ANALYSING THE FINANCIAL PERFORMANCE

OF NEPAL INVESTMENT BANK LIMITED

A PROJECT WORK REPORT PROPOSAL

Submitted By:

T.U. Regd. No.:

Symbol No:
Resunga Multiple Campus
Tamghas,Gulmi

Submitted To:
Office of Controller of Examination
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the degree of

Bachelors of Business Studies (B.B.S)

1
1.1 Background of Study

The economic development of a country depends more on real factors such as the
industrial growth & development, modernization of agriculture, expansion of internal
trade and foreign trade. The role and importance of banking sector and the monetary
mechanism cannot be under-estimated in the development of a nation. Hence the banks
and financial institutions play significant and crucial role by contributing in Economic
planning such as lying down of specific goals and allocating particular amount of
money that constitute the economic policy of the government. A sound financial
system is indispensable for the growth of a healthy and vibrant economy. A sound
banking industry comprises a paramount component of the financial services sector.
Performance of the banking sector is an effective measure and indicator to check the
performance of any economy to a large extent. The banking sectors performance is
perceived as the replica of economic activities of the economy as a healthy banking
system plays as the bedrock of economic, social and industrial growth of an economy.
Banking system in economy of country like NEPAL has been allotted a crucial and
noteworthy role in financing the planned economic growth. The studies of McKinnon
(1973) and Shaw (1973) emphasized the role of financial system in economic growth
and opined that there is a strong correlation between economic growth and financial
system development. One more study concluded that development of financial system
excels the economic growth through various channels (Levine and Zervos, 1998).

Banks and other financial institutions are a unique set of business firms whose assets
and liabilities, regulatory restrictions, economic functions and operating make them an
important subject of research. Banks' performance monitoring, analysis and control
needs special analysis in respect to their operation and performance results from the
viewpoint of different audiences, like investors/owners, regulators, customers/clients,
and management themselves.

1.2 Introduction to Nepal Investment Bank Limited:

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was
established in 1986 as a joint venture between Nepalese and French partners. The
French partner (holding 50% of the capital of NIBL) was Credit Agricole Indosuez, a
subsidiary of one of the largest banking group in the world.
Later, in 2002 a group of Nepalese companies comprising of bankers, professionals,
industrialists and businessmen acquired the 50% shareholding of Credit Agricole
Indosuez in Nepal Indosuez Bank Ltd., and accordingly the name of the Bank also
changed to Nepal Investment Bank Ltd.

At present the Bank's shareholding pattern is as follows:

Promoters - 69% and General Public - 31%

Vision of NIBL is to be the most preferred provider of Financial Services in Nepal.

1.2 Objectives of the Study

The main objectives of the study are:

• To analyze the financial performance of commercial banks in Nepal,
• To examine various risks faced by financial institutions,
 2. Review of Literature:

In the light of the banking crisis in recent years throughout the world, CAMEL is an
efficacious tool to scrutinize the safety of the banks, and help alleviate the probable
risks associated with bankruptcy. Major researchers in past have presented their
research on the evaluation of performance of bank and financial. Dang (2011)
highlights that the CAMEL framework plays a dynamic role in the banking
supervision. Also, the findings

conclude that the framework is a globally acclaimed and a standardized rating method
that delivers 11 flexibility amid the on-site and off-site examination. Therefore,
CAMEL is the foremost model that is used to appraise a banks performance.
The development of financial soundness indicators responds to the need for better
tools to assess the strengths and weaknesses of the financial systems. As an outcome to
this maxim, efforts have been made time and again to measure the financial position of
each bank and manage it efficiently and effectively (Sundararajan, 2010). Thus,
CAMELS framework is used by bank supervisors to evaluate individual performance
and soundness of financial institutions.
CAMEL is a rating system that is generally adopted by the principal regulators all
around the world (Kabir & Dey, 2012). This research examined the comparative
performance of the two leading private sector commercial banks. Likewise, Chen
(2014) empirically investigated the relationship between CAMEL and bank
performance by allowing supervisors to give a careful consideration to the parameters
so as to enhance the competitiveness of the bank.
1.5.Hypothesis of the Study

According to the above model, following hypothesis can be formulated:

H1: Capital Adequacy ratio affects overall financial performance

H2: Assets Quality ratio affects overall financial performance

H3: Management efficiency ratio affects overall financial

performance H4: Earning Quality ratio affects overall financial

performance

H5: Liquidity ratio affects overall financial performance

1.6. Rational of the Study

The significance of the research is protecting individual against risk running banks due
to speculative motives related with capital market, essential for administrate finance of
company, recognition of management problems on time can help in protection of
citizen and whole system as banks are central of any economy.

1.7. Research Methodology

Research Methodology can be understood as a science of studying how research has

been done. This chapter looks into the research design, nature and sources of data, data
collection procedure and tools and technique of analysis. For the purpose of achieving
the objectives of the study, the applied methodologies are used. The research
methodology used in the present study is briefly mentioned below.
Research Design

This study research will attempt to analyze the deposits, loan and advances and total
assets for banking operation analysis and net interest income, operating income and
net income after taxes for operational efficiency analysis of commercial banks taking
the data and information of NIBL.
Population and Sample

There are total 28 commercial banks presently operating in Nepal. Collecting the data
of these entire commercial banks is not possible. Hence, Nepal Investment Bank
(NIBL) have been selected for the case study. Thus, the population of the study
comprises of all these commercial banks and the samples are NIBL. Basis of study and
analysis will be financial Statement of seven year from 2067/68 to 2073/74.

Sources of data collection:

There are various data collection sources available i.e. primary sources and secondary
sources. The major data to be used in the project report will be collected from
secondary sources like annual reports, publication of NRBs’, internet, articles etc.

Data Presentation and Analysis Tool

Various statistical as well as financial tools are used while preparing this report. The
data is presented, tabulated and graphed to analyze and to achieve the goal of the
study.

The following tools will be used for data presentation:

• Tabulation
• Bar diagrams

• Pie-Chart
• Lines
In order to analyses the data various, financial and statistical tools will be used in
report. Financial tool like ratio analysis will be used to evaluate and analyze the
performance and to form conclusion.

Statistical tools like Descriptive statistical analysis like mean, median, standard
deviation shall be used and Inferential statistical analysis i.e. t-test shall be used to
drive conclusion of report.
1.8. Chapter Plan

A project work report shall have the following five chapters.

Chapter 1
Introduction: background; profile of the organization, events, activities, etc.; objectives
of the study; rational; method of the study;
Chapter 2
Review of literature; limitations of the study.

Chapter 3

Research methodology

Chapter 4 –

Results and Analysis: presentation of results and findings of project work.

Chapter 5
Summary and Conclusion – a brief summary of the report, and conclusion based on
the findings of the report.

Bibliography
BIBLIOGRAPHY

Aspal, P. K., & Misra, S. K. (2013, July). A Camel Model Analysis of State Bank Group.
World Journal of Social Sciences, 3(4), 36-55

Chen, F. C. (2014). Chen empirically investigated the relationship between CAMEL and
bank performance by allowing supervisors to give careful consideration to the
parameters to enhance the competitiveness of the bank.

Dang, Uyen. (2011). THE CAMEL RATING SYSTEM IN BANKING OPERATION.

Retrieved from:
http://www.theseus.fi/bitstream/handle/10024/38344/Dang_Uyen.pdf?sequence=1

Evans, M., & Nurazi, R. (2005). An Indonesian Study of the Use of CAMEL(S) Ratios
as Predictors of Bank Failure. Journal of Economic and Social Policy.

Grigorian, D. A., & Manole, V. (2002). Determinants of Commercial Banks Performance

in Transition: An Application of Data Envelopment Analysis. International Monetary
Fund, Middle Eastern Department.

Shaw, E.S., 1973. Financial deepening in economic development. New York: oxford
university press

Siems, T. F., & Barr, R. S. (1998). Benchmarking the Productive Efficiency of U.S.
Banks. FINANCIAL INDUSTRY STUDIES. FEDERAL RESERVE BANK OF
DALLAS