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1.1 Background of the Study

Nepal is rapid economic development of promote the welfare of the people and Nation as well.
Nepal being a developing country is trying to improve the path of economic development by
economic growth rate and developing all sector economy. Economic growth and financial
development are closely related. The interaction between them is vital and has attracted great
attention of researcher and policy maker. Nepal, being a developing country, seeks an investor
who can invest in different development projects and in most profitable sectors. So for country
like Nepal, one of the major sources of investment is bank.

Financial analysis is fundamental and rational way to present overall financial performance of a
financial institution. It’s also help to evaluate and decision making for business operation. In
financial analysis process ratio analysis is the major and logical structure to help business related
stakeholder. Under the financial ratio analysis process there are few categories to identical area
of financial institution. So business stakeholders try to concentrate to get overall business
overview from liquidity, leverage, assets management, profitability ratio analysis. These ratios
not only help to decision making process also highlighted on risk avoiding and profit raising
related factors. To calculate this ratio, need to take quantitative data from bank trading activity
and other sources.

In this project work report, the research work has been carried out mainly as to know the overall
financial performance of the Machhapuchre Bank Ltd. The aim of this study about financial
performance of a bank is to provide useful financial performance information of a bank that is
useful to wide range of users in making economic decisions. This study analyzes the financial
performance of Machhapuchre Bank Ltd. for the (F.Y 2073/74-2077/78) using financial ratio
analysis and statistical analysis.

1.2 Profile of the organizations

Machhapuchre Bank Ltd. was established in 1992 and started its operations with a view and
objective of extending professional and efficient banking services to various segments of the
society. MBL joined hands with Punjab National Bank (PNB), India as its joint venture partner
in 1997. PNB is the largest Public Bank of India having 109 years of banking history with more
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than 2200 officers all over India and is known for its strong system and procedures and a distinct
work culture. Drawing its strength from its joints venture partner, MBL has been steadily
growing in its size and operations ever since its inception and today it has established itself as
leading private sectors bank of the Nation, reckoned as one of the fasted growing Commercial
Bank of the country. It has a main policy is to grant a loan as possible rate and through easy
procedures, beside many other commercial activities. The local Nepalese promoters hold 50%
stake in the bank’s equity, while joint venture partner PNB contributes 20% of equity whereas
the public holds remaining 30%. The Bank provides a wide range of banking facilities through a
wide network of 50 branches.

1.3 Objective of the Study

The main objective of this study is to examine, interpret, and analyze of financial performance of
the Machhapuchre Bank Nepal Ltd. The objective of this study is following.

i. To know Bank overall financial performance condition.

ii. To evaluate liquidity, leverage, profitability ratio of Machhapuchre Bank Nepal Ltd.

1.4 Rationale of the study

i. The financial performance analysis helps to provide meaningful information to the
shareholders in taking investment decision.
ii. This study also helps to provide information to wide range of general public to know whether
the company has performed good or bad.
iii. Mainly this study helps those investors who want to invest their valuable fund in this bank.

1.5 Review
Bank is financial institution, which is engaged in monetary transaction. Bank is the one of the
most important and largest financial intermediates. Banks collects the scattered money from
public providing some interests and services. This money becomes the capital for the bank to
invest in different areas.
Therefore, bank means the institute which involves in accepting the money for the view point of
lending or investment of deposit from the public repayable on demand or otherwise and
withdrawals by cheques, draft or otherwise.
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An institution established by law, which deals with money and credit is called Banking. In other
words, it is obvious that an institution involved in monetary transaction is called bank. The term
'Bank' was originated from the Latin word "Banco" which refers to the Bench an which the
Banker would keep its money and his records. Some person take its origin to French word
"Banquets" and Italian Word "Bank" which means a Branch for keeping, lending and exchanging
of money or coins in the market place by money lenders and money exchanges.
Simply, a Bank is a financial institution, which deals with monetary transaction various types of
loans and rendering other financial services. There are several definition of a bank by different
authors and scholars. Some of them are following.

As a vindication for the unrelenting pursuit to the delivery of world class banking for the very
fast time in the history of the kingdom of Nepal Machhapuchre Bank has been awarded bank of
the year 2002 award by the London based financial time group the Banker. This is a significant
achievement for Nepal and Banking industry in Nepal.
Machhapuchre Bank Lt. has been selected for the best presented annual report for the all
financial year 2000-01 Banks report was selected from amongst the 10 annual reports of listed
companies, short listed by the institute of Chartered Accountants of Nepal (ICAN). ICAN has
established the best presented annual report award from this year with the objectives of
encouraging the Nepali corporate sector to prepare financial statements with extensive
information and maximum transparency. MBL will be automatically nominated from Nepal to
competent best presented annual report award in south Asian region to be awarded by “South
Asian ideation of Accountants”.

1.6 Methodology

In the previous chapter, the role of commercial banks and its functions for the economic
development of a nation has been discussed and the review of literature with possible review of
relevant books, articles and thesis, and research findings has been done along with the function
of commercial banks and types of deposits. This has equipped the researcher to make choice of
research methodology to support the study in realistic terms with sound empirical analysis.
“Research methodology refers to the various sequential steps to be adopted by a researcher in
studying a problem with certain objectives in view”. In other word research methodology
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describes the method and process applied in the entire subject of the study. This topic deals with
the research design, nature of data collection, processing of data and statistical tools used

Financial Tools

In this study, the major tool used for analysis data is financial tools. Basically, financial tool
helps to analyze the strength and weakness of bank as well as to analyze the overall financial
performance of MBL. Ratio analysis and financial analysis have been used as financial tools.

Ratio Analysis

Financial ratio is the mathematical relationship between two accounting figures. These ratio
analysis is used to compare the firm financial performance and status to then of other firm's or to
itself overtime.

A. Liquidity Ratio

i.Current Ratio

Current Assets
Current Ratio =
Current Liabilities

ii.Cash and Bank Balance to total Deposit Ratio

Cash∧Bank Balance
Cash and bank balance to total deposit Ratio =
Total Deposit Ratio

B. Leverage Ratio

i. Debt to Assets Ratio

Total Debt
Debt to Assets Ratio =
Total Assets

ii. Debt to Equity Ratio

Total Debt = long term Debt + current liability

Total Debt
DE Ratio =
Total Equity
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C. Activity Ratio

i. Loan and Advances to Total Deposits Ratio

Loan∧ Advance
Loan and Advances to Total Deposits Ratio: = Total Deposit

ii. Loan and Advances to Fixed Deposit Ratio

Loan∧ Advance
Loan and Advance to Fixed Deposit Ratio =
¿ Deposit

D. Profitability Ratio

i. Return on Assets
Net Profit
Return on Assets =
Total Assets

ii. Return on Loan and Advances Ratio

1.7 Limitation
Under this study, some factors are to be considered as limitation of this research work. Which are
stated below.
i. This study is entirely based on secondary data and accuracy depends upon the data collected
and provided by organization. The whole study is based on data of last 5 years' period.
ii. This study has been only one commercial bank as sample i.e. MBL.