Professional Documents
Culture Documents
By
Hema Singh Gurung
Exam Roll No.:
T.U. Regd. No.: 7-2-0538-0036-2015
Pasang Lhamu Sherpa Memorial College
Submitted to:
Faculty of Management
Tribhuvan University
Kathmandu
Samakushi, kathmandu
February,2019
DECLARATION
I hereby declare that the project work entitled A COMPARATIVE STUDY OF FINANCIAL
PERFORMANCE OF A CLASS COMMERCIAL BANK submitted to the Faculty of
Management, Tribhuvan University, Kathmandu is an original piece of work under the supervision
of MR. SURAJ CHAUCHAN (supervisor), faculty member,PASANG LHAMU SHERPA
MEMORIAL COLLEGE), Kathmandu, and is submitted in partial fulfillment of the
requirements for the degree of Bachelor of Business Studies (BBS). This project work report has
not been submitted to any other university or institution for the award of any degree or diploma.
.......................
............................
Mr. Chandra
Supervisor
April. 2019
ENDORSEMENT
............................... ........................
Prof Dr. Kamal Deep Dhakall Ass. Prof.Krishna Prasad Acharya
Chairman, Research Committee Campus Chief/ Principal
Date: April, 2018 Date: April. 2018
ABSTRACT
Financial performance refers to the act of performing financial activity. In broader sense, financial
performance refers to the degree to which financial objectives being or has been accomplished. It
is the process of measuring the results of a firm’s policies and operations in monetary items. It is
used to measure firm’s overall financial health over a given period of time and can also be used to
compare similar firms across the same industry or to compare industries or sectors in aggregation.
The financial performance analysis identifies the financial strengths and weaknesses of the firm
by properly establishing relationships between the items of the balance sheet and profit and loss
account. The first task is to select the information relevant to the decision under consideration from
the total information contained in the financial statements. The second is to arrange the information
in a way to highlight significant relationships. The final is interpretation and drawing of inferences
and conclusions. In short, financial performance analysis is the process of selection, relation, and
evaluation.
The main objective of the study is to analyze the financial performance of commercial banks in
Nepal for this NIBL is taken as a sample bank and data are collected from secondary sources. The
whole study is divided into five chapters. The first chapter deals with background of study,
statement of problem, objective of the study, significance of the study, limitations of the study and
organization of the study. The second chapter includes pilot studies and textual concepts with
regard to conceptual framework on financial performance along with the review of major books,
journal, and research work and thesis etc. the third chapter includes research design, population
and sample, sources and types of data, data processing technique and method and tools of data
analysis. The fourth chapter deals with the presentation and analysis of data. It analyses the data
and interprets the results using different financial and statistical tools, table, chart and graphs and
the last or fifth chapter summarizes the result of analysis and suggestive framework.
An attempt has been made to fulfil the objectives of the research work. All secondary data are
compiled, processed and tabulated as per necessity and figures, diagrams, different types of chart
are also used. This study suffers from different limitations; it considers three banks only and time
and resource are the constraints of the study. Therefore, the study may not be generalized in all
cases and accuracy depends upon the data collected and provided by the organization.
ACKNOWLEDGEMENTS
This report has been prepared to fulfill the partial requirements for the Degree of Bachelor’s of
Business Studies (B.B.S), Tribhuvan University, Nepal. In the process of preparation of this Term
Paper, I got a lot of inspiration, Co-operation and Suggestion from various persons.
Firstly, I owe a debt of gratitude to my respected adviser Mr. Suraj chauhan and Mr. Rajib
Bhandari, Chairman of Research Committee of Shanker Dev Campus for his valuable support
and suggestion in the process of preparation of this thesis. I am extremely indebted by their efforts
despite of their busy schedule.
I am also indebted to my respected teachers of Shanker Dev Campus, who have assisted from
their respected sectors. I am also thankful to the library members of SDC and Central Library of
T.U.
I would like to express heartful thanks towards all the members of my family who provided regular
inspiration and continuous contribution for my success.
Asmita pandit
TABLE OF CONTENTS
Title Page i
Declaration ii
Supervisor’s Recommendation iii
Endorsement iv
Abstract v
Acknowledgement vi
Table of Contents vii
List of Tables ix
List of Figures x
Abbreviations xi
CHAPTER I: INTRODUCTION
1.1 Background 1
1.2 Problem Statement 1-2
1.3 Objectives 2
1.4 Rationale 2
1.5 Report Structure 2-3
1.6 Literature Review 3-5
1.7 Research Methods 5-11
1.8 Limitations 11
CHAPTER - I
INTRODUCTION
1.1 Background of the Study
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.
Bank in general means an institute that deals with money. Concept of banking had developed from
the ancient history 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 developing countries like Nepal, Bank play vital role for domestic resource mobilization and
economic development of a country. The first commercial bank in Nepal is Nepal Bank Limited,
which was established in 1937A.D. Commercial Banks are the suppliers of the 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.
Financial performance analysis is the process of determining the operating and financial
characteristics of a firm from accounting and financial statements. The goal of such analysis is to
determine the efficiency and performance of firm’s management, as reflected in the financial
records and reports. The analyst attempts to measure the firm’s liquidity, profitability and other
indicators that the business is conducted in a rational and normal way; ensuring enough returns to
the shareholders to maintain at least its market value. So this study focuses on financial analysis
of Nepal Investment Bank Limited.
The study aims to analyze the financial performance of NIBL. This study is done using recent
data’s which will be helpful not only to the shareholders but also to the customers and
management.
The Name of the bank subsequently changed to Nepal Investment Bank Ltd. Upon Approval of
banks annual general meeting. NIBL, is managed by the team of experienced bankers and
professional having proven Track record. The choice of the bank will be guided among by its
reliability and professionalism. The fact of professionalism is reflected by the Fact of the banker
of London- based Financial times group has awarded NIBL with “THE BANK OF THE YEAR
2003”. Beside, NIBL won same award in the year of 2005, 2008,2010 as well.
However, the NIBL was selected honor amongst the Nepali banks. It is established to provide the
banking service in different parts of the country. For customer satisfaction NIBL provides 365days
banking services.
NIBL, at present is a company listed on the Nepal Stock exchange. But its Share are held by
different parties. The Shareholdings of the Bank at present are as follows.
-A group of companies holding 50% of the capital.
-Rastriya Banijya Bank holding 15% of the capital.
-Rastriya Beema Sasthan holding 15% of the Capital.
-The general public holding 20% of the capital.
Vision
At NIBL,”our vision is to be the most preferred provider of Financial Services in Nepal”.
Mission Statements
To be the leading Nepali bank, delivering world class service through the blending of state-of-the-
art technology and visionary management in partnership with competent and committed staff,to
achieve sound financial helath with sustainable value addition to all our stakeholders.
Services of NIBL
Like every other commercial bank NIBL do produces services keeping the customers need and
wants in mind. These are the existing services provided by NIBL.
365 days banking, E-banking, Any Brank Banking Services (ABBS), Tele Banking service,
Statement Request, Cheque pad request, Remittance, Trade Finance, Utility payment, Lockers,
Automate Teller Machine (ATM)
ATM of NIBL
At present the bank has sixty seven automated teller machine (ATM) locations providing services
to its customers in different parts of the country. The customers of NIBL can withdrawal minimum
of Rs.100 in a transaction as well. In the same way customers can withdrawal maximum of
Rs.100000 per day. Services provided by NIBL through ATM are:
Open 24 hours a day,7 days a week, 365 days a year, Cash withdrawal, Fast Cash, Statement
Request, Cheque pad request and Mini Statement.
Branches of NIBL
NIBL is never back in providing the best products and services to meet the requirement of its
costumers be that the existing ones or potential customers. Knowing the need of the market and
the convenience of the customers it has opened several branches all across the country. The bank
extended its operation to Seepadole, Birgunj, Banepa, Pulchowk and Jeetpur during the period of
French partnership. Rests of the branches were established after the management was totally
handed over to Nepalese partners.
3
Objectives
There must be certain objective mentioned before the study and analysis of any firm, without any
objectives, the survey and research is meaningless. The main objective of this study is to analysis,
examine and interpret the financial positions of Nepal Investment Bank Limited.
The specific objectives of the study are as follows :
To present the financial status of NIBL.
To examine the position of NIBL in terms of liquidity, profitability, leverage, efficiency
and capital adequacy.
To recommend the corrective measure for the betterment of financial performance of
NIBL.
Rationale
The main source of income for any financial institution is interest. They earn interest from loan
and advances provided by it also pay interest to its depositors. Since interest is a cost to the
companies, interest rate has a direct effect on corporate profit. Interest rate movement have a
significant impact on business decisions and it is extremely difficult, if not impossible, to predict
future interest level. Commercial banks accept both demand deposits and time deposit. These funds
are loaned to individuals, business and governments. While taking the loan from bank customer
give attention to its interest rate policy. So interest rate charged by bank on loan and given on
4
deposit should be reasonable. Interest rate of any financial institution is announced by Nepal Rastra
Bank; similarly changes in GNP increases demand for fund and it affect interest rate. Likewise
other factor affecting the interest rate are supply of fund, inflation and liquidity position of the
company.
Report Structure
Chapter one - Introduction: Background; Profile of the company, statement of the problem;
Research methods; objective; Rationale; limitations of the study; Literature review; and
organization of the remainder of the study.
Chapter three - Discussion and Conclusion: Evaluating and interpreting the implications results
obtained. Include similarities and differences between results obtained and the work of others.
Present implications of conclusion for practical application or future studies.
LITRETURE REVIEW
For the purpose of this research, it is viewed necessary to review related literatures of the
concerned area which will help me to get clear ideas, opinions and other concepts which provide
very useful inputs in this research work. This chapter emphasizes about the literatures such as
books, journals, research paper and other studies related to dividend policy. This chapter is divided
into two parts as conceptual framework and review of previous studies on the relevant field.
Conceptual Review
Different authors have different views regarding financial performance analysis. The background
highlights the Nepalese bank in the various ways. The literature review includes various articles,
books, legal document and research work, the related literature to this report is as follows.
“Any institution offering deposit subject of withdraw on demand and making loan of a commercial
of business nature is bank”
- U.S. Law
5
“Bank is on behalf of its customers. Its essential duty is to pay their draft on it. It profit arises from
its use of the money left unemployed by them”
“Bank is an establishment which makes to individual such advances of money as may be required
safety made and to which individual entrust money when not require for us”
- Prof. Kinley
In last five years prior to this thesis, some students of B.B.S. programme have been found
conducting research about the financial performance of Nepal Investment Bank Limited. Some of
them which are supposed to be relevant have been reviewed and presented in this section.
Ramesh Khatiwada (2014/15) conducted a study in a topics of “impact of Deposit, interest rate,
loan and to depend upon the related topic management and dividend and earning Announcement
on Shareholder’s return and stock prices in Nepal”
Research Methodology
Research Design
The design to be used for the study are descriptive and analytical. Finance Statements of two
different time period as well as the position and trend of achievement in these periods will be
analyzed.
Sources of data
Primary Data:- the data collected for the first time are said to be primary data. Such data provide
accurate information. These type of data are obtained from different departments of the bank. Such
as-direct personal observation and involvement, Informal meeting with banking members of NIBL
Branch, and informal interview with NIBL, Branch manager and staff members.
Secondary Data:-the primary data for one person can be the secondary data for some others. So,
data which are originally collected but obtained from books and internet. Such information can
be collected through Annual report, newspaper declaration, advertisement noticesetc. Of NIBL.
, Also from official websites of NIBL and other related website related to the topic. Library of
Pasang college.
6
Research Gap
Commercial bank invests its deposits in different portfolio sectors according to the directives and
circular of the Nepal Rastra Bank and guidelines and policy of their own bank. Financial analysis
statement has to be prepared according to direction of NRB. NRB’s policy and guideline are
changing according time to time. So, the up to date study over the changes of time frame is major
concern for the researcher and concerned organization as well as industry as a whole. The study
covers the more recent financial data and analysis done within the latest guidelines and curriculum
of NRB.
Financial analysis is the major function of every commercial bank for evaluating the financial
performance. Therefore, it is the major concern of stakeholder to know the financial situation of
the banks. Every year, the financial performances are changing according to the environment of
the country. Hence, this study fulfills the prevailing research gap about the depth of the financial
performance which is the major concern of the shareholders and stakeholders.
7
BIBLIOGRAPHY
Kothari, C.R., Research Methodology”, Mc. Grow Hill Company, second Edition.
Shekhar and Shekhar “Banking Theory & Practice”, Eighteenth Revised Edition, 1996.
Website: -
Website: http://www.google.com
Website: http://nibl.com.np
Website:https://edukrn.blogspot.com
Website: www.wikipedia.org
8
The following ratios are going to be analyzed under the financial performance analysis of selected
two commercial banks.
Liquidity Ratio
Efficiency Ratio
Profitability Ratio
Liquidity Ratio
9
Liquidity ratio is a rigorous measure of a firm's ability to serve its short-term obligation. It reflects
the short-term financial solvency of a firm as a whole or it is employed as a measurement of a
company's liquidity position . The firm should remain an appropriate liquidity neither excess nor
less to meet its short-term obligation when they become due. Inadequate liquidity can lead to
unexpected cash short falls. A very high degree of liquidity is also not good as ideal assets earn
nothing, leading to fewer assets yield and contributing to poor earning performance. Important
liquidity ratios that have been used in the study are listed below:
a. Current Ratio
The current ratio is the ratio of total current assets to total current liabilities. Current ratio measure
the short-term solvency, i.e. its ability to meet short-term obligation or as a measure of creditors
versus current assets. The current ratio is calculated by dividing current assets by current liabilities.
Current Assets
Current Ratio =
Current Liabilities
A high ratio indicates the sound ability to meet their daily cash requirement of their customer
deposit and vice-versa. Both higher and lower ratio is not desirable. The reason is that if a bank
10
maintains higher ratio of cash, it as to pay interest on deposits but could not invest its cash or
current assets in a portfolio area. So, it may lost opportunity to earn something. In the opposites,
if a bank maintain low ratio of cash it may fail to make the payment for presented cheques by its
customers. So, sufficient and appropriate cash reserve should be maintained properly.
e. Quick Ratio
Quick ratio established a relationship between quick asset and current liabilities. An asset is liquid
if it can be converted into cash immediately or reasonable soon without a loss of value cash is the
most liquid asset. Other assets which are considered to be relatively liquid are included in quick
assets are book debts and marketable securities. This quick ratio can be calculated by dividing the
total of liquid assets by total current liabilities.
Quick Assest
Quick Ratio =
Current liabititie s.
Efficiency Ratio
Efficiency ratio or activity ratio or utilization ratio is concerned with measuring the efficiency in
its assets management. This ratio measures the degree of effective use of resources of a firm. It
indicates how quickly certain current assets are converted into cash. Higher the rate means more
efficient in management on the utilization of its resources and vice-versa.
Loan and Advances to total assets ratio reflects the extent to which the bank is successful in
mobilizing its total assets on loan and advance for the purpose of income generating. It is calculated
by dividing loan and advances by total assets.
Loan & 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠
Loan & 𝐴𝑑𝑣𝑎𝑛𝑐𝑒𝑠 𝑡𝑜 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑅𝑎𝑡𝑖𝑜 =
Total Assets
A. Arithmetic Mean
Arithmetic Mean of a given set of observations is the sum of he observation divided by the number
of observations. In such as case all the items are equally important. Simple Arithmetic Mean is
used in this study as per necessary for analysis
We have,
x
Mean ( X ) =
n
Where x = sum of all values of the observations
n = Number of observation
x = Value of variables
B. Standard Deviation
The standard deviation usually denoted by the letters (). Karl Pearson suggested it as a widely
used measure of dispersion and defined as the given observations from their arithmetic mean of a
12
set of value. It is also known as root mean square deviation. Standard deviation, in this study has
been used to measure the degree of fluctuation of interest rate and that of other variables as per the
necessity of the analysis.
We have,
( x x )
Standard Deviation =
n
The distribution having less C.V. is said to be less variable or more consistent. A
distribution having greater C.V. is said to be more variable or less consistent.
This study is about the financial performance analysis of NABIL and NIBL. Every research has
its own limitation, which are as follows:
CHAPTER - II
RESULTS AND FINDINGS
This chapter is concerned with financial analysis and statistical analysis that is concerned about
comparative analysis and interpretation of available data. Various financial and statistic tools have
been used in this part. Necessary figures and tables are also presented in this part to describe about
the financial performance mechanism of the banks. The main purpose of this chapter is to study,
evaluate and analyze those major financial performances.
Data Presentation
Data Presentation and analysis applied are as simple as possible. Results are presented in tabular
form and clear interpretation is made simultaneously. To make report simpler and easily
understandable chart, diagram have been used.
short-term debt paying ability. It shows the relationship between current assets and current
liabilities. It is calculated dividing the current assets by current liabilities.
Table 2.1
Current Ratio
(Rs. In Thousands)
NABIL NIBL
Fiscal
Current Current Ratio Current Current Ratio
Year
Assets Liabilities (Times) Assets Liabilities (Times)
2012/13 41395550 31910554 1.30 53835129 48658874 1.11
20113/14 47586194 30284953 1.57 58974811 53217208 1.11
2014/15 62313115 39722418 1.57 69694197 54570236 1.28
2015/16 83461100 50260100 1.66 79322510 67324527 1.18
2016/17 94943000 45235000 2.10 96331485 82352922 1.17
Mean 1.64 1.17
S.D. 0.26 0.06
C.V. 15.87 5.33
Source: Appendix I
Figure 2.1
Current Ratio
16
2.5
2
Ratio in times
1.5
NABIL
1
NIBL
0.5
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.1 and figure 2.1 presents the current ratio of NABIL and NIBL during the fiscal year
2012/13 to 2016/17. The current ratio of NABIL is I increasing during the study period. The
current ratio of NABIL is ranged from 1.30:1 times in the fiscal year 2012/13 to 2.10:1times in
the fiscal year 2016/17. In average, NABIL has maintained 1.64:1 times as a current ratio in the
five fiscal years period.
Similarly, the current ratio of NIBL is fluctuating trends and ranged from 0.11:1 times in the fiscal
year 2012/13 to 1.28:1times in the fiscal year 2014/15. In average, NIBL has 1.17:1 times as current
ratio in the five years period with the 5.33% of coefficient of variation.
Comparing two banks on the basis of current ratio, it can be concluded that the liquidity position
of NABIL is better than that of NIBL, as the current ratio of NABIL is higher (1.64:1) than that
of NIBL (1.17:1). However, as per the conventional rule, current ratio should be 2:1 but for
banks any current ratio above 1 also consider healthy and sound.
2.1.1.2 Quick Ratios
Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. It is
computed by dividing the quick assets by current liabilities.
Table 2.2
Quick Ratios
17
(Rs. In Thousands)
NABIL NIBL
Fiscal
Quick Current Ratio Quick Current Ratio
Year
Assets Liabilities (Times) Assets Liabilities (Times)
2012/13 5102257 31910554 0.16 12009014 48658874 0.25
2013/14 7516874 30284953 0.25 13519488 53217208 0.25
2014/15 10731366 39722418 0.27 16977086 54570236 0.31
2015/16 16327380 50260100 0.32 14314747 67324527 0.21
2016/17 11082566 45235000 0.24 13175212 82352922 0.16
Mean 0.25 0.24
S.D. 0.05 0.05
C.V. 21.32 21.02
Source: Appendix I
Figure 2.2
Quick Ratios
0.35
0.3
0.25
Ratio in terms
0.2
NABIL
0.15
NIBL
0.1
0.05
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal ratio
The table 2.2 and figure 2.2 shows the quick assets and current liabilities of NABIL and NIBL for
the study period 2012/13 to 2016/17 and the quick ratio is calculated by dividing quick assets to
current liabilities. The quick ratio of NABIL and NIBL are in fluctuating trends. The average quick
ratio of NABIL and NIBL is 0.25times and 0.24times respectively. The standard quick ratio is 1:1
i.e. quick assets must be equal to current liabilities. The NABIL and NIBL showed not in good
liquidity position because of quick ratios of every year are lower than standard form. It indicates
18
that they have not good position of immediate payment of short-term obligation (i.e. current
liabilities) because quick assets are greater than that of current liabilities.
20
Ratio in percentage
15
NABIL
10
NIBL
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal Year
19
The table 4.3 and figure 4.3 shows the cash reserve ratio of NABIL and NIBL during the fiscal
year 2012/13 to 2016/17. The cash reserve ratio maintained by NABIL is 8.60%, 9.32%, 11.32%,
14.15% and 6.77% in the fiscal year 2012/13, 2013/14, 2014/15, 2015/16 and 2016/17
respectively. In average, NABIL has kept 10.03%% as cash reserve ratio.
Similarly, NIBL has kept the cash reserve ratio in compliance with the NRB’s minimum
requirement during study period. The cash reserve ratio maintained by NIBL is 13.60%, 16.00%,
19.20%, 12.00% and 7.20% in the fiscal 2012/13, 2013/14, 2014/15, 2015/16 and 2016/17
respectively. In average, NIBL maintained 13.60% as cash reserve ratio.
Comparing two banks on the basis of cash reserve ratio, it can be considered the liquidity position
of NIBL is better than that of NABIL. However, the liquidity of NABIL is also sound, as the CRR
is above the NRB’s requirement in each fiscal year.
25
20
Ratio in percentage
15
NABIL
10
NIBL
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.4 and figure 2.4 shows the cash and bank balance to total deposit ratio of NABIL and
NIBL during the fiscal year 2012/13 to 2016/17. The above ratio reveals that the ability of banks
to cover its short-term deposits. NIBL is more in better position with an average 18.48% than
NABIL with an average of 10.99%, which is also in comfortable position is discharging its short-
term liabilities. Although the above ratios implies a slightly better liquidity position of NIBL a
high ratio of non-earning cash and bank balance indicates that the banks unavailability to invest
its fund in income generation areas that might have helped it to improve its profitability.
25
20
Ratio in percent
15
NABIL
NIBL
10
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.5 and 2.5 figure shows that the cash and bank balance to current assets ratio of NABIL
and NIBL during the fiscal year 2012/13 to 2016/17. The cash and bank balance to current assets
ratio of NABIL is in increasing trends except in final fiscal year and ranged from 10.33% in the
fiscal year 2012/13 to 19.18% in the fiscal year 2016/17. Similarly, the cash and bank balance to
current assets ratios in NIBL are in fluctuating trends and ranged from 13.52% in the fiscal year
2016/17 to 24.03% in the fiscal year 2014/15. The average ratio of NABIL and NIBL appears
13.74% and 20.00%% respectively which means that the percentage that shows how much of
current assets of the bank represent cash and bank balance. The table does not show any significant
difference between the Commercial Banks with regards to meet customer’s daily cash
requirement. Both of the banks have fared well in meeting their depositor’s daily cash requirement
and surplus fund in other productive areas.
Efficiency ratios are employed to measure the efficiency with which the bank manages and utilize
its resources. This ratio indicates the efficiency, speed and rapidity with which the assets have been
used or converted into sales. This ratio is employed to evaluate the efficiency with the bank
manages and utilizes funds. The following ratios are calculated under the activity ratio.
higher efficiency to the utilization of outsider’s fund and vice – versa. The table exhibits the ratio
of loans and advances to total deposits of the banks throughout the study periods.
Table 2.6
Loan and Advance to Total Deposit Ratio
(Rs. In Thousands)
NABIL NIBL
Fiscal
Loan and Loan and Total
Year Total Deposit Ratio (%) Ratio (%)
Advance Advance Deposit
2012/13 41605683 55023695 75.61 41636999 57010604 73.03
2013/14 46369835 63609809 72.90 46400054 62428845 74.32
2014/15 54691648 75388791 72.55 52019765 73831376 70.46
2015/16 65501925 104237910 62.84 66219232 90631487 73.06
2016/17 76106017 110267272 69.02 85461081 108626642 78.67
Mean 70.58 73.91
S.D. 4.40 2.69
C.V. 6.24 3.64
Source: Appendix I
Figure 2.6
Loan and Advance to Total Deposit Ratio
90
80
70
Ratio in percentage
60
50
40 NABIL
30 NIBL
20
10
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.6 and figure 2.6 shows the loan and advances to total deposit of NABIL and NIBL
during the fiscal year 2012/13 to 2016/17. The ratio of loan and advances to total deposit of
24
NABIL are in decreasing trends except in final fiscal year and the ratio are ranged from 62.64%
in the fiscal year 2015/16 to 75.61% in the fiscal year 2012/13. In average, 70.58% of the total
deposit fund has been mobilized by NABIL in providing loans and advances. The coefficient of
variation on the ratio is only 6.24%, which has indicated higher consistency in the variability.
Similarly, the loan and advance to total deposit ratio in NIBL is in fluctuating trend during the
study period. The ratio is lowest, 70.46%, in the fiscal year 2014/15 and highest, 78.67%, in the
fiscal year 2016/17. In average, 73.91% of the total deposit has been mobilized in providing
loans and advances and the coefficient of variation on such ratio is 3.64% only.
From the above analysis, it can be concluded that, NIBL has been more successful in mobilizing
its total deposits as loan and advances than NABIL. On the contrary, a high ratio should not be
perceived as a better state of affairs from the point of view of liquidity, as loan and advance are
not as liquid as cash and bank balance and other investment. In portfolio management of bank
various factors such as availability of funds, liquidity requirements, central bank norms etc.
needs to be taken into account.
Table 2.7
Investment to Total Deposit ratio
(Rs. In Thousands)
NABIL NIBL
Fiscal
Total Ratio Total Ratio
Year Investment Investment
Deposit (%) Deposit (%)
2012/13 14048966 55023695 25.53 10438487 57010604 18.31
2013/14 16332043 63609809 25.68 11435268 62428845 18.32
2014/15 18276753 75388791 24.24 15383529 73831376 20.84
2015/16 30972487 104237910 29.71 21462587 90631487 23.68
2016/17 36098549 110267272 32.74 29226762 108626642 26.91
Mean 27.58 21.61
S.D. 3.17 3.31
25
Figure 2.7
Investment to Total Deposit ratio
35
30
25
Ratio in percentage
20
NABIL
15
NIBL
10
0
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.7 and figure 2.7 shows the investment to total deposit ratio of NABIL and NIBL during
the fiscal year 2012/13 to 2016/17. The investment to total deposit ratio of NABIL is in fluctuating
trend. The ratios of NABIL are 25.53%, 25.68%, 24.24%, 29.71% and 32.74% in the fiscal year
2012/13, 2013/14, 2014/15, 2015/16 and 2016/17 respectively. In average, NABIL has disbursed
27.58% of the total deposit as investment.
Likewise, the ratio in NIBL has followed increasing trend. The ratios are ranged from 18.31% in
the fiscal year 2012/13 to 26.91% in the fiscal year 2016/17. In average, NIBL has disbursed
21.61% total deposit as investment. Further the coefficient of variation of 15.30% indicated
consistency in the ratio. In conclusion, the above analysis reveals that NABIL has been more
successful in mobilizing its resource on various forms of investment than NIBL.
by dividing loan and advances by total assets. A high ratio is more desirable to the bank and
indicates more successful to mobilize the total assets.
Table 2.8
Loan and Advance to Total Assets Ratio
(Rs. In Thousands)
NABIL NIBL
Fiscal
Loan & Ratio Loan & Total Ratio
Year Total Assets
Advance (%) Advance Assets (%)
2012/13 41605683 63193414 65.84 41636999 65756232 63.32
2013/14 46369835 73241259 63.31 46400054 73152155 63.43
2014/15 54691648 87274619 62.67 52019765 86173927 60.37
2015/16 65501925 115985701 56.47 66219232 104345436 63.46
2016/17 76106017 127300195 59.78 85461081 129782705 65.85
Mean 61.61 63.29
S.D. 3.21 1.74
C.V. 5.21 2.75
Source: Appendix I
Figure 2.8
Loan and Advance to Total Assets Ratio
68
66
64
Ratio in percentage
62
60
58 NABIL
NIBL
56
54
52
50
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017
Fiscal year
The table 2.8 and figure 2.8 shows that the loans and advances to total assets ratios of NABIL
and NIBL during the fiscal year 2012/13 to 2016/17. The ratios of NABIL are in decreasing
trends in the study period except in final fiscal year. The ratio is ranged from 56.47% in the fiscal
year 2015/16 to 65.84% in the fiscal year 2012/13. In average, the loans and advances have
covered 61.61% in NABIL and coefficient of variation of 5.21% has indicated uniformity in the
ratio.
Similarly, the ratio in NIBL is in fluctuating trends. The ratio ranged from 60.37% in the fiscal
year 2014/15 to 65.85% in the fiscal year 2016/17. In average, the loans and advances has covered
63.29% of the total assets and hence has played the dominant role in the total assets. Further, the
coefficient of variation of 2.27% has also indicated uniformity in the ratio.
Comparing the sampled banks, it can be concluded that NIBL (63.29%) has remained more
successful than N NABIL (61.61%) in mobilizing total assets in loans and advances. However, the
higher ratio also indicated that the total assets of NIBL is most risky than that of NABIL.
Source: Appendix II
The table 2.21 has indicated that there exists positive correlation coefficient between investment
and total deposit in NABIL and NIBL. The correlation coefficient between investment and net
profit of NABIL is 0.6975 and NIBL is 0.8162. Also, the coefficient of determination indicates
that 48.65% variation in profit of NABIL and 66.62% variation in profit of NIBL are explained by
change in investment. However, the coefficient of correlation of NABIL is lower than their
respective 6 P.E., it can be concluded that the relationship between investment and net profit is
statistically insignificant but in NIBL coefficient of correlation is higher than that of 6 PE so there
is significant relationship between investment and net profit and net profit increases with the
increase in investment amount.
The table 2.22 represents the relationship between net profit and total deposit. The table shows
that the correlation coefficient between net profit and total deposit of sampled banks is positive.
The correlation of NABIL is 0.6954 and NIBL is 0.8388. The coefficient of determination
indicates that 48.36% change in net profit of NABIL and 70.36% change in net profit of NIBL is
explained by the change in total deposit of the respective banks.
Since, the value of ‘r’ is greater than the 6 P.E. in NIBL it can be considered that there exists
significant relationship between net profit and total deposit, and hence net profit
increases/decreases with the increase/decrease of total deposit but in NABIL coefficient of
correlation is lower than that of 6 PE so there is insignificant relationship between total deposit
and net profit.
Let the dependent variable, net profit be denoted by Y and the independent variable loan and
advance be denoted by X. Then the correlation between these two variables of NABIL and NIBL
has been presented in the table 2.23.
Table 2.11
Correlation Analysis between Loan and Advance and Net Profit
The table 2.23 shows that, there is highly positive correlation loan & advance and net profit for
all the sampled banks. Comparatively, NIBL has more positive correlation (0.8366) then NABIL
(0.7979). As the coefficient of correlation of NABIL and NIBL is greater than their respective 6
P.E., it can be concluded that the relationship between Loan and Advances and Net profit is
statistically significant and net profit increases with the increase in Loan and Advances.
NIBL has been more successful in mobilizing its total deposits as loan and advances than
NABIL. On the contrary, a high ratio should not be perceived as a better state of affairs
from the point of view of liquidity, as loan and advance are not as liquid as cash and bank
balance and other investment. In portfolio management of bank various factors such as
availability of funds, liquidity requirements, central bank norms etc. needs to be taken into
account.
Comparing the sampled banks, it can be concluded that NIBL (63.29%) has remained more
successful than N NABIL (61.61%) in mobilizing total assets in loans and
advances. However, the higher ratio also indicated that the total assets of NIBL is most
risky than that of NABIL.
The average capital adequacy ratio of NABIL and NIBL is 11.42% and 12.14%
respectively. The NRB standard on the Total Capital Adequacy for the commercial banks
is 11% for the said period. The data reveals that in an average both of the banks able to
fulfill the requirement of NRB.
The correlation coefficient between investment and net profit of NABIL is 0.6975 and
NIBL is 0.8162.
NIBL has more positive correlation (0.8366) then NABIL (0.7979). As the coefficient of
correlation of NABIL and NIBL is greater than their respective 6 P.E., it can be concluded
that the relationship between Loan and Advances and Net profit is statistically significant
and net profit increases with the increase in Loan and Advances.
31
CHAPTER - III
SUMMARY CONCLUSION AND RECOMMENDATIONS
3.1 SUMMARY
Financial performance refers to the act of performing financial activity. In broader sense, financial
performance refers to the degree to which financial objectives being or has been accomplished. It
is the process of measuring the results of a firm’s policies and operations in monetary items. It is
used to measure firm’s overall financial health over a given period of time and can also be used to
compare similar firms across the same industry or to compare industries or sectors in aggregation.
The financial performance analysis identifies the financial strengths and weaknesses of the firm
by properly establishing relationships between the items of the balance sheet and profit and loss
account. The first task is to select the information relevant to the decision under consideration from
the total information contained in the financial statements. The second is to arrange the information
in a way to highlight significant relationships. The final is interpretation and drawing of inferences
and conclusions. In short, financial performance analysis is the process of selection, relation, and
evaluation.
The main objective of the study is to analyze the financial performance of commercial banks in
Nepal for this NABIL and NIBL is taken as a sample bank and data are collected from secondary
sources. The whole study is divided into five chapters. The first chapter deals with background of
study, statement of problem, objective of the study, significance of the study, limitations of the
study and organization of the study. The second chapter includes pilot studies and textual concepts
with regard to conceptual framework on financial performance along with the review of major
books, journal, and research work and thesis etc. the third chapter includes research design,
population and sample, sources and types of data, data processing technique and method and tools
of data analysis. The fourth chapter deals with the presentation and analysis of data. It analyses the
data and interprets the results using different financial and statistical tools, table, chart and graphs
and the last or fifth chapter summarizes the result of analysis and suggestive framework.
An attempt has been made to fulfil the objectives of the research work. All secondary data are
compiled, processed and tabulated as per necessity and figures, diagrams, different types of chart
are also used. This study suffers from different limitations; it considers three banks only and time
and resource are the constraints of the study. Therefore, the study may not be generalized in all
cases and accuracy depends upon the data collected and provided by the organization.
3.2 Conclusion
After analyzing the data in chapter four, the researcher reaches the conclusion that the financial
performance of such types of commercial banks is improved year by year after run by new
Nepalese entrepreneur. In other words, all private sectors banks which are Nepalese Management
32
are being run as efficiency as foreign banks which have never restored to taking help of foreign
hands are also seen to doing well.
The liquidity position of NABIL is better than that of NIBL, as the current ratio of NABIL is
higher than that of NIBL. However, as per the conventional rule, current ratio should be 2:1 but
for banks any current ratio above 1 also consider healthy and sound. The NABIL and NIBL
showed not in good liquidity position because of quick ratios of every year are lower than
standard form. It indicates that they have not good position of immediate payment of short-term
obligation (i.e. current liabilities) because quick assets are greater than that of current liabilities.
The liquidity position of NIBL on the basis of cash reserve ratio is better than that of NABIL.
However, the liquidity of NABIL is also sound, as the CRR is above the NRB’s requirement in
each fiscal year.
NIBL has been more successful in mobilizing its total deposits as loan and advances than
NABIL. On the contrary, a high ratio should not be perceived as a better state of affairs from the
point of view of liquidity, as loan and advance are not as liquid as cash and bank balance and
other investment. In portfolio management of bank various factors such as availability of funds,
liquidity requirements, central bank norms etc. needs to be taken into account. NIBL has
remained more successful than NABIL in mobilizing total assets in loans and advances.
However, the higher ratio also indicated that the total assets of NIBL is most risky than that of
NABIL. NIBL have satisfactorily decreased the non performing assets ratio than NABIL, and
thus indicated of having sound loan management policy. Further, comparing two banks, NIBL is
superior to other two banks in controlling the non performing assets. On the basis of average
debt-equity ratio, it can be concluded that NABIL has followed the most aggressive policy in
financing the total assets than NIBL, since the debt-equity ratio of NABIL is higher than NIBL.
Both the banks have the policy of financing higher portion of total assets through outside financing.
However, comparing two banks, it can be concluded that the assets of NIBL is safer than that of
NABIL. The shareholders of NABIL remained more satisfied than NIBL as NABIL generated
more percentage of return from shareholders’ equity than NIBL. The return on total assets of
NABIL is higher than that of NIBL which clearly indicated that NABIL is more successful in
generating profit from the investment in total assets than NIBL. NABIL remained more successful
than NIBL in mobilizing total deposit to generate profit. Thus, the profitability position of NABIL
is better than that of NIBL. NABIL has the higher control on interest expenses than NIBL, as the
interest paid to interest income of NABIL is lower than that of NIBL.
3.3 Recommendations
33
On the basis of major findings and conclusion, the following recommendations have been
suggested for the enhancement of bank’s financial performance;
NABIL and NIBL could not maintain continual standard of liquidity and quick ratios. It indicates the
poor liquidity position in NABIL and NIBL. It may create the problem of working capital if they
need to pay short-term obligation in demand.
NIBL remained more successful in mobilizing the total deposit in disbursing loans and
advances. Hence, it would be better if NABIL also trace out the fruitful investment sector
and try to increase the mobilization of deposit in disbursing loans and advances.
NABIL and NIBL should focus on optimally utilizing the total deposit and total assets to
generate return and should concentrate on generating return from utilizing net worth.
The non performing loan to total loan of NABIL is higher. It would be better if NABIL
formulates better recovery policy and thus reduces the chances of default loan.
EPS plays a vital role to determine the market price of the share and also indicate the
financial performance of bank. The EPS of NABIL is greater than NIBL. Thus, it is
recommended NIBL to increase EPS which will emphasis to increase in market price of
share in stock market.