Cash and Bank Balance to Non-Interest Bearing Deposit Ratio 18
Table 4 Cash and Bank Balance to Interest Bearing Deposit Ratio 19
Table 5 Loan and Advances to Total Deposit Ratio 21
Table 6 Total Investment to Total Deposit Ratio 22
Table 7 Long Term Debt to Net worth Ratio 24
Table 8 Total Debt to Total Assets Ratio 25
Table 9 Capital Adequacy Ratio 26
Table 10 Total Debt to Net worth Ratio 27
Table 11 Return on Investment Ratio 29
Table 12 Commission and Discount Income to Personnel Expenses Ratio 29
Table 13 Interest Income to Interest Expenses Ratio 30
Table 14 i) Return on Shareholders Equity of NBL 31
ii) Return on Shareholders Equity of NABIL 31
Table 15 Price Earning Ratio 32
Table 16 Dividend Payout Ratio 32
Table 17 Market value per share to Book value per share 33
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List of Figures
Page No
Figure 1 Presentation of Current Ratio 16
Figure 2 Presentation of Total Deposit Ratio 17
Figure 3 Presentation of Cash and Bank Balance to Non-Interest Bearing
Deposit Ratio 18
Figure 4 Presentation of Cash and Bank Balance to Interest Bearing Deposit Ratio 20
Figure 5 Presentation of Loan and Advances to Total Deposit Ratios 21
Figure 6 Presentation of Investment to Total Deposit Ratios 23
Figure 7 Presentation of Long Term Debt to Net worth Ratio` 24
Figure 8 Presentation of Total Debt to Total Assets Ratio 26
Figure 9 Presentation of Capital Adequacy Ratio 27
Figure 10 Presentation of Total Debt to Net worth Ratio 28
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ABBREVIATIONS

BVPS : Book Value per Share


CRR : Cash Reserve Ratio
DPS : Dividend Per Share
EPS : Earning Per Share
FY : Fiscal Year
JVBs : Joint Venture Banks
MVPS : Market Value Per Share
NBL : Nepal Bank Limited
No. : Number
NPR : Nepalese Rupee
NRB : Nepal Rastra Bank
RBB : Rastriya Banijya Bank
SLR : Statutory Liquidity Ratio
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CHAPTER 1

INTRODUCTION

1.1. Background
As survival, development and prosperity of any organization depend on number of factors.
Every organization should give prime concern to those factors. However one of the major
determinants for effective running of a business entity is its financial operation system.
Optimum utilization of the organizations financial resource, leads the organization to the
ultimate target fulfillment so it is very important to analyze the accounting and financial
statements to know whether the financial position is sound and what kind of measures should be
applied.

In recent years due to liberal economic policy of the Government many private banks are
coming into operation. The foreign joint venture banks are enjoying competitive advantageous
factors like highly skilled personnel, modern and advanced banking technology, customer
oriented modern banking services, management expertise and global banking network.

Bank in general means an institution that deals with money. Concept of banking had developed
from the ancient history us with the effort of ancient history with the effort of ancient Goldsmith
who practiced storing peoples gold and valuables. Bank was originated from French word
Banque. In the developing countries like Nepal, Banks play vital role for domestic resource
mobilization and economic development of a country. The first commercial bank was Bank of
England (1694), central bank of Britain. The first commercial bank in Nepal is Nepal Bank
Limited, which was, established in 1937 A .D. Commercial banks are the suppliers of finance
for trade and industry and play a vital role in the economic and financial life of the country. By
investing the saving in the productive areas they help in capital formation.
According to Gillian and Soal, A sound banking system is important because of the key roles it
plays in the economy: intermediation, maturity, transformation, facilitating payment flows,
credit allocation, and maintaining financial discipline among borrowers. Banks provide
important positive externalities as gathering of saving, allocation of resources and providers of
liquidity and payment services.
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Commercial Banks play the vital role in economic development of any nation. Capital is the
most important factor and foundation for not only the economic development but also for the
overall growth and prosperity of the nation.

1.2. Functions of Commercial Banks


Commercial banks perform different functions however some common functions listed below.
1.2.1. Extension of Credit
The primary function of commercial bank is the extension of credit of worthy borrowers. Bank
lending contributes a lot to the economy in terms of financial, agricultural, commercial, social
services, and industrial
1.2.2. Creating Money
One of the major functions of commercial banks that differentiate them from other institutions is
their ability to create money through lending and investing activities. The power of commercial
banking system to create money is of great economic significance as it helps to create and
elastic credit system that is necessary for economic progress. It creates money through payment
mechanism i.e. through cheque, credit cards and debit cards. It also use pooling and saving tool
to create money.
1.2.3. Facilitating Foreign Trade
The commercial bank efficiently arranges the amount of foreign exchange required by business
organizations. Moreover, the issue of letter of credit has facilitated foreign trade transactions.
1.2.4. Safe keeping of valuables
Safe keeping of valuables is one of the oldest services rendered by commercial banks. They
provide locker facilities to keep valuables and they are accepted by commercial banks.

1.3. Nepal Bank Limited: A Glance


Nepal Bank Limited (NBL), a pioneer commercial bank is the oldest bank in the history of
modern banking system of Nepal. It was established on 13th Kartik 1994 BS ( 1937 AD) in the
technical assistance of Imperial Bank of India under "Nepal Bank Act 1993.
With starting paid up capital Rs. 842,000,invested in 1994, has grown to Rs.38.04 crore as at
060 Kartik. Shareholdings are distributed, as 40.49% is owned by government and 59.51% by
Public. It has expanded its branches throughout the Kingdom including far remote areas having
very poor profitability and some of the parts having income not sufficient to meet breakeven.
The bank has given more priority to the service of common and poor class people rather than to
the profit and it has been able to achieve some objectives, which were set at the time of its
inception.
Accordingly, Nepal bank Limited was established to provide the services: to accept deposits, to
extend credit facilities for the promotion of trade, cottage industries and agriculture, to render
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customer-related services, i.e. issue of bill of exchange, hundis etc.. to invest on government
bond and securities, to carry out agency functions and to act banker to the government.

1.4. Nabil Bank Limited: A Glance


Nabil Bank Limited (erstwhile Nepal Arab Bank Limited) was established on July 12th 1984
under a technical service agreement with Dubai Bank Limited, Dubai. The bank is managed by
a team of qualified and highly experienced professionals. Shareholders of Nabil is distributed as
50% owned by N.B. International Limited, Ireland, 20% by local financial institutions and 30%
by the Nepalese Public. The initial capital of Rs30 million, invested in 1984, has grown to
Rs1,314 million as at mid- July 2003. During this period, the Bank has paid cash dividends
totaling Rs1,2768 million. Nabil Banks Capital Adequacy Ratio stood at 13.06% as at mid-July
2003 against the statutory minimum requirement of 10%.
The Bank provides a complete range of personal, commercial and corporate banking and related
financial services through its 15 branches and 2 counters-the largest number of branches
amongst any joint venture bank in Nepal. It also was the first to introduce consortium finance in
Nepal and has had the privilege of rendering comprehensive banking services (including trade
finance) to leading Government institutions. The Bank is a major player in facilitating import
export activities with modern and efficient Trade Finance and International Trade support
services, to large multinationals as well as established business conglomerates in the private
sector.
Nabil is the sole banker to a multitude of International Aid Agencies, Non-Government
Organization. Embassies and Consulates in the Kingdom. It introduced Master card to the
Nepalese market, in Nepalese Rupees and Us Dollars and now also issues Visa Card. A growing
network ATM Facilities are available to account holders. Debit cards with PIN numbers are
issued to enable customers to avail of 24 hour ATM facility. Nabil has 190 correspondent
banking relationships and has drawing arrangements with Banks in 47 countries. Nabil is the
sole principal Agent Bank in Nepal of Western Union Financial Services and facilitates transfer
of funds, through an on-line computer system, instantly to or from more than 170,000 locations
in 196 countries and territories. The bank was awarded the title "Bank of The Year 2004".

1.5. Restructuring of NBL


Under the financial sector technical assistance program of world bank and DFID, A
management team ICCMT consisting of International bankers from Bank of Scotland
(Ireland) has been appointed in NBL in July 22, 2002 to restructure the NBL. Under the
leadership of Mr. J. Craig Mc Allister, the Management team has completed the Financial
Analysis of the NBL, the preparation of Management Plan and the Budget Plan for the Bank.
To-date, the team has come up with clear mission, vision, goals and objectives of the bank.
Asset Liability Management Committee (ALCO), Executive Committee (EXCO), Credit
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Committee (CC), Relation Management Division (RMD), Credit Administration and Review
Division (CARD), Special Asset Group (SAG), and several Task Forces have been established
to create, apply and reinforce internationally accepted norms and modalities in the bank. The
norms and modalities are focused towards identifying bank risk and enhance the loan risk rating
systems in the bank. New Credit Policy Guide, Guidelines for Credit Decision Process, Problem
Loan Guide have been prepared and implemented last year. A continuous negotiation and
dialogue with big defaulters have been initiated and around Rs. 490 million of loan as
categorized on NPA has been recovered and restructured within the one half years of period.
New accounting manual and chart of accounts have been introduced. Around 300 staff in the
NBL have received the Accounting Training. The pending audits of FY 2000/01, 2001/02 have
been completed last year and the financial audit of 2002/03 has also been completed in time this
year. A detail Human Resource Master Plan has been prepared and accordingly to get the bank
in the right size first phase VRS has been launched which has reduced the staff by 1462. The
loss position of the bank has been reduced to Rs.250 million in FY 2002/03 from that of
Rs.3070 million of FY 2001/02. Its is expected that the restructuring effort would be successful
to introduce a new credit culture, sound HR development program , scientific and modern
IT/MIS platform to instill profit oriented atmosphere , an inbuilt self monitoring mechanism and
customer service culture within the contract period in NBL .

1.6. Statement of the problem


The current situation has brought a cutthroat competition in banking business. Especially the
joint venture private banks are concentrating their business in more profitable area. In this
context the NBL is in critical situation because it has to give service to the remote people where
financial benefit is low at the same time they have weaknesses also in their management and
operational activities.

The study is carried out in order to look into the comparative weaknesses and inefficiencies of
NBL and with the help of the comparative analysis of their financial statements. With the
background the present study will attempt to make assessment on the problems and recommend
solution regarding the above-mentioned ground as follows.
i. Is return provided by NBL bearing risk level satisfied?
ii. Can NBL meet its short-term obligation?
iii. What are the problems and prospect associated to NBL?
iv. Why NABIL is much more successful than NBL?
iv. Liquidity, Profitability, Leverage and activities ratio of the two banks

1.7. Objective of the study


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The basic objective of this study is to analyze the financial performance of the two banks by
conducting a comparative study between NBL and NABIL through the use of different ratios.
The specific objectives of this study are as follows:-
i. To analyse the risk and return of NBL in comparison to NABIL
ii. To analyse the liquidity position of the selected banks.
iii. To evaluate the financial ratios to calculate efficiencies, valuation, profitability, capital
structure ratios.
iv. To recommend measure for the improvement of the financial performance and efficiency
on the basis of the conclusions drown from the research.

1.8. Significance of the study:


This study will be important for the following groups and individuals:
i. Further researcher
ii. University students who are new generation
iii. Financial congers and analysis
iv. Government
v. All other interested individuals and parties
vi. NGOs and INGOs
vii. Researcher (myself)

1.9. Limitation of the study


This report is held within the following Limitations and constraints, they are:
i. Time limitation i.e. the study is carried out in one month period.
ii. The study is limited only in the financial performance of the two banks.
iii. Due to the shortage of the time volume and budget, new method may not be developed
iv. Report is based on the data of NBL and NABIL
v. Certain periods data (5yrs.) has been taken for the analysis; result is based on this data.
vi. Because of the bank's secrecy they don't provide adequate information. Due to
availability of Limited information this study will not cover every part of the
performance aspects.

1.10. Chapter Plan


This study has been organized into five different chapters.
Chapter one introduces the major issues, objectives, significance, and Limitation of the study.
Chapter two is devoted to the theoretical analysis and brief review to related literature
available. It includes a discussion of the conceptual framework and review of the major studies.
Chapter three describes the research methodology employed in the study. It consists of
research design. Sources of data, population and sample, statistical and financial tools used to
analyze the data.
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Chapter Four data has been presented and analyzed in accordance with the selected research
methodology.
Chapter 5 Presents the major findings and provides some suggestions. The bibliography and
appendixes have been incorporated at the end of the study.
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Chapter 2
Review of Literature

This chapter highlights and deals with the literature relevant to this study. It comprises review of
book, previous studies received, article review and review of policy documents.

2.1. Conceptual Review of Financial Analysis


According to M. Pandey,Financial analysis is the process of identifying the financial strengths
and weaknesses of the firm by properly establishing relationship between the items of the
balance sheet and the profit and loss account. Management of the firm can undertake it or by
parties outside the firm. The focus of the financial analysis is on the key figure contained in the
financial statement and significant relationship existed. Management of the firm is generally
interested in every aspect of the financial analysis; they are responsible for the overall efficient
and effective utilization of the available resources and financial position of the firm.

The vertical and horizontal analysis could be done for the financial analysis. The vertical
analysis consists of financial Balance sheet, profit and loss Account of a certain period time
only, which is known as static analysis. Likewise, the horizontal analysis consists of a series of
statement relating to the number of years are reviewed and analyzed. It is also known as
dynamic analysis that measures the change of the position or trend of the business over the
number of years. In this study, the horizontal analysis has been adopted to find out the financial
indicator of the NBL and NABIL over the period of FY 1997/98 to 2001/02. The steps of
analysis are as follows.
1. Selection of the information relevant to the decision.
2. Arrangement or the selected information to highlight the significant relationship of the
financial yardsticks.
3. Interpretation and drawing of inferences and conclusions.
To evaluate the financial performance of a firm, the analyst needs a certain parameters of the
company by which the quantitative relationship and its position come out. The most widely and
effective used tool of the financial analysis is the ratio analysis. The financial ratio is the
measurement of relationship between two accounting figures, expressed in mathematical way or
the numerical relationship between two variables expressed as (i) percentage or, (ii) fraction or
(iii) in proportion of numbers.

Ratio Analysis
Ratio analysis is the systematic use of financial information of the firms strength and weakness
as its historical performance, and current financial condition can be determined.
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After calculating various ratios, we need to compare with the certain standard and draw out the
conclusion of the result. The comparison classified by Weston and Brigham into six types viz ,
(i)Liquidity ratios (ii) leverage ratios, (iii) Activity ratios (iv)profitability ratios (v) Growth
ratios and (vi) Valuation ratios .
In this study the following ratios are analyzed.
1. Profitability Ratio
2. Liquidity Ratio
3. Efficiency Ratio
4. Capital structure Ratio
5. Investment ratio
The details of the ratios will be discussed in detail in the next chapter.

2.2 Review of Books and Journals


Further R.S .Sayers in his book Modern Banking Writers, Ordinary banking business consist of
changing cash for bank deposits and bank deposits from one person to corporation ( one
depositor to another) giving bank deposits in exchange for bill of exchange, government banks,
recurred and unsecured promises businessmen to repay.
Erich A. H. in his book has described financial analysis as Financial analysis is both an
analytic and judgmental process that helps to answer the questions that have been properly
posed to and therefore, it is a mean to an end. We can stress enough that financial analysis is an
aid that allows those responsible for results to make sound decisions.
Liquidity is other financial indicator of the business enterprises. I.M. Pandey says, "A firm
should ensure that it does not suffer from lack of liquid. And also that it is not too much highly
liquid. The failure of a company to meet its obligations, due to lock of sufficient liquidity will
result in bad credit image. Loss of creditors confidence, or even in low suits resulting in the
closure of the company. A very high degree of liquidity is also bad; idle assets earn nothing. The
firms funds will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a
proper balance between liquidity and lack of liquid."
Liquidity is measured by the speed with which a banks assets can be converted into cash and
other current obligations. It is also important in view of survival and growth of a bank.

2.3. Review of Some acts relating to Banking in Nepal


Commercial Bank Act 2031 was formulated to facilitate the smooth run of commercial banks.
All the commercial banks are functioning under this act. This act defines the bank as, A
commercial bank is one which exchange money, deposits money, accepts deposits, grants loans
and performs commercial banking function and which is not a bank meant for co-operative ,
agriculture , industry or for specific purpose
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The preamble of Nepal Bank Act 1994 clearly states the need of commercial bank in the
country, In absence of any bank in Nepal the economic progress of the country was being
hampered and causing inconvenience to the people and therefore with the objective of fulfilling
that need by providing services the people and for the betterment of the country, this law is
hereby promulgated for the establishment of the bank and its operation.
A bank shall be established under the Company Act with the recommendation of the Rastra
Bank. The bank may determine the location of its head office with the approval of the Rastra
Bank. The bank shall be an autonomous corporate body with the perpetual succession. It may
sue or be sued in its own name. Subject to this Act and other current Nepal law, the bank may
acquire, use and sell movable and immovable property. Any bank may open or shift the location
of, or close branches depots or other offices with the approval of the NRB.
In case any foreign commercial bank desires to open a branch, representative office or liaison
such branch under the company Act with the approval of NRB, and provisions of the act shall
apply to such foreign bank The NRB shall obtain the consent of His Majestys Government
before granting approval. While granting approval, NRB may prescribe condition according to
the need, and the foreign bank shall company with the conditions thus prescribed by the NRB.

2.4. Review of Thesis


Various thesis works have done in different aspects of commercial banks such as lending policy,
interest rate structure investment policy, resource mobilization, and capital structure etc.
Mr. Pragun Shrestha in his study ,A comparative Analysis of Financial performance of the
Selected commercial Banks, Concluded that many of the banks are of the view that political
instability in the country is mainly responsible for the decline of the lending opportunities . Few
banks ascribed it to the economic crisis that occurred in Asia pacific region .No one felt that
higher rates on interest on lending to be a major factor. At the some time it should target not
only the urban sector, it should go to the rural sector also. They have to explore all the potential
sectors like tourism etc. in order to generate high rate of profits

Mr. Gurungs Study on A Financial Study of Joint Venture Banks in Nepal. A Comparative
Study of NGBL and NIBL. In this study, he has analyzed financial position of the banks
measuring various ratios to elaborate the financial performance. The liquidity, profitability and
dividend payout ratio of two banks are on favourable position. But NIBL seems to be slightly
better position in terms of liquidity, profitability and capital structure compared to the NGBL. In
this evidence he has concluded that the NIBL promises a better future than NGBL.
The present study tries to focus on financial performance of NBL and NABIL Bank Limited, it
is clear that there was no research work on comparative study of these banks. This is the
comparative study of commercial banks which were not cleared in previous studies.
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Chapter 3
Research Methodology

Evaluating the financial performance of the selected banks in a micro level and to highlight the
efforts of the financial decisions of these banks in the economy at the macro level forms the
basic objective of this research.

3.1. Research Design


Keeping in mind the objective of the study, descriptive cum analytical research design has been
followed. The study is based on the wide range of variables and factors influencing financial
decisions of the banks. Comparative data banks are presented in such a way so as to make the
report informative to the reader. Financial tools (Ratios) have been used to analyze and interpret
the balance sheet, income statement and other accounting information.

3.2. Sources of Data


For the purpose of the study, following sources, which are secondary in their nature, has been
used:
 Economic Survey, Published by Research Department, NRB.
 Quarterly Economic Bulletin, published by Nepal Rastra bank.
 Previous Dissertations
 Web-sites
Other than the above-mentioned sources, the information collected through verbal
communications with the staff of the related banks has also been used in the study.

3.3.Population and Sample


Among 17 commercial banks, Nepal Bank Limited and NABIL Bank Limited have been
selected for the present study. Financial statements of latest 5 years (1997/98 to 2001/02) have
been taken as sample for the comparative analysis of financial performance. The
recommendation and suggestions, which are derived from the study, by taking the above
commercial banks as samples, will be equally useful for the other commercial banks in Nepal.

3.4 Method of Data Analysis


The methods used for the financial analysis of NBL and NABIL have been outlined below:
Presentation of Data:
Tabular as well as graphical presentation have been used in order to appraise the financial
results of NBL and NABIL categorically

3.5 Financial Tool


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The considerable assistance of Financial Ratios and Income and Expenditure analysis has been
taken to measure the strength and weaknesses of the NBL and NABIL.

3.5.1 Ratio Analysis


Ratio analysis is one of the most commonly used techniques in the analysis of the financial
statement and evaluation of the managerial performance. Ratio analysis points out the problems
in any operational areas and provides a basis to recommend corrective actions. Ratio analysis
satisfies the interests of creditors, government institutions and other to form their opinion or
enable them to have guideline towards effective decision-making.
There is variety in ratio calculation. Data contained in financial statement as the requirement of
the types of ratios are as follows:
Liquidity Ratio
Activity or Turnover ratio
Leverage or Capital Structure Ratio
Profitability Ratio
Valuation ratio

 Liquidity Ratio
Liquidity Ratio reflects the short-term obligation of the firm. This ratio shows that if firm need
cash amount in short period without any notice, can firm fulfill its need or how it manage the
need.
Commercial banks need liquidity to meet loan demand and deposit withdrawals. Liquidity is
also needed for the purpose of meeting Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio
(SLR) requirements prescribed by the central Bank. The following ratios are calculated under
the liquidity ratios.

a) Current Ratio
It is the ratio of total current assets to current liability. Lower current ratio creates difficulties in
meeting short run commitments as they mature. If the ratio is too high, the bank has an
excessive investment in current assets or is under utilizing short- term credit.
Current Assets
Current Ratio =
Current Liabilities

b) Cash and Bank Balance to Total Deposit Ratio


The proportion of the bank's idle money with total funds collected is indicated by this ratio.
High ratio means high idle money, which shows the inefficiency of management, as well as
increased cost of capital.
Error! Cash and bank balance
Cash and Bank Balance to Total Deposit Ratio =
Total Deposit
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c) Cash and bank balance to Non-interest Bearing Deposit Ratio: -


This ratio indicates the proportion of liquid assets to meet non-interest bearing liabilities, which
are free cost of source of NBL and RBB. This ratio is calculated as.

Cash & Bank Balance


d) & Bank
Cash Cash Balance
and Bank to Balance to Interest
Non-Interest Bearing
Bearing (excluding
Deposit Ratio = Fixed ) Deposit Ratio
Non-This
Saving deposit is the fixed interest bearing short-term liabilities. interest
ratiobearing deposits.
id calculated to
d) Cash and bank balance to interest Bearing Deposit Ratio: -
Cash & Bank Balance
Cash & Bank Balance to Interest Bearing Deposit Ratio =
Interest bearing deposit
Interest bearing fixed deposit is excluded being long-term liabilities. It is inappropriate to use
current assets to meet long term high interest bearing liabilities, i.e., fixed deposit.

 Activity or Turnover Ratio


Activity ratio is a function of the efficiency with which the various assets components are
measured. It measures the degree of effectiveness in use of resources or funds by an enterprise.
a) Loan and Advances to Total Deposit ratio:
Loan and advances are the major resources of investment to generate income in the commercial
banks. Deposits are used to grant loans and advances. Therefore, the bank should manage its
deposits efficiently. This ratio is calculated to determine the utilization of deposits for profit
generating purpose on the loans and advances. This ratio is calculated as;
Loan and Advances
Loan and Advances to Total Deposit Ratio
Total Deposit Ratio

b) Total Investment to Total Deposit Ratio


Investment is one of the major forms of credit created to earn return. It measures the utilization
of deposits in investment. Higher the ratio, better the utilization of collected fund and generates
regular income to the banks. This ratio is calculated as:

 Leverage / Capital Structure Ratio


Leverage ratio shows the proportion of debt capital and equity capital. It shows the long-term
solvency of the firm. It judges the long-term financial position of the firm.
Hence the leverage ratios are calculated to measure the financial risk and the firms ability if using
debt for the benefit of shareholders. Following ratios are calculated here,
a. Long term Debt to Net Worth (Shareholders equity) Ratio:
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It measures the proportion of long-term debt and equity used in the capitalization of the
banks. It is calculated as:
Long Term Debt
Long Term Debt to Net Worth Ratio =
Net Worth

b) Total Debt to Total Assets Ratio:


This ratio expresses the relationship between creditors fund and owners capital. This ratio
measures the share of the total assets financed by outsider fund. This ratio is calculated as:
Total Debt
Total Debt to Total Assets Ratio =
Total Assets

c) Capital Adequacy Ratio:


To operate the firm effectively and efficiently in the modern competitive environment adequate
capital is required. This ratio is one of the most significant ratio used specially to assess the banks
strength of the capital structure of the adequacy of the capital. So capital adequacy is determined as:
Total Debt
Capital Adequacy Ratio =
Total Assets
d) Total Debt to Net Worth Ratio
This ratio measures the proportion of interest bearing debt and owners fund. This relationship
describing the lenders contribution for each rupee of owners contribution is called debt equity
ratios. It is calculated as :
Total Debt
Total Debt to Net Worth Ratio =
Net Worth

 Profitability Ratio
This ratio measures the capacity of generating revenue and search for the incomes of the firm. The
operating efficiency of the bank and its ability to ensure adequate return to its shareholders depends
ultimately on the profit earned by the bank. To measure the efficiency of the banks following major
profitability ratios are calculated.
a) Return on Investment Ratio (ROI)
This is an appropriate base for the assessing the effectiveness of the operating management. Return
on investment is also called return on asset. It seeks to measure the effectiveness with which the
firm has employed it total resources.

Net Operating Income/EBIT


Return on Investment Ratio =
Total Assets
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b) Commission and Discount Income to Personnel Expenses Ratio
This ratio measures the efficiency of the staff or cost paid for taking services from staff to earn
income by providing services to the customers.

Commission and Discount income to Personnel Commission and Discount Income


Expenses Ratio =
Personnel Expenses
c) Interest Income to Interest Expenses Ratio
This ratio measures the effective use of deposit to earn revenue in proportion of the expense accrued
on collected deposits. Bank has to pay interest on interest bearing deposits and receive interest
through its investment on loans, advances and others.
Interest Income
Interest Income to Interest Expenses Ratio =
Interest Expenses
d) Return on Common Equity Ratio( ROCE)
This ratio is also called Investors Ratio'. It measures the effectiveness of the management with
respect to both its operating and financial decision.

Net Profit after tax


Return on Common Equity Ratio=
Shareholders Equity

 Valuation Ratios
These ratios result the overall performance of the bank measuring the combined effect of risk
and return. The valuation ratios indicate the market value of the firm as compared to the book
value and measure the stock price relative to earnings. The following ratios are calculated.

a) Price Earning Ratio(P / E Ratio)


Price earning Ratio is widely used by the security analyst to value the firms performance as
expected by investors. It shows how much investors are willing to pay per dollar of reported
profits. This ratio is calculated as:

Market Value Per Share


Price Earning Ratio=
Earning Per Share

Earning per share is calculated by dividing profit after tax by total number of common shares
outstanding.
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b) Dividend Payout Ratio (DPR)
The Ratio measures the relationship between earnings belonging to the ordinary shareholders
and dividend paid to them. It can be calculated as:

Dividend Per Share


Dividend Payout Ratio=
Earning Per Share

Dividend per share is calculated by dividing the earning paid to shareholder by number of common
shares outstanding.
c) Market Value Per Share to Book Value Per Share Ratio
The ratio measures the price the outsiders are paying for each rupee reported by the balance
sheet of the banks. It can be calculated as:

Market Value per Share


Market Value Per Share to Book Value Per Share Ratio=
Book Value per Share
The book value per share is net worth divided by the number of shares outstanding.

After reviewing the relevant Literatures and highlighting the Research Methodology now the
Analysis part of the research is gong to be undertaken.
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Chapter Four
Presentation and Analysis of Data

Subject matter and objectives of this study have been introduced in the first chapter. In order to
achieve those objectives necessary analytical tools and techniques have been discussed in unit
Research Methodology. In this unit relevant data have been presented and analyzed with
reference to financial performance of selected commercial bank

4.1 Financial Analysis:


Financial analysis is a process of evaluating relationships between component parts of financial
statements, i.e., balance sheet and profit and loss account to obtain a better understanding of the
banks position and performance. Various financial tools are used in this research for analysis.
Although there are more than 200 ratios, only some selected ratios are used in this study.
4.1.1 Ratio Analysis:
Ratio analysis is very much powerful tool of financial analysis. Financial ratios are most frequently
and widely used in practice to assess companys financial performance and condition. Important
ratios can be calculated from balance sheet and profit and loss account and thus calculated financial
ratios can be useful for analyzing and assessing the performance and position of the bank, which
reflect the relative strength and weaknesses of any particular bank over others.

4.1.1.1. Liquidity Ratio


Liquidity ratios measure a corporations ability to meet its maturing short-term obligations.
Liquidity refers to nearness to cash. With too much liquidity, the possibility of its misuse becomes
high. On the other hand, too little may lead to sever cash problems, which can result in liquidity to
pay debts in time. Following ratios are analyzed in the liquidity ratio.
This chapter is the main part of my study. This chapter will be of great relevance for my study, as
all the findings, conclusions and recommendations are going to be derived from the calculations
done in this section. The analysis of data consist of organizing, tabulating and performing financial
as well as statistical analysis.
a) Current Ratio
It measures the degree to which current assets cover current liabilities. A higher ratio indicates
greater assurance of ability to pay current liabilities. A current ratio of 2:1 is generally considered to
be an acceptable standard though it is only a rule of thumb standard. A low ratio indicates that the
corporation may not be able to meet short-term obligations. Symbolically,

Current Assets
Current Ratio=
Current Liabilities
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The current ratio for the bank is slightly low in the contrast of industry average due to the nature of
the bank. The calculation of the current ratio for the NBL and NABIL can be shown by the table.
Table#1
Current Ratio Table
(In million)
NBL NABIL
Year Current Current Ratio Average Current Current Ratio Average
Assets Liabilitie (Times) Ratio Assets Liabiliti (Times) Ratio
s (Times) es (Times)
1997/98 33876.43 32635.80 1.0380 10802.12 10132.27 1.0661
1998/99 36793.18 37977.19 0.9688 11961.95 11249.94 1.0633
1999/00 37893.67 41603.39 0.9108 0.9209 14788.91 13977.29 1.0581 0.9528
2000/01 37513.28 43239.47 0.8676 13161.68 17226.21 0.7640
2001/02 39168.99 47787.80 0.8196 13313.40 16384.73 0.8125

From the above table, the average current ratios of the two banks are for below the satisfactory
level. NBL has the declining Trend of current ratio, from 1.0380 times the to 0.8196 times in the
study period of five years keeping the average ratio 0.9209 times. The shows that NBLs current
assets have been declining in comparison to its current liabilities. This means that this banks ability
to meet its short-term obligations is declining over the period of Last five years. Like NBL, NABIL
has the declining trend of current ratio, from 1.0661 times to 0.8125 times in the study period of
five years keeping the average ratio as 0.9528 times. This also shows the NABILs current assets
have declining in comparison to its current liabilities. This means that this banks ability to meet its
short-term obligations is declining over the period of Last five years.

The comparative graph of current ratios of the selected banks has been presented below.

Comparative Presentation of Current


Ratios of NBL and NABIL
Ratio(Times)
Current

1.5
1
0.5
0 NBL
1997/9

1998/9

1999/0

2000/0

2001/0

NABIL
8

Year
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Figure No. 1
b) Cash and Bank Balance to total deposit ratio: - Cash and bank balance are the most Liquid
Assets, so this ratio measures the banks ability to immediately fund the withdrawal of their
depositors. A high ratio represents a greater ability to cover their deposits and vice versa. This ratio
is determined by dividing cash and bank balance by total deposits.
Table#2
Cash and Bank Balance to Total Deposit Ratio Table
( Rs. In million)
NBL NABIL
Year Cash & Total Ratio Average Cash & Total Ratio Average
Bank Deposit (%) Ratio Bank Deposit (%) Ratio
Balance (%) Balance (%)
1997/98 6495.49 28138.26 23.0842 1153.75 8737.76 13.2042
1998/99 5415.76 33188.48 16.3182 630.94 9464.28 6.6665
1999/00 5471.89 35768.26 15.2982 18.3271 1088.75 12779.51 8.5195 8.0611
2000/01 6266.79 35618.59 17.5942 812.90 15839.01 5.1323
2001/02 6627.11 34264.84 19.3408 1051.82 15506.44 6.7831

The above table shows the cash and bank balance to total deposit ratio of NBL is in decreasing and
again slowly increasing in the year 2000/01 and 2001/02. The maximum was in the FY 1997/98
which was 23.08% minimum was in the FY 1999/00 which was15.30% The average for the review
period was 18.33% .The cash and bank balance of NABIL Bank is moving in a zigzag trend,
firstly decreasing and increasing and soon. The maximum was in FY 1997/98 which was 13.20%
and minimum was in the FY 2000/01 which was 5.13% .The average for the review period was
8.06%.
This analysis helps us to conclude that cash and bank position with respect to its total deposit of
NBL is better than NABIL. The customer of NBL bank has more safety. The graph of cash and
bank balance to total deposit ratio of the banks have been presented below.

Comparative Analysis of Cash and Bank


Balance to Total Deposit Ratio of NBL and
NABIL
Ratio(%)

30
20
10
0
NBL
1997/9

1998/9

1999/0

2000/0

2001/0

NABIL
8

Year
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Figure No. 2
c) Cash and Bank Balance to Non-Interest Bearing Deposit Ratio:- This ratio indicates the
proportion of liquid assets to meet non-interest bearing liabilities, which are cost free source of the
banks.
Table#3
Cash and Bank Balance to Non-Interest Bearing Deposit Ratio
( Rs. In million)

NBL NABIL
Year Cash & Non- Ratio Average Cash & Non- Ratio Average
Bank Interest (%) Ratio Bank Interest (%) Ratio
Balance Bearing (%) Balance Bearing (%)
Deposit Deposit
1997/98 6495.49 4753.06 136.66 1153.75 2531.66 45.57
1998/99 5415.76 4745.09 114.13 630.94 2691.38 23.44
1999/00 5471.89 5414.94 101.05 121.95 1088.75 3351.05 32.49 21.40
2000/01 6266.79 5389.21 116.28 812.90 3254.33 24.97
2001/02 6627.11 4678.45 141.65 1051.82 8087.53 13.00
The above table shows that the cash and bank balance to non-interest bearing deposit ratio of NBL
is very high. It is maximum in the FY 2001/02 which was 141.65% and the minimum was 101.05%
in the FY 1999/00. The average ratio was 121.95%. The cash and bank balance to non-interest
bearing deposit of NABIL Bank is fluctuating throughout the period. The ratio ranged between
23.44% to 45.57%. The average ratio was 21.40%. The comparative graph of the above table is
presented below.
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Comparative Presentation of Cash and


Bank balance to Non-Interest Bearing
Deposit Ratios of NBL and NABIL

150
Ratio(%)

100 NBL
50 NABIL
0
8

2
/9

/9

/0

/0

/0
97

98

99

00

01
19

19

19

20

20
Year

Figure 3
The above analysis helps us to conclude that NBL was better in liquidity position for the payment of
its current non-interest bearing obligations. NBL Bank had enough liquidity to refund its whole
non-interest bearing deposit at any time. On the other hand, NABIL was utilizing its cost free
deposit in profit generating purpose, which yields high return as well as risk of insolvency for the
bank.

d)Cash and Bank Balance to Interest Bearing Ratio:- The cash and bank balance to interest
bearing ratio is calculated by dividing cash and bank balance by interest bearing deposits(excluding
fixed deposits). A bank must insure that it is liquid enough to face heavy deposit withdrawal. It has
to maintain adequate balance in the form of cash and bank balance in order to honor large
withdrawals by its customers.
Cash and bank balance to interest bearing deposits of NABIL and NBL tabulated in table No. 4.

Table#4
Cash and Bank Balance to Interest Bearing Deposit Ratio
( Rs. In million)
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NBL NABIL
Year Cash & Interest Ratio Average Cash & Interest Ratio Average
Bank Bearing (%) Ratio Bank Bearing (%) Ratio
Balance Deposit (%) Balance Deposit (%)
1997/98 6495.49 11112.78 58.45 1153.75 2456.79 46.96
1998/99 5415.76 14281.04 37.92 630.94 3352.62 18.82
1999/00 5471.89 18066.25 30.29 38.26 1088.75 4150.19 26.23 25.94
2000/01 6266.79 20058.24 21.24 812.90 4917.14 16.53
2001/02 6627.11 19855.12 33.38 1051.82 4972.06 21.15
The above table shows the ratio of NBL is in decreasing trend, the review period ranged between
58.45% in the FY 1997/98 to 16.53% in the FY 2000/01. The average ratio was 25.94%.On
average again NBL has better liquidity position than that of NABIL. However, very high ratio of
NBL indicates the unwise investment decision, i.e., inability of the bank to invest in more
productive sectors like government securities, treasury bills etc to enhance its profitability. So this
analysis helps us to conclude that the depositors of NBL Bank have more margin of safety than that
of NABIL.
The comparative graph of cash and bank balance to interest earning deposit ratio has been presented
below.

Comparative Presentation of Cash


and Bank Balance to Interest
Bearing Deposit Ratios of NBL and
NABIL
70
60
50
Ratio(%)

40
NBL
30
20 NABIL
10
0
8

2
/9

/9

/0

/0

/0
97

98

99

00

01
19

19

19

20

20

Year

Figure No. 4
4.1.1.2. Activity or Turnover Ratio
The ratios indicate the efficiency with which a corporation employs its resources. Activity ratios are
employed to evaluate the efficiency with which the firm manages and utilizes its assets. From these
ratios it is known that whether the funds employed have been used efficiently in the business
activities or not. These ratios are also called turnover ratios because they indicate the speed with
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which assets are being converted or turned over into profit generating assets. Following ratios are
used under activity ratio.
a) Loan and Advances to Total Deposit ratio: - Loans and advances to total deposit ratio is
calculated by dividing total loan and advances by total deposit. The core banking function is to
mobilize the funds from the depositors to the borrowers. Banks make profit by lending or utilizing
the deposited funds by charging a higher rate of interest to the borrowers than they pay to the
depositors. Hence they are known to be efficient in utilizing the funds if they can advance a greater
proportion of the deposited fund into risk assets.
The comparative ratios of the two banks have been tabulated below.

Table#5
Loan and Advances to Total Deposit Ratio
(Rs. In million)
NBL NABIL
Year Loan & Total Ratio Average Loan and Total Ratio Average
Advances Deposit (%) Ratio Advances Deposit (%) Ratio
(%) (%)
1997/98 17039.89 28138.26 60.56 5224.07 8737.76 59.79
1998/99 17206.89 33188.48 51.85 5788.93 9464.28 51.17
1999/00 14922.01 35768.26 41.72 42.56 7334.76 12779.51 57.39 55.78
2000/01 11918.94 35618.59 33.46 8324.44 15839.01 52.56
2001/02 8638.43 34264.84 25.21 7437.90 15506.44 47.97

The above mentioned table shows that NBL has decreasing trend of loan and advances to total
deposit ratio. It was maximum in the FY 1997/98 which was 60.56% and minimum in the FY
2001/02 which was 25.21%. The average ratio was 42.56%. The NABIL bank has the credit deposit
ratio of 55.78% only fluctuating betweens 59.79% in the FY 1997/98 to 47.97% in FY 2001/02.
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Comparative Presentation of Loan


and Advances to Total Deposit Ratios
of NBL and NABIL
Ratio(%)
80
60 NBL
40
20 NABIL
0 8

2
/9

/9

/0

/0

/0
97

98

99

00

01
19

19

19

20

20
Year

Figure 5
This analysis helps us to conclude that NABIL had the moderate ratio over the review period of
five years. This signifies that NABIL Bank had been able to efficiently use the outsiders fund
in profit generating purpose. It had been successful in advancing the favorable position of its
deposit towards loans and advances. But NBL had not been able to use the outsiders fund in
profit generating purpose.

b)Total Investment to Total Deposit Ratio:-This ratio is calculated by dividing total


investment by total deposits. Investment function or funds management is gaining widespread
importance in the banking sector. Treasury of the bank is involved in investing the surplus fund
with the bank in the income generating investments. In order to fill this gap between borrowing
lending, bank rather go for investments such as treasury bills, government securities,
development bonds, overseas placement and inter bank lending.

These investments earned a lower rate of return in comparison to loans and advances but under
most circumstances they generate higher rate of return than their cost of funds. Hence prove to
be beneficial for the bank.
Table#6
Total Investment to Total Deposit Ratio
( Rs. In million)
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NBL NABIL
Year Total Total Ratio Average Total Total Ratio Average
Investment Deposit (%) Ratio Investment Deposit (%) Ratio
(%) (%)
1997/98 4495.08 28138.26 15.97 954.15 8737.76 10.92
1998/99 5124.96 33188.48 15.44 1420.36 9464.28 15.01
1999/00 562.07 35768.26 15.27 17.314 1250.94 12779.51 9.78 27.45
2000/01 6776.33 35618.59 19.02 7704.31 15839.01 48.64
2001/02 7151.38 34264.84 20.87 8199.51 15506.44 52.88

The above table shows that the total investment to total deposit ratio of NBL was constant between
the FY 1997/98 in the FY 2001/02, which was 20.87%, and the minimum was in the FY 15.27% in
the year 1999/00. The average ratio was 17.314%. The ratio of NABIL was fluctuating
immoderately. NABIL had maintained the highest ratio of 52.88% in the FY 2001/02 and lowest
ratio in the FY 1999/00, which was 9.78%, and the average ratio was 27.45%. The comparative
graph of the above table is presented below.

Comparative Presentation of Total


Investment to Total Deposit Ratios of
NBL and NABIL

60
Ratio(%)

40 NBL
20 NABIL
0
8

2
/9

/9

/0

/0

/0
97

98

99

00

01
19

19

19

20

20

Year

Figure No. 6
This analysis helps us conclude that NBL is not relying significantly in investment to mobilize the
surplus deposit than NABIL bank. The bank with larger volume of foreign currency deposit relies
more on investment, as these deposits cannot be utilized into loans and advances easily.
4.1.1.3.: Leverage /Capital Structure Ratio
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The leverage ratio shows how much of a firm assets are financed by debt and equity. By studying
them, one can asses the prospects for future financing. If the firm has employed excessive debt in its
capital structure, additional debt financing will be difficult in future. The firm might have to pay
higher rate of interest. On the other hand, if the firm has employed no debt , or little debt, it reveals
the failure to use cheap borrowed capital and raise the shareholders rate of return. The use of debt
also enables the owners to maintain their control over the firm. If the capital is raised through equity
then the owners will lose control. The firm with high leverage ratios is subject to higher risks and
this would, in turn, increase their chances of getting high return. Conversely, the firm with low
leverage ratio is subject to lower risks and would in turn, decrease their return.
a)Long Term Debt to Net Worth Ratio:- Bank total fund which is invested in various income
generating assets consists of debt as well as shareholders fund. Debts for the bank usually include
deposits and borrowings from the customer whereas shareholders fund includes equity capital and
reserves.
Long-term debts in the form of fixed deposits are high cost liabilities for the bank. High ratio will
be favorable if the bank utilizes the funds on long-term loans and advances. Idle long-term debt
incurs losses due to high cost. This ratio measures the relative proportion of long-term debt in
relation to net worth. Long-term debt to net worth ratio of the selected banks has been tabulated
below.
Table#7
Long Term Debt to Net Worth Ratio Table
( Rs. In million)

NBL NABIL
Year Long Net Ratio Average Long Net Ratio Average
Term Worth (Times) Ratio Term Worth (Times) Ratio
Debt (Times) Debt (Times)
1997/98 704.82 753.03 0.9360 40.51 828.49 0.0489
1998/99 577.11 -1538.18 -0.3752 56.37 877.73 0.0642
1999/00 718.87 -4209.54 -0.1708 0.1342 62.84 984.07 0.0639 0.0672
2000/01 853.70 -6350.68 -0.1344 78.10 1062.83 0.0735
2001/02 1159.49 -9553.88 -0.1214 98.10 1146.42 0.0856

The above table shows that the long-term debt to net worth ratio of NBL is very poor. The ratios
were in negative trend. The average ratio is 0.1342 times. The maximum ratio was in the FY
1997/98, which was 0.936. But NABIL had fluctuating ratio over the review period. NABIL had the
average ratio of 0.0672 times.
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Comparative Presentation of Long


Term Debt to Net Worth Ratio Table

1.5
Ratio(Times)

1
NBL
0.5
NABIL
0
98

99

00

01

02
-0.5
7/

8/

9/

0/

1/
9

0
19

19

19

20

20
Year

Figure No. 7
From the above analysis, it can be concluded that the long-term debt to net worth ratio of NBL bank
is higher compared to NABIL. Long term financing in comparison to net worth had been
considerable for the banks. Higher proportion of long term debt debts are considered to be favorable
if the same is appropriate towards long term loans and advances, failing to do so, the cost of fund of
these debts would be higher than their return on the assets and the bank would incur losses. If this is
the case, the banks should reduce the long-term debts gradually and replace it either by interest free
current deposits or by owners fund.
b)Total Debt to Total Assets Ratio: - This ratio is calculated by dividing total outsiders fund by
total assets. The ratio of debt to total assets signifies the extent of debt financing on the total assets
and measures the financial security to the outsiders or creditors. Despite of higher risk, owners of
the bank prefer a high debt ratio because it magnifies their earnings on one hand and enables them
to maintain their concentrated control over the bank. Total debt to total assets ratio of the selected
bank over the period are tabulated below.

Table#8
Total Debt to Total Assets Ratio
( Rs. In million)
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NBL NABIL
Year Total Total Ratio Average Total Total Ratio Average
Debt Assets (Times) Ratio Debt Assets (Times) Ratio
(Times) (Times)
1997/98 33340.62 34093.66 0.9779 10172.78 11001.28 0.9247
1998/99 38554.30 37016.11 1.0416 11306.31 12184.05 0.9280
1999/00 42322.26 38112.73 1.1104 1.1081 14040.13 15024.20 0.9345 0.9299
2000/01 44093.17 37742.49 1.1683 17304.31 18367.15 0.9274
2001/02 48947.29 39393.42 1.2425 16482.83 17629.25 0.9350

The above table shows that total debt to total assets ratio of both the banks are quite consistent
throughout the review period of five years. NBL had its average ratio as 1.1081 times while NABIL
has slightly lower ratio of 0.9299 times. This shows that the total debt of NBL is about 1.01081
times and that of NABIL is 0.9299 times to that the total debt covered about 110.81% of NBL and
92.99% of NBL of their total assets in average.

Comparative Presentation of Total Debt


to Total Assets Ratios of NBL and
NABIL
Ratio(Times)

1.5
1 NBL
0.5 NABIL
0
8

2
/9

/9

/0

/0

/0
97

98

99

00

01
19

19

19

20

20

Year

Figure No. 8
The above analysis helps us to conclude that these banks are aggressive and are using high portion
of their debt capital. About 110.81% of their assets are financed by debt capital in NBL and 92.99%
of their assets financed by debt capital in NABIL. The high total debt to total assets ratio implies the
banks success in exploiting debts to the more profitable assets. Since both the banks had been
extensively using their debt financing to finance their total assets, it can be concluded that these
banks are highly leveraged.
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c) Capital Adequacy ratio:- capital adequacy ratio is calculated by dividing total capital fund(net
worth) by total deposits. Capital adequacy has remained one of the highest issues in banking
industry and The capital adequacy ratios of the selected banks have been tabulated below.

Table#9
Capital Adequacy Ratio
Rs. In Million
NBL NABIL
Year Net Total Ratio Average Net Total Ratio Average
worth Deposit (%) Ratio Worth Deposit (%) Ratio
(%) (%)
1997/98 753.03 28138.26 2.6762 828.49 8737.76 9.4817
1998/99 -1538.18 33188.48 -4.6347 877.43 9464.28 9.2709
1999/00 -4209.54 35768.26 -11.7690 -11.8875 984.07 12779.51 7.7004 8.1112
2000/01 -6350.68 35618.59 -17.830 1062.83 15839.01 6.7102
2001/02 -9553.88 34264.84 -27.88 1146.42 15506.44 7.393

The above table shows that the capital adequacy ratio of NABIL is higher than that of NBL
throughout the review period. NABIL had maintained the highest capital ratio in FY 1997/98 as
9.48%. The average ratio of NABIL bank was 8.11% which helps us to conclude that NABIL is in
safer position to absorb unexpected losses arising from various risks that can create instability in
banks earnings compared to NBL. NBLs capital adequacy ratio is very poor. The average ratio is
11.89%. The comparative graph of the above table is presented below.

Comparative Presentation of Capital


Adequacy Ratios of NBL and NABIL

20
10
Ratio(%)

0 NBL
-10 NABIL
8

2
/9

/9

/0

/0

/0

-20
97

98

99

00

01
19

19

19

20

20

-30
Year

Figure No. 9
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d)Total Debt to Net Worth Ratio: -Total debt to net worth ratio measures the relative claim of
outsiders and owner over the bank assets, indicating the extent of debt financing in the bank
compared to net worth financing. In other words, the debt to equity ratio indicates the relative
contribution of debt and equity fund to the total investment.
Table#10
Total Debt to Net Worth Ratio
( Rs. In million)
NBL NABIL
Year Total Debt Net Worth Ratio Average Total Net Ratio Average
(Times) Ratio Debt Worth (Times) Ratio
(Times) (Times)
1997/98 33340.62 753.03 44.2753 10172.78 828.49 12.2787
1998/99 38554.30 -1538.18 -25.0649 11306.31 877.73 12.8813
1999/00 42322.26 -4209.54 -10.0539 -2.9099 14040.13 984.07 14.2674 14.0173
2000/01 44093.17 -6350.68 -6.9431 17304.31 1062.83 16.2814
2001/02 48947.29 -9553.88 -5.1233 16482.33 1146.42 14.3777

The above table shows that the total debt to net worth ratio of NABIL is quite consistent while there
is negative ratio in NBL. NABIL had average ratio 14.0173 times but NBL had average ratio as
2.9099 times. The outsiders claim of NABIL is 14.0173 times while that of NBL is 2.9099 times.
The extensive use of debt financing by these banks is attributed to increase volume of deposits.

Comparative Analysis of Total Debt to


Net Worth Ratios of NBL and NABIL

60

40
Ratio(Times)

20 NBL
0 NABIL
98

99

00

01

02

-20
7/

8/

9/

0/

1/
9

0
19

19

19

20

20

-40
Year

Figure No. 10
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Thus it can be concluded that the high-geared capital structure can be advantageous to the banks as
they mobilize these deposits towards the loans and advances, which pay them higher interest. But
the banks should asses the risk asset portfolios before accepting the interest bearing deposits in
order to maintain an optimum debt to net worth ratio, thereby avoiding the financial risk.

4.1.1.4 Profitability Ratio: In any firm, profitability is a major concern. Profit is the objective
of all the policies framed and decisions taken by the management. Profitability ratios reveal an
interesting picture of how the individual firm has been managed. These ratios enable one to judge
the overall performance of the firm. The various profitability ratios, which reflect the operating
efficiency of the bank, have been analyzed comparatively.
a) Return on Investment (ROI):- This ratio is calculated by dividing net operating income by total
assets. This ratio measures the profitability of all financial resources with represents the utilization
of overall resources efficiently. ROI ratios of the selected banks have been tabulated below.

Table No. 11
Return on Investment Ratio Table
(Rs. In Million)
Date EBIT Total Assets Ratio Aug. EBIT Total Assets Ratio (%) Avg.Ratio
(%) Ratio(%) (%)
97/98 3188.08 34093.66 9.35 1114.03 11001.28 10.13
98/99 2975.97 37016.11 8.04 1128.93 12184.05 9.27
99/00 2904.82 38112.73 7.62 7.61 1309.11 15024.20 8.71 9.20
00/01 2863.99 37742.49 7.59 1573.31 18367.15 8.57
01/02 2142.69 39393.42 5.44 1639.11 17629.25 9.30

The above table shows that the investment or return on assets ratio of NBL is in the decreasing
trend. The highest ratio was in the FY 1998 which was 9.35% and the lowest ratio was in the FY
2002 which was 5.44%. The average ratio was 7.61%. But the ratio of NABIL is higher than that of
NBL. The average ratio of NABIL was 9.20%.
The above analysis helps to conclude that the profitability with respect to the total investment /
assets of the bank has decreased with span of time. NABIL bank has been able to utilize its asset
more efficiently to generate profit than NBL.
b) Commission and Discount Income to Personnel Expenses Ratio:- This ratio is calculated by
dividing commission and discount income by personnel expenses. Personnel expenses are the
reward provided for the staff for performing organizational task. Earning of any organization is
highly influenced by the knowledge, skill and motivation of its staff. Commission and discount
income measure the cost paid for taking services from staff to generate income by providing
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services to the customers. The following table shows the commission and discount income to
personnel expenses ratio of the selected banks.
Table 12
Commission and Discount Income to Personnel Expenses Ratio Table
(Rs. In Million)
Commission& Personnel Ratio Avg. Commission & Personnel Ratio(Times) Average
Discount EXP. (times) ratio Discount Expenses Ratio
Income Income (Times)
97/98 151.11 665.33 0.2271 89.29 120.26 0.7425
98/99 208.49 763.12 0.2732 117.29 131.55 0.8916
99/00 211.35 1048.39 0.2016 0.2243 139.59 152.94 0.9127 0.7783
00/01 214.58 961.76 0.2231 146.84 198.46 0.7399
01/02 241.01 1227.85 0.1963 114.34 189 0.6050

The above table shows that commission and discount income to personnel expense ratio of NBL is
quite consistent. The highest ratio was in the FY 1998/99 which was 0.2732 times and the lowest
ratio was in the FY 2002 which was 0.1963 times. The average ratio was 0.2243 times. While the
ratio of NABIL are firstly in the increasing trend and then in the decreasing trend. Still it has
average ratio as 0.7783 times higher than that of NBL.
The analysis helps us to conclude that NABIL has higher investment for its staff than NBL. Higher
investment on staff reduces the turnover of the staff.
b) Interest Income to Interest Expenses Ratio:-The ratio measures the utilization of outsiders
fund(deposit which cost interest for the bank) for lending activities that generate revenue(interest)
for the bank. Higher percentage represents the effective utilization of debt capital. Interest Income
to interest expense ratios of the selected banks are tabulated below:-
Table 13
Interest Income to Interest Expenses Ratio Table
(Rs. In million)
NBL NABIL
Interest Interest Ratio Avg. ratio Interest Income Interest Ratio Average
Income Expenses. (times) Expense (Times) Ratio
97/98 2693.00 1907.50 1.4118 899.66 433.91 2.0734
98/99 2602.54 2224.70 1.1698 903.24 404.39 2.2336
99/00 2477.57 1957.23 1.2659 1.2193 1047.03 432.96 2.4183 2.2679
00/01 2368.35 1744.65 1.3575 1266.70 578.36 2.1902
01/02 1526.99 1713.20 0.8913 1120.18 462.08 2.4242
The above table shows that the both the banks have been able to maintain the interest income to
interest expense ratio quite consistently. The ratio of NABIL was increasing throughout the review
period attaining its maximum ratio as 2.42 times in the FY 2001/2002. The ratio of NABIL was also
in an increasing trend except in FY 2000/2001 when its ratio slightly dropped to 2.19 times. The
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ratio of NBL was quite consistent throughout the review period but it was decreased in the FY
2001/2002 by 0.8913 times.
The above analysis helps to conclude that the interest income to interest expense ratio of NABIL
was better than that of NBL. This implies that either NABIL is using the outsiders fund properly
on the income generating activities or the fund of the bank is using in relatively less costly than that
of NBL.

d) Return to Shareholders Equity:- This ratio is calculated by dividing net profit by total
shareholders fund. One of the main objectives of any bank is its shareholders wealth
maximization. Shareholders wealth can be maximized by earning on adequate return on the
shareholders fund. This ratio expresses the capacity of the banks to utilize its owners fund. This is
an important ratio because it judges whether the firm has earned a satisfactory return for its equity
holders or not. It reveals how well the firm has deployed the resources of the owners to earn profit.
So higher the ratio, the more favorable it is for the shareholders which represents the sound
management and efficient mobilization of the owners equity. ROE ratio of the selected banks has
been tabulated below.
Shareholders equity=No of Shares Outstanding X Price per Ordinary share

Table 14(i)
Return on Shareholders Equity of NBL
(In Rs)
Net Profit No of Ordinary Ratio(%) Avg.
after tax Shares Share Ratio(%)
97/98 15920000 3803826 100 380382600 4.19
98/99 2535390000 3803826 100 380382600 -6.67
99/00 2697830000 3803826 100 380382600 -7.09 -4.67
00/01 2177900000 3803826 100 380382600 -5.73
01/02 3071290000 3803826 100 380382600 -8.07

Table 14(ii)
Return on Shareholders Equity of NABIL
(In Rs)
Net Profit No of Ordinary Ratio(%) Avg. Ratio(%)
after tax Shares Share
97/98 174800000 4916544 100 49165400 35.55
98/99 266480000 4916544 100 49165400 54.20
99/00 329120000 4916544 100 49165400 66.94 54.24
00/01 291370000 4916544 100 49165400 59.26
01/02 271630000 4916544 100 49165400 55.25

The above table shows that the return of on shareholders equity of NABIL is in the increasing trend
except in the FY 01/02. The maximum return on shareholders equity of NBL was in FY 99/00
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which was 66.94% and the average ratio is 54.24% while return on shareholders equity of NBL is
very poor . The ratio of NBL is in decreasing trend and average ratio is -4.67%
The above analysis helps us to conclude that NABIL was better than in earning a satisfactory return
for its equity holders. NABILs capacity to utilize its owners fund is very good while NBL was not
utilizing its owners fund efficiently.

4.1.1.5 Valuation Ratios:- Various valuation ratios like price earning ratio, dividend payout
ratio and market value per share to book value per share have been calculated to indicate the
market value of the bank as compared to the book value and to measure the stock price relative to
earning.
a) Price Earning Ratio(P/E ratio) :- This ratio is calculated by dividing market value per share by
earning per share. Price earning ratio indicates investors judgement or expectation about the
firms performance. Higher the ratio more the value of the stock,
P/ E ratio of the selected banks are presented below.

Table 15
Price Earning Ratio table
(In Rs)
NBL NABIL
Market Value Earning per Ratio Avg. Market value Earning Ratio Average
Per Share (times) ratio Per share Per Share (Times) Ratio
97/98 535.00 10.45 51.1962 430.00 44.50 9.6629
98/99 392.00 -666.54 -0.5881 700.00 67.84 10.3184
99/00 330.00 -709.25 -0.4653 9.7899 1400.00 83.79 16.7084 15.0610
00/01 462.00315.00 -572.56 -0.8069 1500.00 57.26 25.3122
01/02 315.00 -807.43 -0.3901 735.00 55.25 13.3032

The P/ E ratio of NBL is in the increasing trend except in the year 2002. The average ratio is
15.0610 times. But the average P/E ratio of NBL is 9.7892 only. P/E ratio is higher of NABIL than
that of NBL. So the value of the stock of NABIL is more than that of NBL.
b) Dividend Payout Ratio:-Dividend payout ratio is calculated by dividing cash dividend by
earning per share . Profit after tax earned by the banks has to be distributed among the
shareholders. Banks usually do not distribute 100% of their earnings, they tend to retain some
portion in order to expand their business. The retained portion in relation to the dividend payout
ratio is known as retention ratio. Cash dividends paid in relation to the earning per share constitutes
the dividend payout ratio. Profits are retained in the bank if these retained earnings can earn higher
out as dividend decreasing the shareholders fund. Higher dividend payout ratio indicates lower
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retained profit and higher cash dividends to the shareholders . Dividend payout ratios of the selected
banks are tabulated below.
Table 16
Dividend Payout Ratio Table
(In Rs)

NBL NABIL
Dividend Earning Ratio Avg. Dividend Earning Ratio Average
Per per (%) ratio Per Per (%) Ratio
Share Share Share Share
97/98 0.00 10.45 0 30.00 44.50 67.42
98/99 0.00 -666.54 0 50.00 67.84 73.70
99/00 0.00 -709.25 0 0 55.00 83.79 65.64 65.71
00/01 0.00 -572.56 0 40.00 59.26 67.50
01/02 0.00 -807.43 0 30.00 55.25 54.30

The above table shows that NBL is not paying dividend but NABIL is paying dividend every year.
The DPS of NABIL bank is fluctuating from 30% to 55% on average NABILs DPR is higher
compared with NBL. The DPR is 65.71%.

The above analysis helps us to conclude that NABIL, being in its maturity stage is paying high
percentage of dividend while NBL is not paying dividend. The NBL is not able to pay dividend due
to loss
c) Market Value Per Share to Book Value Per Share Ratio:- This ratio is calculated by dividing
Market value per share by book value per share. This ratio is a relative measure of how the growth
option for a company is being valued opposite to its physical assets. High ratio represents greater
expected growth and value of the bank. The marker value per share to book value per share of the
selected banks is tabulated below:
Table 17
Market Value Per Share to Book Value Per Share
(In Rs)
NBL NABIL
Market Book Ratio Avg. Market Book Ratio(Times) Average
Value Per Value Per (times) ratio value Per Value Per Ratio
Share share Share
97/98 535.00 494.18 1.0826 430.00 210.92 2.0387
98/99 392.00 -404.38 -0.9694 700.00 223.45 3.1327
99/00 330.00 -1106.67 -0.2982 -0.7054 1400.00 250.53 5.5882 4.1701
00/01 462.00 -1169.56 -0.3950 1500.00 216.18 6.9387
01/02 315.00 -2511.67 -0.1254 735.00 233.18 3.1521
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The above table shows that the market value per share to book value per share ratio of NABIL was
minimum in FY 1998(2.04 times) and maximum in FY 1998 which was 1.0826 times. On average ,
MVPS to BVPS ratio of NABIL is higher i.e. 4.17 times . This means that MVPS of NABIL is 4.17
times to its BVPS.

The above analysis helps us to conclude the NABIL is worth more than the funds put into it by the
shareholders. This clearly indicates that the NABIL is earning more than the requirement of
financial markets than NBL. The investors of NABIL are rational as the ratio increases as the book
value increases and vice versa. Comparatively the investors attitude towards NABIL is more
positive and NBL is the least.
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Chapter 5

SUMMARY CONCLUSION AND


RECOMMENDATIONS
In this conclusion chapter, summary, finding and some prescribed recommendations have been put
forward for the benefit of the selected banks along with conclusions derived from the study are
highlighted in order to fit the country from the present economic turmoil.

5.1 Summary
Financial institutions like banks are the replica of modernization of the society and play a vital role
in the development of economic growth of the country. Economic activity could not survive without
the continuing flow of money and credit in the market. The economy of all market oriented nations
depends on the efficient operations of complex and delicately balanced system of money and credit.
Banks are indispensable element in these systems. Commercial banks furnish necessary capital
needed for trade and commerce for mobilizing the dispersed saving of the individuals and
institutions. They provide the bulk of the money supply as well as the primary means of facilitating
the flow of credit.

The present study regarding the financial performance of the two banks namely, NBL and NABIL
has been conducted to highlight the hidden implications of the figures portrayed n the balance sheet
of the banks by interpreting their cause effect relationship with regard to their financial performance
and to identify their contribution to the national economy.. The financial statement of five years
from 1997/98 to 2001/02 has been examined to fulfill the objective of the study.

5.2 Findings
After summarizing the objective of the study, certain findings based on the analysis conducted
under the analytical section are going to be revealed in the following section:

To analyze the activity or turnover position, loans and advances to total deposit ratio, total
investment to total deposit ratio, loans and advances to fixed deposit ratio had been calculated.
Analysis of activity ratio indicates better turnover position of NABIL. This implies that NABIL is
efficiently utilizing its deposit on loans and advances and others. While NBL is not lending its
available deposit but holding the fund and deposits to own custody and / or other banks balance. It
shows NBL is discouraging the investment of its resources which makes adverse effect to the bank
in terms of efficiency and profitability also.
Analysis of leverage or capital structure indicates that long term debt to net worth ratio of
NBL is higher than NABIL and also total debt to total assets ratio of NBL is higher than that of
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NBL. Unbalanced capital structure is the common situation of the banks. Banks are using excessive
debt capital. This proves both the banks are extremely leveraged.
Capital adequacy ratio calculated for the banks stood below the prescribed adequacy ratio by
NRB to absorb unexpected losses than can be incurred in the bank. Comparatively, NABILs
position is better than NBL.
Profitability of these banks are reflected by the determination of return on investment,
commission and discount income to personnel expenses ratio, interest income to interest expenses
ratio and return on shareholders equity. The return on investment, commission and discount
income to personnel expenses and interest income to interest expenses ratio and return on
shareholders equity of NABIL.
The valuation ratios used for analysis showed the following results. The price earning ratio;
dividend payout ratio and MVPS to BVPS is better than NBL is better than NBL. So, the market
judges NABILs performance and prospects better than that of NBL. As the net profit of NBL is
negative and fluctuates each year tremendously, the earning per share also swings rapidly. It means
EPS is not predictable and uncertain.
As the dividend payout ratio of NABIL is higher, NABIL is paying higher proportion of its
earning as dividend and retaining least proportion of its earning. While NBL is not paying dividend,
the dividend per share is nil.
MVPS of all the banks are directly proportional to the EPS and dividend payout ratio.
Decreasing trend of EPS and unstable policy of dividend is the cause of decreasing trend of MVPS
of these banks. Generally NABIL prefers distributing bonus shares rather than to pay cash dividend
for wealth maximization that generates higher dividends and capital gains in the future.

After pointing out the findings of the analysis, we will now go to the recommendation section.

5.3. Recommendations
From the summary of the main findings of the analysis of financial performance of the selected
banks, following recommendations can be advanced to overcome the weakness and inefficiency and
to improve the performance of these banks.
The liquidity position is more than the minimum requirement criteria of NRB to 3% of its total
deposit only. In this changing context and the situation of serious security environment, NBL has to
minimize its cash position in their vault for the sake of security and the utilization of its fund in
income generating sectors. While NABI: must strengthen the liquidity position.
Excessive use of debt capital by these banks enhances the rate of return on its shareholders fund.
High leverage cost of capital can be considered as positive development if the increased debt can be
invested on income performing assets. Failure of advancing leans and advances, these high cost
bearing debt may lead ultimately to liquidity or bankruptcy. Thus, it is recommended to increase
their equity capital by issue of shares, expanding general reserves and retaining more earning.
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The activity ratio measuring the efficiency achievement towards the income generating activities
of the NBL. The bank should invest all the excess balance of liquid fund in income generating
sector.
The net profit margin of the NBL is negative which shows the bank is not able to utilize its deposit
in profitable sector. It makes more problems to pay the interest of the depositor. So, the bank should
invest its deposit in profit generation sector, which could enhance the profit margin of the bank.
The return on equity fluctuates highly of NBL which shows the bank should stabilize its return
ratio with the sound management.
The DPS and EPS of NBL must be maintained by efficient and sound management.
The loan and advances department and the loan recovery department should also be target
oriented, i.e. after advancing loan, there should be regular supervision and follow up for proper
utilization of loan in NBL.
NBL should move towards the modern banking facilities and prompt service in each branch and
provide incentive and new product to attract relative growth trend of deposit.
NBL should utilize its assets efficiently and in the same time net worth should also be maintained.
NBL should adopt efficient and modern management concept to make more capable to their
activities as well as fulfill the growing demand of current financial services.
While making any type of investment (especially advancing of loan) proposal of loan in NBL. It
should be seriously studied and the most important factor is securities against which loan is going to
be provided should be valued fairly and properly. And the persons involved in valuation of
securities should be made responsible if anything is harmed from the securities.
NBL must maintain books of account up to date. It helps the bank to reduce the manipulation of
accounts, gain the trust of customers and so on. Like wise, financial statements should be published
regularly.
It is recommended to NABIL to reduce their interest spread (margin between the interest received
from loans and advances and interest paid to the depositors) as directed by NRB. Interest spread can
only be reduced if the internal rate of return, i.e. return from assets is higher than overall cost of
capital. Therefore, the bank should search for lower cost source of fund to decrease the interest
spread.
It is recommended for NABIL to develop such a dividend policy, which divided the net earning
into dividend and retained earnings in an optimum way to achieve the objective of maximizing the
wealth of the shareholders.
The NABIL is found to be centralized in urban areas. Since profitability is not only the sole
objective of the bank, it is recommended for NABIL to expand its branches in the rural areas for the
upliftment of deprived community as well as the economy of the nation. The joint venture banks
are found to be interested to pay penalty than allocate priority sector credits. This negative attitude
must be changed and devote oneself for uplifting the economic condition of the deprived
community as its social responsibilities.
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Banks are recommended to activate foreign technology and investment in Nepal by means of their
wide international banking sector and make Nepalese personnel capable of operating these banks as
efficiently as international banks.
It is suggested to develop systematic plans and programs for increasing the working efficiency of
the employees that should include incentives like training and reward, which are well and clearly
structured and implemented. These banks also require formulating new service, ideas and policies
like womens development program, small entrepreneur development program, poverty alleviation
programs, priority sector development programs etc.

5.4 Conclusion
With some seventeen commercial banks and seventeen development banks operating in Nepal, the
market seems over crowed and the banks are now finding a tough competition among themselves.
Since the entry barriers are not so high due to the governments liberal policy, this competition is
expected to be more intense in the near future, as there is always the possibility of a new player
entering this sector.
NBL has not maintained a balanced ratio among its deposit liabilities. Consequently, the bank does
not seem to be able to utilize its high cost resources in high yielding investment portfolio. The
investment portfolio of the bank has not been managed so efficiently as to maximize the returns
there from. The operational efficiency of the bank is found unsatisfactory because of the series of
operational loss over the period. Lower market value is a reflection of a weaker financial
performance of the bank. The net worth of the bank for the last four years is negative due to the
heavy loss during the years. There are negative profits for the last four years. Decreased interest
paid and earned indicates decreased operating activities of the bank during the period. The bank is
not paying dividend for the last five years due to negative profit. The EPS is negative for the last
four years which shows the worst performance of the bank. The net worth of the bank is decreasing
highly which clarifies the bank is not able to perform its activities in the way other successful banks
are performing.

Restructuring of NBL for its sound management, better technical capability and improved financial
operations is the other action currently under implementations. . In addition to taking the day-to-
day control over the managerial processes and operational activities of the banks, the management
teams have also been responsible to stabilize the bank and restore its financial heath to an
acceptable level, maneuver the financial control process so as to increase profitability, recover the
existing loan portfolio, improve the assets and liabilities structure, make financially strong and
operationally viable, develop and strength the comprehensive human resource policies, design and
implement information technology plan and eventually preparing it for privatization in the hands of
safe and sound professional bankers of repute.
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There is no doubt that NABIL has been operating smoothly and have been successful in becoming
the pillars of economic system of the country. Their direct contribution to the economy, includes
high amount of the corporate tax paid by them, good dividend to the shareholders and employment
to the qualified persons in order to make them equipped with all the technical knowledge of
banking. Indirectly, NABIL as a joint venture bank acts as a financial intermediaries which provides
a link between borrowers and lenders, there by mobilizing the idle resources towards productive
investments. Customers are benefited due to excellent services of the bank and computerized
transactions. The bank has introduced developments like Automatic Teller Machines, credit cards,
deposit schemes and others, which cannot be over sighted and therefore, considered as a very
healthy development in the economy.

Nevertheless, it will be relevant to point out some of the important loop holes or discrepancies of
the joint venture in the economy. Loans and advances of NABIL mostly go to the handful of big
corporate houses and others are deprived from the required fund to start any productive business.
Though JVBs are achieving the heights of success, living standard of the general public have not
even seen a marginal growth. The methods of earnings of JVBs have very little or no return to the
economy and results in a huge disparity between two classes of people. Therefore, the statement
Figures prosper but people suffer becomes true. NRB, the central bank in order to develop the
country uniformly has necessitated the commercial banks to invest 12% of their total credit
outstanding to the priority and deprived sectors of the country. In some cases, the JVBs were even
happy to pay the penalty, because the penalty amount is lower than their opportunity cost of the
funds to the invested in the priority and deprived sectors. Again this kind of activity leads no return
for the country.

Hence, JVBs must try to seek potential sectors, such as manufacturing, utility services. Tourism,
agriculture, etc, and at the same time abide by the economic obligation of investing in priority and
deprived sectors, so as to make profits by being instrumental in developing the country.
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Bibliography
Lindgreen, Carl john, Garcia, Gillian & Soal, I Mathew, Bank Soundness and Macroeconomic
Policy
Nepal Bank Act 1993
Rastriya Banijya Bank, 39th Anniversary Souvenir
I.M. Pandey, Financial management, Delhi, Vikash Publishing House Pvt, 1992.
J.Fred Weston and Eugene F. Brigham, Management Finance, Illinois The Drgden Press, Hisdale
Oxford Advanced Learner's Dictionary of Current English Xxford University Press
Dr. Mali Ram "currency and Banking", Agra Book store,1969
Aryal Madhav Prashad, "Nepalese Banking System", Shree Printing Press.
Edward I Altmen, Financial Ratios, Discriminate Analysis and Prediction of Corporate Bankruptcy,
Journal of Finance
The company Act 2053
Shrestha Bal Krishna, "An Evaluation of Financial performance of Nepal Bank Limited:,
Unpublished master's Degree Thesis, TU 2002
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Commercial Bank Act 2033

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