1.

1 Background of the Study

Harsh, (2014) stated that the banking sector was always deemed to be one of the most vital
sectors for the economy to be able to function. Its importance as the “lifeblood” of economic
activity, in collecting deposits and providing credits to states and people, households and
businesses is undisputable. The researcher chooses this topic because numerous researchers have
conducted the research in related field and also for the partial fulfillment of requirement for
degree of BBS.
There are different methods to evaluate the performance of the bank. Some of them are: capital
adequacy, assets quality management, ratio analysis, liquidity analysis and so on. Liquidity is
one of the financial indicators of the business enterprise. However, this study uses comparative
liquidity analysis of NIBL and PBL.
Sayers ( 1967), in his book Modern Banking stated that ordinary banking business consists 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.
Pandey (1997), in his book, Financial Management stated that a firm should ensure that it does
not suffer from lack of liquid. And also that it is not too much high liquid. The failure of a
company to meet its obligations, due to lack of sufficient liquidity will result in bad credit image.
Loss of creditor’s 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 firm’s funds will be
unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper balance
between liquidity and lack of liquid.
Many researchers have been conducted research on related topic in past. Kumbirai & Webb
(2010) conducted on a financial ratio of analysis of commercial performance in South Africa;
Shakya (2010) conducted on financial performance of Nepal SBI Bank Limited and Everest
Bank Limited; Mishra (2012) conducted on A CAMEL model analysis of state bank group; Ally
(2013) conducted on comparative analysis of financial performance of Commercial Bank in
Tanzania.

1.2 Problem Statement

Previous researchers have conducted research on comparative financial performance of EBL and
HBL, comparative analysis of commercial banks liquidity position, financial performance of
NSBIBL and EBL. Research on comparative liquidity analysis of NIBL and PBL is rarely finding
that’s why researcher chooses this topic. Previous researchers have used the various models to
test the hypothesis like CAMEL model, ANOVA Test and so on. Researchers conducted research
by taking sample of EBL, HBL, NSBIBL among the population of commercial banks in past.
Previous studies reveals that banks have somehow maintain the moderate liquidity.

Researcher is conducted the research by taking sample of NIBL and PBL among population of
Nepalese commercial banks. This study uses the data of 2011/12-2015/16. The study is conduct
on year of 2017 and it uses the balance sheet, profit and loss account, profit and loss appropriate
account, cash flow of NIBL and PBL to calculate the ratio for the purpose of analysis of liquidity
position of these two banks. This study uses the simply table, trend line to analyse the liquidity
position of these two banks through the different ratios because of time and cost constraints.
Liquidity plays the significant role in banking sector. Banks have to maintain adequate liquidity.
Inadequate liquidity may lead to collapse of the bank. The research gap is arising from the time
variation; previous study did not cover the comparative analysis of liquidity position of these two
banks: NIBL and PBL. Thus, this research is conduct to fulfill the research gaps. So, this study
addressed the investigation the following issues;

a. What is the liquidity position of NIBL and PBL?

b. Which banks do have the better liquidity position of NIBL and PBL?

1.3 Objective of the Study

The general objective of this study is to make comparative liquidity analysis between NIBL and
PBL.
The specific objectives of this study are as follows:
a. To examine liquidity position of Nepal Investment Bank Limited and Prabhu Bank Limited.
b. To analyses the comparative liquidity position of Nepal Investment Bank Limited and Prabhu
Bank Limited.

1.4 Rationale of the Study

This study is conducted to comparative analysis of liquidity position of these two banks NIBL
and PBL. The findings of this study will contribute to existing literature on banks liquidity
analysis. This study will also useful to investors for getting information about the liquidity
position of these banks before investment; creditors to know the payable trend of the banks;
banks to know actual liquidity position of bank comparative to others; customers to know the
credit worthiness; and other parties who are related to these two banks to acquire required
information related to liquidity position of banks. Findings of this study facilitate to management
team to amend the rules and policies of the banks. NRB can use this report for different
purposes.

1.5 Report Structure

This report can be classified into two parts i.e. preliminary part and main body part. Preliminary
part of this study includes title page, declaration, supervisor’s recommendation, endorsement,
abstract, acknowledgment, table of contents, list of table, list of figure and abbreviation.

The main body part of this study includes 5 section i.e. chapter-I, chapter-II, chapter-III,
chapter-IV, chapter-V.

Chapter-I deals with background of the study, problem statement, objective of the study, rational
of the study, and so on.

Chapter-II deals with conceptual review, review of literature and research gap and so on.

Chapter-III deals with methods which includes types research, population and sample, types of
data, data collection procedures, instruments and analysis techniques.

Chapter –IV deals with presentation of data and major findings. Researcher uses the liquidity
ratio to analyze liquidity position of these two banks. Findings are present inthe table, trend line
and so on.

Chapter –V deals with discussion of findings and conclusion & implications of this study.
 CHAPTER-II
LITERATURE REVIEW

Literature review comprises upon the existing literature and research related to the present study
with a view to find out what had already been studied. Literature review is a process of
systematic way of accumulation, analysis and evaluation of facts or knowledge of selected topic
or problem. It provides direction for doing something new with appropriate variables, and
methodology. It is both summary and explanation of current state of knowledge of intended
research questions.
2.1 Conceptual Review
Banks play an important role in an economy of the country. Banks’ performance has greatly
affected by the liquidity position of the banks. . Liquidity is crucial in the business like banking
sector. Banks have to maintain liquidity, if the bank has high liquidity it cannot gain desired
profit and if bank has the shortfall of the liquidity it cannot satisfy its customers. Inadequate
liquidity may lead to collapse of the bank while excess liquidity is determinant to banks’
profitability in order to remove demerit’s associated with maintaining inadequate and excess
liquidity, bank should maintained and optimum level of liquidity. Banks have to maintain
adequate liquidity to smooth running of firm.

Theoretical framework is the structure that can hold or support a theory of a research study. The
theoretical framework is one of the more infamous components of a dissertation. A good
theoretical framework gives a strong research base and provides support for the rest of the
research. Theoretical framework of this study as follows:

Fig 2.1.Theoretical Framework

This study conducted to analyze comparative liquidity position of NIBL and PBL. Theoretical
framework helps to conduct good report writing. So that researcher prepared theoretical
framework which includes different ratios which helps to analyze liquidity position of these two
banks.
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
b. Loan to deposit ratio
c. Cash and bank balance to total deposit ratio
d. Cash and bank balance to current & saving deposit ratio
e. NRB balance to current and saving deposit ratio
f. NRB balance to fixed deposit ratio
g. Fixed deposit to total deposit ratio
h. NRB balance to total deposit / Cash Reserve Ratio(CRR)
2.2 Review of Previous works
Many researchers have conducted various research on related topic in past. There are some
previous works are as follows which are related to present study:
Kumbirai & Webb (2010) investigated the performance of South Africa’s commercial banking
sector for the period 2005- 2009. Financial ratios are employed to measure the profitability,
liquidity and credit quality performance of five large South African based commercial banks.
The study found that overall bank performance increased considerably in the first two years of
the analysis. A significant change in trend is noticed at the onset of the global financial crisis in
2007, reaching its peak during 2008-2009. This resulted in falling profitability, low liquidity and
deteriorating credit quality in the South African Banking sector.
Shakya (2010) analyzed different ratio of NSBIBL and EBL for the period five years till fiscal
year 2008. In his study, some cases the liquidity position of EBL is slightly stronger than the
NSBIBL where NSBIBL‘s ratio is higher. It concludes that liquidity position of these banks is
sound. NSBIBL has better utilization of available resource in income generating process than
EBL. In the overall, this study concluded that EBL is better than the NSBIBL and both banks are
highly leveraged.
Xuezhi Qin and Dickson (2012) employed the liquidity measures of the commercial banks; avid
on that basis the performance in terms of the liquidity position was established. The paper used
the causal research design as the methodology of the study since the causal design is best suited
to determine cause and effects of the phenomena. This paper utilizes the secondary data from
National Bank of Commerce (NBM) CRDB and National Microfinance Bank (NMB). The
criteria used in total deposit to core funding, liquid asset to demand liabilities and Gross loans to
total deposit Tanzania for the period of ten .

Nepal Investment Bank (2012), revealed the following key points: The saving deposit account is
nearly constant trend. The highest ratio is 0.55 times in fiscal year 2007/08 and the lowest ratio is
0.41 times in fiscal year 2009/10. But the ratio is not satisfactory due to the last year ratio was
decline. Fixed deposit is fluctuated. The lowest ratio is 0.32 times and highest ratio is 0.48 times.
It is decrease up to fiscal year 2007/08 and grows up then. And it is 0.48 times on 2009/10. It is
satisfactory. Bank made good ratio after 2007/08. From the cash and bank balance to current
deposit liability is fluctuating. The ratio is moving around between 0.48 times to 0.95 times. It is
satisfactory. Cash and bank balance to total deposit ratio is fluctuating. But the ratio is somehow
satisfactory even though the ratio is higher than the central banks prescription. The ratio is
moving around the between 0.05 times to 0.11 times. Cash and bank balance to total deposit
(excluding fixed deposit) ratio is fluctuating in increasing state. The ratio is satisfactory. It is
moving around between 0.08 times to 0.19 times. The ratio of balance with the NRB to current
and saving deposit has been fluctuating. The ratio is declined in year 2006/07 and constant in
2007/08 and then it is grow up. So, the ratio is satisfactory.

The overall results are satisfactory. But in some case the Nepal investment Bank should take
certain steps to improve the bank current financial condition. Therefore some recommendations
are being put forward for its improvement along with its development of the country. The
proportion of the saving deposit account is high in total deposit liability. So, it is recommended
that the bank should utilize the amount collected from the saving deposit account carefully. It
should be invested in the higher yielding areas. The cash and bank balance in the Nepal
investment bank is satisfactory. It is higher a bit though. Bank should analyze the opportunities
for short term investment. Balance with NRB to current plus saving deposit should be
maintained at the below than 0.11 times. Investment to deposit ratio is fluctuating adversely. It
may harm the operation of the bank. So, the investment from the deposit source should always be
aware of liquidity need and keep in mind to maintain the optimum liquidity. Bank should not
spend too much in the fixed assets because it yields only a nominal portion, almost no yield.

Mishra & Aspal (2012) stated that the economic importance of banks to the developing countries
may be viewed as promoting capital formation, encouraging innovation, monetization, influence
economic activity and facilitator of monetary policy. Performance evaluation of the banking
sector is an effective measure and indicator to check the soundness of economic activities of an
economy. In the present study an attempt was made to evaluate the performance & financial
soundness of State Bank Group using CAMEL approach. It is found that in terms of Capital
Adequacy parameter SBBJ and SBP were at the top position, while SBI got lowest rank. In terms
of Asset Quality parameter, SBBJ held the top rank while SBI held the lowest rank. Under
Management efficiency parameter it was observed that top rank taken by SBT and lowest rank
taken by SBBJ. In terms of Earning Quality parameter the capability of SBM got the top rank
while SBP was at the lowest position. Under the Liquidity parameter SBI stood on the top
position and SBM was on the lowest position. SBI needs to improve its position with regard to
asset quality and capital adequacy, SBB should improve its management efficiency and SBP
should improve its earning quality.
Sthapit & Maharjan (2012) examined the effects of liquidity on profitability. To address the
objective, the article has taken NABIL and SCBN for the period between 2003/04 and 2010/11.
Considering the liquidity management can increase the profitability, the study has examined their
liquidity management of NABIL and SCBN as well as profitability positions, using various
financial tools and indicators. It was found that trend of average liquidity ratios and profitability
of both banks are not seems to be fluctuating but average variation in liquidity ratios as well as
profitability of SCBN is lower than that of NABIL. The study concluded that the LFTDR and
NRBTDR have a negative significant effect on ROA of SCBN whereas CHTDR has a positive
significant effect. But liquidity ratios have not significant effects on profitability of NABIL.
Therefore, the liquidity performance of SCBN is better than NABIL and finally the hypothesis
was tested to know whether there is a significant difference in terms of liquidity position by
using ANOVA test. The findings revealed that the commercial banks under study have strongest
liquidity level although it varied over years and National Microfinance Bank maintained
strongest liquid level compared to the other two banks.
Ally (2013), analyzed the financial performance of commercial banking sector in Tanzania for
the period of 7 years from 2006 to 2012. Financial ratios were employed to measure the
profitability and liquidity of banks; in addition Analysis of Variance (ANOVA) was used to test
the significance differences of profitability means among peer banks groups. The study found
that overall bank financial performance increased considerably in the first two years of the
analysis. A significant change in trend is noticed at the onset of the global financial crisis from
2008 to 2009. However, Tanzania banking sector remained stable; banks are adequately
capitalized and profitable and remained in a sound position. The study found that, there is no a
significant means difference of profitability among of peer banks groups in term of ROA,
however, a significance differences among banks group is existed in term of ROE and NIM.

Bhandari A (2014) explored the determinants of performance exposed by the financial ratios and
determines the financial performance of commercial banks in Nepal through Analytical
Hierarchy Process based on their financial characteristics. The financial parameters were derived
by segregating 5 major criteria which were Liquidity, Efficiency, Profitability, Capital Adequacy
and Assets Quality. These criteria were further classified into 21 hierarchical sub-criteria. The
performance evaluation was done for 13 commercial banks for financial data from year 2008/09
to 2011/12. The paper emphasizes financial decision problems to have strong multi criteria
character and establishes priorities for performance parameters of commercial banks among
financial indicators identified and ranks banks according to those indicators. This study has
added one more literature to demonstrate the utility of AHP based bank evaluation to Nepalese
banking community in particular, which not only evaluates the performance of banks but also
gives insights to focus in the area of improvement to a particular bank in comparison to others.
Islam (2014), attempted to measure the financial performance of National Bank Limited which
one of the largest and prominent private commercial banks in Bangladesh for the period 2008-
2013 and to identify whether any difference exists between a banks’ years of operation and its
performance classifying two period(2008-10 & 2011-13). To complete my task I have to use
various materials and take help form online source. Analyze the ratio here used financial ratio
analysis (FRA) method which helps to draw a overview about financial performance of the
National bank limited in terms of profitability, liquidity and credit performance. To test the
hypothesis the study has been worked on Student t-test by using SPSS. These analyses helps to
see the current performance condition of this bank compare past performance. Because now a
day’s banking sector of Bangladesh is suffering the disease of default culture which is the
consequence or result of bad performance of most banks. The performances of banks are
dependent more on the management’s ability in formulating strategic plans and the efficient
implementation of its strategies. The study findings can be helpful for management of National
bank ltd. always for private commercial banks in Bangladesh to improve their financial
performance and formulate policies that will improve their performance. The study also
identified specific areas for bank to work on which can ensure sustainable growth for these
banks.

Olarewaju & Adenyemi (2015) examined the existence and direction of causality between
liquidity and profitability of deposit money banks in Nigeria. Fifteen quoted banks out of the
existing nineteen banks were selected for the study. They are; Guarantee Trust bank, Zenith
bank, Skye bank, Wema bank, Sterling bank, First City Monument bank, United Bank for
Africa, Eco bank, First bank, Access bank, Diamond bank, Unity bank, Fidelity bank, Union
bank and IBTC bank. Pair wise Grange Causality test was carried out to determine the presence
and direction of causality between banks’ liquidity and profitability. From the finding of this
study, at 5% and 10% level of significance, it was revealed that the F-statistics corresponding to
the null hypotheses of no causal relationship (both unidirectional and bidirectional) between
LODEP (a proxy for liquidity) and ROE (profitability measure) for banks like Guaranty trust
bank, Zenith bank, Sterling bank, Diamond bank, IBTC, Unity bank, UBA, Fidelity bank,
Wema bank, Union bank, and Eco bank, are too low and as such there is no enough evidence for
the rejection of the corresponding null hypotheses. Thus, the result revealed that there is no
causal relationship be it unidirectional or bidirectional) between liquidity and probability of
Guaranty trust bank, Zenith bank, Sterling bank, Diamond bank, IBTC, Unity bank, UBA,
Fidelity bank, Wema bank, Union bank, and Eco bank. The result also shows that there is a trace
of unidirectional causality relationship running from liquidity to profitability for banks like Skye
bank, First bank, Access bank and FCMB. Based on the findings and conclusions, the study
recommend that the apex bank (Central Bank of Nigeria) should ensure close supervision and
monitoring of deposit money banks’ strength and level of liquidity in an attempt to stabilize and
strengthen the financial sector of the economy.

2.3 Research Gap

In this study, the major area is to disclose the liquidity analysis relates to Nepalese commercial
banks. This study shows that the unique feature of findings. Previous researches on the basis of
financial performance liquidity analysis of commercial banks in Nepal. But this research is about
comparative liquidity analysis of Nepalese commercial with sample of Nepal Investment Bank
Limited and Prabhu Bank Limited. In the previous research, there is not taken NIBL and PBL for
sample. The research can help the people who wanted to know about the liquidity position of
these two banks.
 Chapter-III
Methods
The method which is using in the research to plan the how the data is collected and which source
the study use for getting data is under the research methodology. It includes the Type of
Research, Population and Sample, Types and sources of Data, Data collection Procedure and
Analysis techniques which are as follows:

3.1 Types of Research

To fulfill the objectives of the study, certain research type is essential; so the research type of this
study is based on the nature and tools for analysis. To put the objectives stated above into effect
a descriptive analytical research design is employed. Descriptive analytical means discuss the
problem and objectives of the study and analyse the data.
3.2 Population and Sample
For this research all commercial banks are regarded as population and out of these two banks
NIBL and PBL are taken as sample. All commercial are as follows:

1. Kumari Bank
2. Nepal Bank
3. Rastriya Banijya Bank
4. Agriculture Development Bank

5. Nabil Bank

6. Nepal Investment Bank

7. Standard Chartered Bank Nepal

8. Himalayan Bank

9. Nepal SBI Bank

10. Nepal Bangladesh Bank

11. Everest Bank

12. Bank of Kathmandu Limited (After the merger with Lumbini Bank)

13. Nepal Credit and Commerce Bank Limited

14. Prabhu Bank

15. Laxmi Bank

16. Global IME Bank Limited (After the merger with Janata Bank Nepal Limited)

17. Citizens Bank International Limited

18. Prime Commercial Bank

19. Sunrise Bank

20. NMB Bank Nepal

21. NIC Asia Bank

22. Siddhartha Bank

23. Machhapuchchhre Bank

24. Mega Bank Nepal Limited

25. Civil Bank Limited

26. Century Bank Limited

27. Sanima Bank

3.3 Types and Sources of Data

Researcher uses the secondary and quantitative data for this study. To gather data which is used
in the present study, financial information were collected from audited financial statements,
articles, previous studies on related topic, published articles of different authors and journals.
Furthermore, other necessary data are collected from the annual reports of these two banks:
NIBL and PBL.
3.4 Data Collection Procedures
This study is conducted to comparative liquidity analysis of NIBL and PBL. So, it needs various
data to analyze liquidity position of such banks. For the purpose of data collection researcher
visit at head office of both banks and collect the data. Researcher also collects the data by using
website of banks, annual report of both banks and so on.
3.5 Analysis Techniques
To analyze the liquidity position of these two banks through the financial tools. Findings are
present in the table, trend line and so on.

3.5.1 Financial Tools

Financial tools are those, which are used for the analysis and interpretation of financial data.
These tools can be used to get the precise knowledge of a business,winch in turn, are fruitful in
exploring the strengths and weaknesses of the financial policies and strategies. For the sake of
comparative liquidity analysis of NIBL and PBL ratio analysis have been used in order to meet
the purpose of the study.
3.5.1.1 Ratio Analysis

Ratio analysis is very much powerful & widely used tool of financial analysis. It is define as the
systematic use of ratio to interpret the financial statements so that the strength and weakness of a
firm as well as its historical performance and current financial condition can be determined. It
helps the analysis to make qualitative judgment in about the financial position and performance
of the firm. Therefore, it is helps to establish relationship among various ratios and interpret
there on specially, based on comparison between two or more firms or inters firm comparison
and comparison between present and past ratios for the same firm give enormous and fruitful
results to examine the liquidity position of the banks.
3.5.1.1.1Liquidity ratio analysis
Ratio analysis is very much powerful & widely used tool of liquidity analysis. It is define as the
systematic use of ratio to interpret the financial statements so that the strength and weakness of a
firm as well as its historical performance and current financial condition can be determined. It
helps the analysis to make qualitative judgment in about the financial position, performance and
liquidity position of the firm. Therefore, it is helps to establish relationship among various ratios
and interpret there on specially, based on comparison between two or more firms or inters firm
comparison and comparison between present and past ratios for the same firm give enormous
and fruitful results to examine the comparative liquidity position of the banks. Liquidity ratio
includes current ratio, loan to deposit ratio, Current ratio, loan to deposit ratio, cash and bank
balance to total deposit ratio, cash and bank balance to current & saving deposit ratio, NRB
balance to current and saving deposit ratio, NRB balance to fixed deposit ratio, fixed deposit to
total deposit ratio, NRB balance to total deposit / Cash Reserve Ratio (CRR).
3.6 Limitation of the Study
This report is held within the following limitations and constraints, they are:
i. The study is limited only in the liquidity analysis of the two banks.
ii. Due to the shortage of the time volume and budget, new method may not be developed.
iii. Report is based on the data of NIBL and PBL.
iv. Certain period’s data (5 years.) has been taken for the analysis; result is based on this data.
v. 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
aspect.

CHAPTER-IV
RESULTS AND FINDINGS

.41 Presentation of Data in Tables and Figures and their Analysis

Subject matter and objective 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 methods. In this unit relevant data have been it banks. Dataare analyzed by using ratio
analysis and present in the table. Ratio analysis is one of the most commonly used techniques in
the analysis of liquidity position of the banks. Ratio analysis points out the problem in any
operational areas and provides a basis to recommend corrective actions. There is variety in ratio
calculation. Data contained in financial statement as the requirement of the types of ratio.

4.1.1 Liquidity position

Liquidity analysis is the one of the major tool to analyze liquidity position of the banks through
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 purposes of meeting cash reserve ratio (CRR) and
statutory liquidity ratio (SLR) requirements prescribed by the central banks. The following ratios
are calculated under the liquidity ratios which show the liquidity position of the bank.

4.1.1.1 Current ratio.

It measures the degree to which current assets cover current liabilities. A high 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,
Table 4.1

Comparative Current Ratio of NIBL and PBL

Year CR of NIBL CR of PBL

2014/15 1.110 1.032
2015/16 0.461 0.970
2016/17 1.122 0.994
2017/18 1.121 1.009
2018/19 1.157 1.047
Average 0.994 1.010

Table 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the minimum 0.461
over a five years where as PBL has 0.970. From the results of this table study concluded that
both banks have week liquidity position but in comparison, PBL has better liquidity rather than
NIBL which is 1.010.

1.4

1.2

0.8
NIBL
0.6 PBL

0.4

0.2

0
2014/15 2015/16 2015/17 2015/18 2018/19

Fig 4.1 shows that comparative current ratio of NIBL and PBL. NIBL has the increasing trend of
liquidity whereas PBL has same liquidity position over five years. NIBL has improvement in
liquidity position of bank where as PBL has not noticeable improvement. However, PBL has
weaker liquidity position rather than NIBL. Ratio of NIBL is more fluctuating than PBL.

4.1.1.2 Loan to deposit ratio.

Loan to deposit ratio, also known as the LTD ratio or LDR, is a ratio between the banks total
loan and advances and total deposit. NRB prescribed 0.8 LDR for every commercial bank. If the
ratio is lower than one, the bank relied on its own deposit to make loan to its customer, without
any outside borrowing. If on the other hand, the Ratio is greater than one the bank borrowed
money which is re-loaned at higher rates, rather than relying entirely on its own deposits. Banks
may not be earning an optimal return if the ratio is too low. If the ratio too high, the banks might
not have enough liquidity to cover any unforeseen funding requirement or economic crises. It is a
commonly used static for assessing a bank’s liquidity.

Table 4.2 Comparative Loan to Deposit Ratio of NIBL and PBL

Year LDR of NIBL LDR of PBL
2014/15 0.703 0.726
2015/16 0.743 0.701
2016/17 0.705 0.549
2017/18 0.731 0.658
2018/19 0.787 0.721
Average 0.739 0.671

Table 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. NIBL has the
minimum 0.705 loan to deposit ratio over the five years where as PBL has 0.549. From the result
of this table study concluded that both banks has moderate liquidity position but in comparison,
NIBL has better liquidity than PBL which is 0.739.
 0.9

0.8

0.7

0.6

0.5
NIBL
0.4 PBL

0.3

0.2

0.1

0
2014/15 2015/16 2015/17 2015/18 2015/19

Fig 4.2.Comparative Loan to Deposit Ratio of NIBL and PBL

Fig 4.2 shows that comparative loan to deposit ratio of NIBL and PBL. PBL has the increasing
trend of loan to deposit ratio whereas PBL has same ratio over a five years. NIBL has mentioned
same liquidity position of bank where as PBL has more fluctuating loan to deposit ratio. In
comparison, NIBL has better liquidity position rather than PBL.

4.1.1.3 Cash and bank balance to total deposit ratio

The ratio shows the ability of banks immediate fund to cover their deposit. Higher the ratio
shows higher liquidity position and ability to cover the deposit and vice-versa. The ratio
computes by dividing cash and bank balance by total deposit. Cash and bank balance comprises
cash in hand, foreign cash in hand, cheques and other cash items, balance with domestic bank
and balance held in foreign banks. Current and saving deposit consists of all type of deposit
excluding fixed deposit. The ratio measures the ability of banks to meet its immediate up to total
deposit legations.

Table 4.3
Comparative Cash and Bank Balance to Total Deposit Ratio of NIBL and PBL

Year CBBTDR of NIBL CBBTDR of PBL

2014/15 0.211 0.152
2015/16 0.217 0.170
2016/17 0.230 0.104
2017/18 0.132 0.245
2018/19 0.121 0.213
Average 0.182 0.177
Table 4.3 shows that comparative cash and bank balance to total deposit ratio of NIBL and PBL.
NIBL has lower rate in year 2014/15 which is 0.123 over a five period of whereas PBL has lower
rate in 2013/14 which is 0.104 over a five years. Both banks have low liquidity position but in
comparison PBL has higher rate rather than NIBL which is 0.594.

0.3

0.25

0.2

0.15 NIBL
Column1

0.1

0.05

0
2014/15 2015/16 2015/17 2015/18 2015/19

Fig 4.3.Comparative Cash and Bank Balance to Total Deposit ratio of NIBL and PBL

Fig 4.3 shows that comparative cash and bank balance to total deposit of NIBL and PBL. NIBL
and PBL both have increasing trend of cash and bank balance to total deposit ratio but NIBL has
more increase in year 2015/16 rather than PBL. This study shows the better liquidity position of
NIBL comparison to PBL.

4.1.1.4 Cash and Bank Balance to Current and Saving Ratio.

The ratio shows the ability of banks immediate funds to cover their (current, margin call and
saving deposit). Higher the ratio shows higher liquidity position and ability to cover the deposits
and vice-versa. The ratio is compute cash and bank balance by current and saving deposits

Table 4.4

Comparative Cash and Bank Balance to Current and Saving Ratio of NIBL and PBL

Year CBBCSR of NIBL CBBCSR of PBL

2014/15 0.238 0.276
2015/16 0.529 0.296
2016/17 0.480 0.146
2017/18 0.329 0.404
2018/19 0.247 0.208
Average 0.365 0.265
Table 4.4 shows that comparative cash and bank balance to current and saving deposit ratio of
NIBL and PBL which find out the 0.247 ratio of NIBL in year 2015/16 which is lowest rate over
a five year’s period. PBL has the 0.146 minimum rate in year 2013/14. NIBL somehow manage
liquidity position where as PBL has weaker liquidity position. The average rates of two banks
(NIBL & PBL) are 0.365 & 0.265 respectively. This shows that NIBL is Liquid than PBL.

0.6

0.5

0.4

0.3 NIBL
PBL

0.2

0.1

0
2014/15 2015/16 2016/17 2017/18 2018/19

Fig 4.4 .Comparative Cash and Bank Balance to Current and Saving Deposit of NIBL and PBL

Fig 4.4 shows that comparative cash and bank balance to current and saving ratio of NIBL and
PBL. NIBL has the fluctuating rate rather than PBL over five year’s period whereas PBL has
approximately same rate over four years and at last year it has increase rate of cash and bank
balance to current and saving ratio.

4.1.1.5 NRB Balance to Current & Saving Deposit Ratio.

Commercial banks are required to hold certain portion of current and saving deposits in NRB’s
account. It is to ensure the smooth fluctuating and sound liquidity position of the bank. As per
the direction of NRB, the required ratio is 10% therefore the ratio measures whether the bank is
following the direction of NRB or not.

Table 4.5

Comparative NRB Balance to Current and Saving Deposit Ratio of NIBL and PBL

Year NRBBCSDR of NIBL NRBBCSDR of PBL

2014/15 0.356 0.186
2015/16 0.343 0.199
2016/17 0.358 0.637
2017/18 0.207 0.235
2018/19 0.457 0.199
Average 0.344 0.275

Table 4.5 shows that comparative NRB balance to current and saving deposit ratio of NIBL and
PBL. The data shows the NIBL and PBL minimum ratio 0.207 in year 2014/15 whereas PBL has
0.119 over a five years period. NIBL has the highly liquid than PBL.
 0.7

0.6

0.5

0.4
NIBL
0.3 PBL

0.2

0.1

0
2014/15 2015/16 2016/17 2017/18 2018/19

Fig 4.5.ComparativeNRB Balance to Current and Saving Deposit Ratio of NIBL and PBL

Fig 4.5 shows that comparative NRB balance to current and saving deposit ratio of NIBL and
PBL.NIBL has the approximately same ratio up to 2014/15 and then in year 2014/15 ratio is
increased and same case in PBL. But, in comparison, NIBL has better condition in liquidity
position.

4.1.1.5 NRB Balance to Fixed Deposit Ratio.

It shows the percentage of amount deposited by the bank in NRB as compared to the fixed
deposits. According to the direction of NRB, this ratio should be maintained 6%. Hence, the ratio
finds whether the bank has obeyed the direction of NRB or not.

Table 4.6

Comparative NRB Balance to Fixed Deposit Ratio of NIBL and PBL

Year NRBBFDR of NIBL NRBBFDR of PBL
2014/15 0.242 0.353
2015/16 0.548 0.357
2016/17 0.702 0.250
2017/18 0.424 0.777
2018/19 0.239 0.639
Average 0.467 0.452

Table 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and PBL. This
study concluded that NIBL has minimum rate 0.239 in year 2015/16 whereas PBL has 0.250 in
year 2013/14 and NIBL has maximum rate 0.702. However, PBL has 0.777. In comparison,
PBL has higher ratio than the NIBL which is 0.777.

0.9

0.8

0.7

0.6

0.5
NIBL
0.4 PBL

0.3

0.2

0.1

0
2014/15 2015/16 2016/17 2017/18 2018/19

Fig 4.6.Comparative NRB Balance to Fixed Deposit Ratio of NIBL and PBL

Fig 4.6 shows that comparative NRB balance to fixed deposit ratio of NIBL and PBL. High ratio
indicates better opportunity available to the bank to invest in the fund of low cost in short-term
loans.

4.1.1.6 Fixed to Total Deposit Ratio

The ratio shows that percentage of fixed to total deposit has been collected in form of deposit.
High ratio indicates better opportunity available to the bank to invest in sufficient profit
generating long-term loans. Low ratio means bank should invest the fund of low cost in short –
term loans.

Table 4.7

Comparative Fixed to Total Deposit Ratio of NIBL and PBL

Year FTDR of NIBL FTDR of PBL

2014/15 0.352 0.291
2015/16 0.256 0.320
2016/17 0.244 0.181
2017/18 0.234 0.183
2018/19 0.244 0.193
Average 0.266 0.233

Table 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL. This study
concluded that NIBL has minimum rate 0.234 in year 2014/15 here as PBL has 0.181 in years
2013/14 and NIBL has maximum rate 0.352 however, PBL has 0.320. In average, NIBL has
higher ratio than the PBL which are0.266 and 0.233.
 0.4

0.35

0.3

0.25

0.2 NIBL
PBL
0.15

0.1

0.05

0
2014/15 2015/16 2016/17 2017/18 2018/19

Fig 4.7.Comparative Fixed to Total Deposit Ratio of NIBL and PBL

Fig 4.7 shows that comparative fixed to total deposit ratio of NIBL and PBL has more
fluctuating liquidity whereas NIBL as decreasing trend to 2013/14 and then increase slowly.

4.1.1.8 Cash Reserve Ratio (CRR) /NRB Balance to Total Deposit Ratio.

The reserve requirement (or CRR) is a bank, regulation that sets the minimum reserve so that
each bank must hold to customer deposits and notes. These reserve are designed to satisfy
withdrawal demand, and would normally be in the form of fiatcurrency stored in a bank vault
(cash vault), or with potential of the banking to create deposits. CRR is the percentage of banks
reserves to deposits and notes. Every commercial banks need to deposit 10% fund in NRB as the
form of CRR

Table 4.8

Comparative Cash Reserve Ratio of NIBL and PBL

Year CRR of NIBL CRR of PBL

2014/15 0.149 0.103
2015/16 0.140 0.114
2016/17 0.171 0.0453
2017/18 0.0992 0.142
2018/19 0.0715 0.123
Average 0.126 0.101

Table 4.8 shows that comparative CRR of NIBL and PBL over five year’s period from 2011/12
to 2015/16. In table, NIBL and PBL both have the fluctuating rate from 0.0715 & 0.0453 to
0.171 & 0.142. in comparison, NIBL has the higher cash reserve ratio rather than PBL which
shows NIBL is liquid than PBL.

0.18

0.16

0.14

0.12

0.1
NIBL
0.08 PBL

0.06

0.04

0.02

0
2014/15 2015/16 2016/17 2017/18 2018/19

Fig 4.8.Comparative Cash Reserve Ratio of NIBL and PBL

Fig 4.8 shows that comparative cash reserve ratio of NIBL and PBL. In the figure, NIBL and
PBL both have fluctuating CRR. But, in comparison, NIBL has high balance reserve in NRB
which shows the better liquidity position of NIBL than PBL.

4.2 Major Findings

This study reveals the some major points which are as follows:

1. The liquidity position of the banks in term of current ratios show that the ratios of both banks
NIBL and PBL are always below the normal standard (i.e. 2:1) whereas NIBL average ratio is
lower than PBL. It shows that the liquidity position in term of current assets to current liabilities
of PBL is better than NIBL. So, it is concluded that

PBL is better liquidity position as compared with NIBL.

2. Loan and advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From the
analysis; it is concluded that PBL has been successfully utilized their deposits in term of loan and
advances for profit generating purpose compared to NIBL.

3. Cash and bank balance to total deposit ratio of NIBL and PBL are 0.182 and 0.177
respectively which shows the NIBL has higher liquid than PBL.

4. Cash & bank balance to current & saving deposit ratio of NIBL and PBL are 0.365 & 0.265
respectively which shows the NIBL is more liquid than PBL.

5. NRB balance to current and saving deposit ratio of NIBL and PBL are 0.344 and 0.275
respectively which indicates NIBL has higher NRB balance over current & saving deposit rather
than PBL.

6. NIBL and PBL have 0.467 and 0.452 on NRB balance to fixed deposit ratio respectively
which shows the NIBL is liquid than PBL.

7. Fixed to total deposit ratio of NIBL and PPL are (0.266> 0.233) which indicates that NIBL
has more fixed deposit than PBL.

8. Cash reserve ratio of NIBL and PBL are 0.126 & 0.101 which shows NIBL has higher balance
in NRB account.
CHAPTER –V
DISCUSSION, CONCLUSION AND IMPLICATION

This chapter presents a discussion of findings & presented in the previous chapter and dedicated
to provide conclusions after comparatively analyzing the liquidity position of two banks named
NIBL and PBL. It also tries to provide some implications to the concerned banks from the
conclusion derived from the study.

5.1 Discussion
This research is conducted comparative liquidity analysis of NIBL and PBL. Liquidity analysis is
one of the major tools to analyze financial performance of the banks that’swhy this study
chooses this topic. This study is taking as sample of NIBL and PBL among population of
Nepalese commercial banks over 5 year’s period i.e. 2011/12 to

2015/16. The liquidity ratio measures the ability of a firm to meet its short-term obligations and
select the short-term financial solvency of a firm.

On the basis of data analysis and presentation, the researcher extracted some major findings. The
liquidity position of the banks in term of current ratios shows that the ratios of both banks NIBL
and PBL are always below the normal standard (i.e. 2:1) whereas NIBL average ratio is lower
than PBL. It shows that the liquidity position in term of current assets to current liabilities of
PBL is better than NIBL. So, it is concluded that PBL is better liquidity position as compared
with NIBL. The minimum ratio of NIBL is 0.705 whereas the maximum ratio of NIBL is only
0.787. Loan and advances to total deposit ratio of NIBL and PBL are (i.e. 0.739 >0.671). From
this analysis; it is concluded that PBL has been successfully utilized their deposits in term of loan
and advances for profit generating purpose compared to NIBL. The Liquidity position of cash
and bank balance to total deposit ratio of PBL is higher than that of NIBL (i.e 0.401 < 0.594).
So, it is concluded that PBL has sufficient cash and bank balance to current & saving deposit
than that of NIBL. Likewise, the liquidity position of NIBL in terms of CRR / NRB balance to
total deposit ratio is found higher than PBL (i.e. o.126 > 0.101). In fixed to total deposit ratio
NIBL and PBL have 0.266 and 0.233 respectively which is the moderate liquidity. This analysis
shows that both banks have to increase their liquid position but in comparison PBL is liquid than
the NIBL. In the same way, fixed deposit to total deposit ratio of NIBL is better than that

of PBL.

So, on the basis of major findings the researcher reached in the conclusions keeping in the
previously set objectives in mind. Ultimately, the researcher will recommend on the research
problem to its stakeholders. To know the actual liquidity position of the banks, the researcher
observed and analyzed the comparative liquidity analysis of two commercial banks. It is hoped
that the comparative liquidity analysis of the commercial banks will give a rational result and
represent the overall banking scenario in terms of liquidity analysis.

5.2 Conclusion and Implications

Establishment of commercial banks have continued in response to the economy liberalization
policies of the government. Nowadays, under the new monetary policy banks have to increase
their paid up capital so that many banks are going to merger and acquisition. So, now in Nepal
there are twenty eight (research period) commercial banks competing with each other in their
business. These commercial banks are mainly concentrated themselves on deposit collection and
mobilization, provide banking services for customer satisfaction, financing foreign in different
project and areas. This study has been mentioned already that the research concentrates. The
researcher has evaluated data for the least 5 years period i.e. 2011/12 to 2015/16. The researcher
has analyzed the data by using financial tools like ratio analysis. The liquidity ratio measures the
ability of a firm to meet its short-term obligations and select the short-term financial solvency of
a firm. The liquidity position of the banks in term of current ratios shows that the ratios of both
banks NIBL and PBL are always below the normal standard (i.e. 2:1) whereas NIBL average
ratio is lower than PBL.
It shows that the liquidity position in term of current assets to current liabilities of PBL is better
than NIBL. So, it is concluded that PBL is better liquidity position as compared with NIBL. The
minimum ratio of NIBL is 0.705 whereas the maximum ratio of NIBL is only 0.787. And the
0.739 average ratios of loan and advances to total deposit ratio of NIBL and PBL are (i.e. 0.739
>0.671). From the analysis; it is concluded that PBL has been successfully utilized their deposits
in term of loan and advances for profit generating purpose compared to NIBL. The Liquidity
position of cash and bank balance to total deposit ratio of PBL is higher than that of NIBL (i.e
0.401 < 0.594 on an average). So, it is concluded that PBL has sufficient cash and bank balance
to current & saving deposit than that of NIBL. Likewise, the liquidity position of NIBL in terms
of CRR / NRB balance to total deposit ratio is found higher than PBL (i.e. 0.126 > 0.101 in an
average). In fixed to total deposit ratio NIBL and PBL have 0.266 and 0.233 respectively which
is the moderate liquidity. This analysis shows that both banks have to increase their liquid
position but in comparison PBL is liquid than the NIBL. In the same way, fixed deposit to total
deposit ratio of NIBL is better than that of PBL.

The analyzed data proved that the major source of income of both banks i.e., NIBL and PBL is
interest receipt and the major expenses, for the banks NIBL and PBL, are interest expenses, staff
expenses, office expenses and provision for bonus.

This study is conducted to comparative analysis of liquidity position of these two banks NIBL
and PBL Based on the conclusion, the following suggestions and implications are forwarded.

1. The findings of this study will contribute to existing literature on banks liquidity analysis.

2. This study will also useful to investors for getting information about the liquidity position of
these banks before investment; creditors to know the payable trend of the banks;

3. This is also useful to relate banks to know actual liquidity position of bank comparative to
others;

4. This study facilitates to customers to know the credit worthiness; and other parties who are
related to these two banks to acquire required information related to liquidity position of banks.

5. Findings of this study facilitate to mgmt. team to amend the rules and policies of the banks.

6. NRB also will be using this study for different purposes.

7. This study will also useful to the future researcher for conduct new project work on related
topics because this study will provide guidelines to new researchers.

This study is conducted to comparative analysis of liquidity position of these two banks NIBL
and PBL Based on the conclusion, the following suggestions and implications are forwarded.

1. The findings of this study will contribute to existing literature on banks liquidity analysis.

2. This study will also useful to investors for getting information about the liquidity position of
these banks before investment; creditors to know the payable trend of the banks;

3. This is also useful to relate banks to know actual liquidity position of bank comparative to
others;

4. This study facilitates to customers to know the credit worthiness; and other parties who are
related to these two banks to acquire required information related to liquidity position of banks.

5. Findings of this study facilitate to mgmt. team to amend the rules and policies of the banks.

6. NRB also will be using this study for different purposes.

7. This study will also useful to the future researcher for conduct new project work on related
topics because this study will provide guidelines to new researchers.
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