LIQUIDITY POSITION OF THE DEVELOPMENT BANK OF NEPAL:

A CASE STUDY OF

MUKTINATH BIKASH BANK LIMITED

A Project Work Report

By

SUHANA MOKTAN

Symbol N0 :702710127

T.U. Regd.No.7-2-271-196-2017

Peolpes campus

Submitted to :

The Faculty Of Management

Tribhuvan University

Kathmandu

In partial fulfilment of the requirement of

Bachelor of Business Studies (BBS)

Paknajol, Kathmandu

Febraury 2022
 Declaration
I hereby declare that the project work entitled “LIQUIDITY POSITION OF THE
DEVELOPMENT BANK OF NEPAL : A CASE STUDY OF MUKTINATH BIKAS BANK
LIMITED” submitted to the Faculty of Finance, Tribhuvan University, Kathmandu is an
original piece of work under the supervision of Rajan Bilas Bajracharya, faculty member,
People’s Campus, Paknajol Kathmandu, and is submitted in partial fulfillment of the
requirements for the award of 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.

---------------
Suhana Moktan
Date:

ii
 Supervisor’s Recommendation
The project work report entitled “LIQUIDITY POSITION OF THE DEVELOPMENT BANK
OF NEPAL : A CASE STUDY OF MUKTINATH BIKAS BANK LIMITED” submitted by
Suhana Moktan of Peoples Campus, Paknajol Kathmandu, is prepared under my supervision
as per the procedure and format requirements laid by the Faculty of Management , Tribhuvan
University, as partial fulfillment of the requirements for the award of the degree of Bachelor of
Business Studies (BBS). I, therefore recommend the project work report for evaluation.

----------------
Rajan Bilas Bajrachraya
Supervisor
Date:

iii
 Endorsement
We hereby endorse the project report entitled “LIQUIDITY POSITION OF THE
DEVELOPMENT BANK OF NEPAL : A CASE STUDY OF MUKTINATH BIKAS BANK
LIMITED” submitted by Suhana Moktan of People’s Campus Paknajol Kathmandu, in partial
fulfillment of the requirements for award of the Bachelor of Business Studies (BBS) for
external evaluation.

------------------------- ----------------------------------
Gopal Krishna Shrestha, Phd Chhatra Mangal Bajracharya
Chairperson, Research Commiittee Campus Chief
Date: Date:

iv
 ACKNOWLEDGEMENT

This project work report entitled “LIQUIDITY POSITION OF THE DEVELOPMENT BANK
OF NEPAL : A CASE STUDY OF MUKTINATH BIKAS BANK LIMITED” has been
prepared in partial fulfillment for the degree of Bachelors of Business Studies (BBS) under the
course designed by the Faculty of Management, T.U. This study is based on the prescribed
research format involving the use of financial ratios in banking sector.

At the time of preparing this study, I have consulted with various personalities. So, I would
like to extend my sincere thanks to all whose works and ideas helped me in conducting the
study. Sincerely I would like to pay my sincere gratitude to my project work report supervisor
Rajan Bilas Bajracharya, faculty member, People’s Campus, Paknajol Kathmandu who guided
through research work with providing valuable suggestions, supports and supervision.

Finally, I would like to offer my profound gratitude to my family members, my friend,

colleagues, well-wishers for their encouragement and support during the entire period of my
study.

Suhana Moktan

v
 Table of Contents

Page No

Title Page ………………………………………….………………………………………...............i

Declaration …………………………………………………………………………………………..ii

Supervisor's Recommendation ……………………………………………………………………iii

Endorsement ………………………………………………………………………………………...iv

Acknowledgement..................................................................................................................v

Table of Contents ............................................................................................................... vi

List of Table........................................................................................................................vii

List of Figures ................................................................................................................….ix

Abbreviation........................................................................................................................x

CHAPTER 1: INTRODUCTION …………………………….......................................1

Background …………………..…….............. ...................................................................1

Profile of Muktinath Bikas Bank…………………………………… ………….….……4

Objectives …………..…………………………………………………………………... 5

Rationale……………...…………………………,………….……….…………….......... 6

Review ….. ..…………………………………………………………..………………... 6

Research Methods……………………… ……………………………….…………..… 16

Limitation of the Study ……………………………………………………….……..... 17

vi
CHAPTER 2: RESULT AND FINDINGS ………………………………………… 19

Data Presentation ……………………………………………………………………. 19

Analysis ………………………………………………………….…………............. 19

Findings …………………………………………………………………………….. 28

CHAPTER 3: SUMMARY AND CONCLUSION ………...……………………. 32

Summary ……………………………………………………….……………….......32
Conclusion ………………………………………………………………………… 32

BIBLIOGRAPHY ……………………………………………………………….. 34

vii
 LIST OF TABLES

Table No. Title Page No

1 Current Ratio 20

2 Quick Ratio 21

3 Cash to Current Assets Ratio 23

4 Cash to Current Liabilities Ratio 24

5 Cash to Current and Saving Deposit Ratio 26

6 Fixed Deposit to Total Depsoit Ratio 27

7 Earning Per Share (EPS) 28

8 Price Earning per Share (P/E Ratio) 29

viii
 LIST OF FIGURES

Figure No. Title Page No

1 Current Ratio 21

2 Quick Ratio 22

3 Cash to Current Assets Ratio 24

4 Cash to Current Liabilities Ratio 25

5 Cash to Current and Saving Deposit Ratio 27

6 Fixed Deposit to Total Depsoit Ratio 28

7 Earning Per Share (EPS) 29

8 Price Earning per Share (P/E Ratio) 30

ix
 ABBREVIATIONS

% : Percent

& : And

A/C : Account

AGM : Annual General Meeting

ATM : Automated Teller Machine

BBA : Bachelor of Business Administration

BBS : Bachelor of Business Studies

BFIS : Banks and Financial Institutions

CA : Current Assets

CDs : Certificates of Deposit

CL : Current Liabilities

CSR : Corporate Social Responsibilities

FDIC : Federal Deposit Insurance Corporation

MNBBL : Muktinath Bikas Bank Limited

M&Q : Merger and Acquisition

NRB : Nepal Rastra Bank

OCC : Office of the controller of the Currency

RS : Rupees

x
 1

CHAPTER I

INTRODUCTION

Background

A bank is a financial institution licensed to receive deposits and make loans. Banks may also
provide financial services, such as wealth management, currency exchange and safe deposit
boxes. There are two types of banks commercial/retail banks and investment banks. In most
countries, banks are regulated by the national government or central bank.

BREAKING DOWN 'Bank Commercial banks are typically conceded with managing
withdrawals and receiving deposits as well as supplying short-term loans to individuals and
small businesses. Consumers primarily use these banks for basic checking and savings
accounts, certificates of deposit (CDs) and home mortgages. Examples of commercial banks
include JPMorgan Chase & Company and Bank of America Corporation.

Investment banks focus on providing corporate clients with services such as underwriting and
assisting with merger and acquisition (M&A) nativity. Morgan Stanley and Goldman Sachs
Group Inc. are examples of U.S. investment banks.

Central banks are chiefly responsible for currency stability, controlling inflation and monetary
policy and overseeing money supply. Several of the world's major central banks include the
U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of
Japan, the Swiss National Bank and the People's Bank of China.

While many banks have a brick-and-mortar and online presence, some banks have only an
online presence. Online-only banks often offer consumers higher interest rates and lower fees.
Convenience, interest rates and fees are the driving factors in consumers decisions of which
bank to do business with. As an alternative to banks, consumers can opt to use a credit union.

Regulation of U.S. Commercial Banks U.S. banks came under immense serutiny after the
global financial crisis that occurred between 2007 and 2008. The regulatory environment for
banks has tightened considerably as a result. U.S. banks are regulated at a state or national
level; Depending on the structure, they may be regulated at both. State banks are regulated by
a state's department of banking or department of financial institutions. This agency is generally
 2

responsible for regulating issues such as permitted practices, how much interest a bank can
charge, and auditing and inspecting banks.

National banks are regulated by the Office of the Comptroller of the Currency (OCC). OCC
regulations primarily cover bank capital levels, asset quality and liquidity. Banks with Federal
Deposit Insurance Corporation (FDIC) insurance are additionally regulated by the FDIC. In
response to the financial crisis, the Dodd - Frank Wall Street Reform and Consumer Protection
Act was passed in 2010 with the intention of reducing risks in the U.S. financial system. Under
this act, large banks are assessed on having sufficient capital to continue operating under
challenging economic conditions. This annual assessment is referred to as a stress test.

A transaction involving a transfer of funds to another party for safekeeping is called i

deposit. A portion of funds that is used as r collateral for t delivery of a good is called
deposit. A deposit is identical to the money an investor transfers into a bank's savings or
checking accounts. It can be made by individuals or entities such as corporations. The money
is still owned by the person or entity that deposited the i money and it can be withdrawn at any
time, transferred to another person's account, or used to purchase goods Often, a person must
deposit a certain amount of money in order to open a new bank account, which is known as a
minimum deposit. This amount covers the costs associated with opening and maintaining the
account. Depositing money into a typical checking account qualifies as a transaction deposit,
which means that the funds are immediately available and liquid, without any delays.

History of Banking in Nepal Nepal bank Ltd. is the first modern bank of Nepal. It is taken as
the milestone of modern banking of the country. Nepal bank marks the beginning of a new era
in the history of modern banking in Nepal. This was established in 1937 A.D. Nepal Bank has
been inaugurated by King Tribhuvan Bir Bikram Shah Dev on 30th Kartik 1994 B.S. Nepal
bank was established as a semi government bank with the authorized capital of Rs.10 million
and the paid-up capital of Rs. 892 thousand. Until mid-1940s, only metallic coins were used
as medium of exchange .So the Nepal Government (His Majesty Government on that time) felt
the need of separate institution or body to issue national currencies and promote financial
organization in the country.

Nepal Bank Ltd. Remained the only financial institution of the country until the foundation
of Nepal Rastra Bank is 1956 A.D. Due to the absence of the central bank, Nepal Bank has to
play the role of central bank and operate the function of central bank Hence, the Nepal Rastra
Bank Act 1955 was formulated, which was approved by Nepal Government accordingly, the
 3

Nepal Rastra Bank was established in 1956 AD. as the central bank of Nepal. Nepal Rastra
Bank makes various guidelines for the banking sector of the country.

A sound banking system important for smooth development of banking system. It can play a
key role in the economy. It gathers savings from all over the country and provides liquidity
for industry and trade. In 1957 A.D. Industrial Development Bank was established to promote
industrialization in Nepal, which was later converted into Nepal Industrial Development
Corporation (NIDC) in 1959 A.D.

Rastriya Banijya Bank was established in 1965 A.D. as the second commercial bank of
Nepal. The financial shapes for these two commercial banks have a tremendous impact on the
economy. That is the reason why these banks still exist in spite of their bad position. As the
agriculture is the basic occupation of major Nepalese, the development of this sector plays in
the prime role in the economy. Thus, separate Agricultural Development Bank was established
in 1968 A.D. This is the first institution in agricultural financing.

For more than two decades, no more banks have been established in the country. After
declaring free economy and privatization policy, the government of Nepal encouraged the
foreign banks for joint venture in Nepal.

Today, the banking sector is more liberalized and modernized and systematically
managed. There are various types of bank working in modern banking system in Nepal. It
includes central, development, commercial, financial-operative and Micro Credit
(Grameen) banks. Technology is changing day by day. And changed technology affects the
traditional method of the service of service bank.

Banking software, ATM, E-banking, Mobile Banking, Debit Card, Credit Card, Prepaid Card
etc. services are available in banking system in Nepal. It helps both customer and banks to
operate and conduct activities more efficiently and effectively.

For the development of banking system in Nepal, NRB refresh and change in financial sector
policies, regulations and institutional developments in 1980 A.D. Government emphasized the
role of the private sector for the investment in the financial sector. These policies opened the
doors for foreigners to enter into the banking sector in Nepal under joint venture.

Some foreign ventures are also established in Nepal such as Nepal Bangladesh Bank. Standard
Chartered Bank, Nepal Arab Bank, State Bank of India, ICICI Bank, Everest Bank, Himalayan
Bank, Bank of Kathmandu, Nepal Indo - Suez Bank and Nepal Sri Lanka Merchant Bank etc
 4

The NRB will classify the institutions into "A" "B" "C" "D" groups on the basis of the
minimum paid-up capital and provide the suitable license to the bank or financial
institution. Group 'A' is for commercial bank, 'B' for the development bank, 'C' for the financial
institution and 'D' for the Micro Finance Development Banks.

Generally banks in Nepal are opened 10 am to 4 pm Sunday to Thursday and 10 am to 2pm on

Friday. But nowadays most of the banks in Kathmandu are opened throughout the week.

There are 27 commercial banks, 37 development banks, 36 financial companies, 48 micro

credit (Grameen) development banks and 16 saving and credit co operation (licensed by Nepal
Rastra Bank) are established so far in Nepal. The bank with the largest network in Nepal is
The Nepal Bank Ltd. These commercial banks and financial institutions have played
significant roles in creating banking habit among the people, widening area and business
communities and the government in various ways

Profile of Muktinath Bikas Bank Ltd.

Muktinath Bikas Bank Ltd. was established by a group of enthusiastic , dedicated and
successful professionals and entrepreneurs from different fields including business teaching
engineering, doctors, banking , accounting management The bank w incorporated under
Company Act on 2064.04.22 On 2004.06.24, it acquired license from Nepal Rastra Bank to
perform its financial transactions which was approved by the Company Registrar's office on
2064.5.29. The bank started in formal operations on 2064.07.18 from Waling 3.
Syangja. However in the third AGM it was decided to shift the head office to Pokhara. This
step was taken to speed up the expansion plan and also to facilitate the upgrading the bank to
a national level development bank
Vision, Mission and Objectives
At Muktinath Bikas Bank Ltd, we are committed to offer the best of services to customers and
to be their first choice.

Vision
Our vision is to be the real bank for real people through quality services to the real seekers of
modern banking .

Mission
 5

Missions of Muktinath Bikas Bank Ltd. can be summarized as

• Deliver wonderful banking service to its customers through state of the art technology
• Satisfy all the stakeholders with healthy and sustainable value creation.
• Contribute in poverty alleviation providing financial service to the deprived sector through
micro finance program. .
To make our vision come true through professional integrity, corporate governance and
regulating compliance.

Objectives
 To provide sustainable and quality financial service to the public upholding and
enhancing the interest of depositors and shareholders of the bank.
 To help in the development of industrial, commercial and agricultural sectors of the
nation by collecting and mobilizing financial resources from internal and
external sources so as to establish, develop and increase the overall productivity of the
nation.
 To promote in establishment, operation and expansion of employment generating
businesses in rural and urban areas by proper mobilization of available capital and
labor. And to support and help alleviate poverty by providing financial, technical and
managerial supports to the needy people.
 To play a financial intermediary role through institutional investment.
(http://www.muktinathbank.com.np/introduction)

Objectives of the Study

The basic objective of this study is to analyze the liquidity position of Muktinath Bikas Bank
which is followed by other general objective. They can be listed as below.
So the following objectives were considered for doing the study.
 To ascertain the liquidity position of MNBBL
 To examine the working position of the bank

Rationale
The study results decision maker of the bank to know the strength and weakness of their
liquidity position. It will also be helpful for those who want to liquidity position to MNBBL,
 6

as they will be quite familiar with the ratio analysis. There are other importances of research
which are mentioned below:
• Finance manager must realize that when a firm makes a major decision, the effect of the
action will be felt throughout the enterprise.
• The financial managements help in monitoring the effective deployment of funds in fixed
avets and in working capital.
• This study will be helpful to everyone from every aspect. The businessmen, taxpayers,
donor parties and central government can be beneficial from the study.
• The findings and the conclusions drawn from the study will be helpful for the officials to
take corrective measures.
• The required data and information concerns to the financial position can be acquired and
studies by its organization.
• The customer will benefit by knowing the procedure of deposit collection.

Literature Review

This chapter provides knowledge about the development and progress made by the earlier
scholar on the concerned project of the study, A literature survey is both summary a liquidity
position as an explanation of the complete and current state of knowledge found review existing
books, published and unpublished articles, review of policy documents to provide readers
background, familiarity in order to fill the gap of research. Literature theory is a process of
learning and understanding the concept of related area throughly. It assures readers that are
familiar with important research that has been carried out in similar areas. In addition it also
summarizes the findings of previous literature to provide knowledge about the background of
the work done by earlier research work and to stop duplicate of the previous work. Thus, this
work may be valuables component of research work .

Conceptual Review

This section comprises general concept of development Bank, concept of financial

performance, liquidity position in Nepal, function of development Bank and its development
in Nepal.
 7

Meaning and Definition of Development Bank.

Development banks are 'B' type Financial Institution. On the basis of geographical coverage
and activity level, the development banks are three types and these are a) 1-3 districts type b)
4- 10 districts type and c) national type As Perth NRB rules the paid up capital requirement for
these development banks are respectively NRs. 100, 200 and 640 million respectively. Many
of these development banks are in the process of merging with likeminded organization and
restructuring the organization to establish a stronger financial institution. In the process, some
development banks are acquiring finance companies or are merging with other stronger finance
company or development bank or with the commercial bank. The banks are presented here on
alphabetical order stating their classification types. Navigation links are gradually being
developed for all banks and it is not given for the development banks which are in merger
processes development banks mobilize the scattered saving into production channels in order
to maximize their wealth. The collected funds of development banks are mobilized in various
sectors like hire purchase, housing, finance and lease finance, overdraft education etc. They
are also used to invest in securities and issue guarantee. The demand of the customer for the
development banks are increasing day by day. As a result 87 development banks are
established till mid 2015(NRB, 2072) With the purpose of developing a special sector of the
economy, development banks are established Nepal industrial development corporation was
established in 1956, with the purpose of providing medium and long term loans and for the
establishment, development and modernization of private sector industries. Other than this it
also aimed to participate in shistes, underwrite shares establish industries. After the
introduction of development hank act 1995 there was a nesh to establish development banks
and this lead to establishment of many development banks and regional banks. The main
motive was to uplift the standard of people by providing loan to poor and small
entrepreneurs. The bank and financial institution act 2063 has categorized the development
banks into class B category licensed institution.

Concept of Financial performance

Financial Performance in broader sense refers to the degree to which financial objectives being
or has been accomplished and is an important aspect of finance risk management. It is the
process of measuring the results of a firm's policies and operations in monetary terms. It is
used to measure firm's overall financial health over a given period of time and can also be used
 8

to compare similar firms across the same industry or to compare industries or sectors in
aggregation

firms and interested groups such as managers, shareholders, creditors, and tax authorities look
to answer important questions like:

 What is the financial position of the firm at a given point of time?

 How is the Financial Performance of the firm over a given period of time?

These questions can be answered with the help of a financial analysis of a firm. Financial
analysis involves the use of financial statements. A financial statement is a collection of data
that is organized according to logical and consistent accounting procedures. Its purpose is to
convey an understanding of some financial aspects of a business firm. It may show a position
of a period of time as in the case of a Balance Sheet, or may reveal a series of activities over a
given period of time, as in the case of an Income Statement. Thus, the term financial statements
generally refers to two basic statements: the Balance Sheet and the Income Statement.

The Balance Sheet shows the financial position (condition) of the firm at a given point of
time. It provides a snapshot that may be regarded as a static picture. The balance sheet is a
summary of a firm’s financial position on a given date that shows Total assets – Total.
Liabilities + Owner’s equity.

The Income Statement (referred to in India as the profit and loss statement) reflects the
performance of the firm over. A period f time. “Income statement is a summary of a firm’s
business revenues and expenses over a specified period, ending with net income or loss for the
period.” However, financial statements do not disclose all the information related to the
financial operations of a firm, but they furnish some extremely useful information, which
highlights two important factors profitability and financial soundness.

Financial Performance Analysis

Financial performance analysis includes analysis and interpretation of financial statements in

such a way that it undertakes full diagnosis of the profitability and financial soundness of the
business. The financial analyst program provides vital methodologies of financial analysis.

Areas of Financial Performance Analysis:

 9

Financial analysts often assess the firm’s production and productivity performance (total
business performance), profitability performance, liquidity performance, working capital
performance, fixed assets performance, fund flow performance and social
performance. Various financial ratios analysis includes

 Working capital Analysis

 Financial structure Analysis
 Activity Analysis
 Profitability Analysis

Significance of Financial Performance Measurement.

The interest of various related groups is affected by the financial performance of a firm. The
type of analysis varies according to the specific interest of the party Involved:.

• Trade creditors: Interested in the liquidity of the firm (appraisal of the firm’s liquidity)
• Bond holders: Interested in the cash - flow ability of the firm (appraisal of the firm's
capital structure, the major sources and uses of fundi, profitability over time, and projection
of future profitability)
• Investors: Interested in present and expected future earnings as well as stability of these
earnings (appraisal of firm's profitability and financial condition)
• Management: Interested in internal control, better financial condition and better
performance (appraisal of firm's present financial condition, evaluation of opportunities in
relation to this current position, return on investment provided by various assets of the
company etc.).

Corporate Social Responsibility.

Corporate social responsibility is a corporate initiative to assess and take responsibility for the
company's effects on the environment and impact on social welfare. The term generally applies
to company efforts that go beyond what may be required by regulators or environmental
protection groups. Nowadays CSR plays an important role in assessing a company.

Conclusion.
 10

A Financial Performance Report is a summary of Financial Performance of a Company that

reports the financial health of a company helping various investors and stakeholders take their
investment decision.

Current Liquidity Crisis in Nepal

I remember the scenario just eight month back, Bankers used to call us twice a day and I ask
us if our company have any fund requirement, they can lend us as much at minimal rate that
any bank can Finance. We enjoyed this minimal rate of interest which lowered lend money as
much as they down our finance cost drastically due to Banker Race can. Bankers must be
applying the same policy to several companies throughout the country and no doubt there are
many companies who just capitalized this opportunity to channelize large portion of money in
unproductive sector like Real Estate, Gold, and Shares with lock - in period as long term
investment. etc. And there is nothing wrong if you are in business man shoes, you have lots
of option for this low cost fund. Now same banker reach to us and ask us if our company have
sufficient funds. If we do, requesting us to make some prepayments as their banks is struggling
to overcome current cash crunch. Bankers are denying to release even MC check for customer
which they have agreed to Finance as auto loan for only reason they short supply of
money. Interest rate going high each day and its obvious as per demand & supply theory.

Similarities with US Financial Crisis 2007-2008

Disaster started with flood of low cost liquidity in the economy after the Federal Reserve
lowered down the Federal funds rate from 6.5% in May 2000 to 1.75% in December 2001.
Cheap money, once out of the bottle , always looks to be taken for a ride. It found easy prey
in restless bankers and even more restless borrowers who had no income, no job and no
assets. These subprime borrowers wanted to realize their life’s dream of acquiring a home. For
them, holding the hands of a willing banker was a new ray of hope. More home loans, more
home buyers, more appreciation home prices. Banker was blinded by daydream to earn
abnormal this profit and didn’t bother to assess the repayment capacity of these
borrowers. And this was how the 2007-2008 US Financial Crisis got its solid foundation for
the path of disaster. (Data Source: Investopedia)
 11

Current Liquidity Crisis in Nepalese Banking Sector

Two years back, Nepal Rastra Bank (NRB), the central bank, has directed Banks and Financial
Institutions (BFIs) to raise minimum paid – up capital by up to four times to a whopping NRs
8 billion in the next two years but it seems NRB has completely failed to analyze all the possible
threats on the way. Motive behind increasing paid up capital has resulted something else
against what was expected and NRB has failed to perceive effects of this rapid changes in
banking sector.
Banks started to hunt every possible way to reach capital requirement as prescribed by NRB
in the form of Right Shares, Public Offering, Merger Acquisitions and so on. BFIs collected
sufficient fund, with that huge fund with BFIs, their hunger to see short term quick return has
landed them to path of this self – destruction and at the same time NRB inability to question
and control this unhealthy race to lend money, has upheld this path of Crisis. Even bankers
don’t have the option for that huge fund. As a result, huge loan exposure flows in sectors like
Real Estate, Automobiles Financing, Home loans and other luxuries without assessing
borrowers properly and without examining the visions of borrower’s repaying capacity. This
is exactly similar to how the US economy crisis has begun in 2007-2008. With this market
scenario, it is too obvious to expect that result will not be different than what US faced in 2007-
2008. We have blocked money in the form of real estate & gold, luxuries (4 wheelers, two
wheelers, Mobiles etc.), money frozen with Government (No big Expenditure by Government
compared to huge revenue collection from tax payers). Huge Corruption money out of banking
system (Money not channelized to banking system, billions of un-accounted money in physical
form) just to name a few. Massively increasing imports and declining exports in business,
widening trade deficit is another important reason for the existing crisis.

Possible way – out

It seems all short – terms Profit made by BFIs were private affairs but when it comes to rescue
the crisis losses become social public affairs. Every time NRB had to take initiative and come
up with rescue package with money collected from pubic tax payers. Using tool to increase
short – term liquidity or, simply by extending loans / refinancing facilities at the expense of
taxpayers shall not be sufficient to overcome this crisis rather it will defer this problem with
temporary solution. Going to root cause and coming up with strategy and effective restructure
plan shall be the only possible way forward. Deposit base at bank shall be encouraged
strategically (Recent Indian strategy to bring money back in banking system can be very helpful
here). Necessary pressure on Government to be created from so called opposition to release
 12

frozen capital expenditure budget due to lack of clear vision. Import shall be discouraged and
Export shall be encouraged, environment to promote domestic goods in international markets
can contribute to overcome the crisis. FDI invitation, but this will not be possible until political
stability is maintained, until politician has crystal clear vision for country development.

Bank and Financial Institution Act 2063

Bank and financial activities are governed by rules and regulations which are reviewed from
time to time to reflect the changing economic environment. Bank and financial institutions
ordinance came into existence in February 4, 2004 governs rules and regulations of all types
of financial institutions. The ordinance is reviewed in every six months. It aims to ensure
reliable and quality banking and financial intermediation services through healthy competition
among banks and financial institutions, safeguards and promotes the interest of depositors and
people at large in the overall banking and financial system of the country. The ordinance
repeals and replaces all existing acts relating to commercial banks, Nepal Industrial
development bank, other development bank and finance companies and brings all such
institution under one single act which is known as umbrella act. As per umbrella act, bank and
financial institutions can be classified as A, B, C and D classes on the basis of minimum paid
of capital. Accordingly. commercial banks are class A and they are labeled as
banks. Similarly development banks, finance company, co - operative are categorized into 'B',
'C and' D 'class respectively. By mid July 2015 there are 28 commercial banks of class A. 57
development banks of B, 36 finance companies of class 'C' 48 of Micro level Class D. The
umbrella act named as bank and financial institution act, 2063 has been enacted effectively. for
the proper and smooth operation of the banks. (NRB, 2072) As per the fact, if the financial
institution met capital requirement and has been in profit for the last 5 years in a row, total
nonperforming assets has remained within the NRB prescribed limit and all the prescribed
conditions have met then well performing bank or financial institution can be
upgraded. Similarly NRB can downgrade any banks or financial institutions from 'A' to 'B', 'B'
to "" class if its status performance is found to have turned totally other way against as
prescribed. Subject to this act, class 'B' licensed institution may conduct the following types
of financial transactions. Subject to the limit prescribed by the Rastra Bank, accepting deposit
with or without interest and refund such deposit.
• Supplying credit, other than hypothecation credit as prescribed.
• Dealing in foreign exchange, subject to the laws in force and the directives given by Rastra
Bank.
 13

• Supplying credit for hire purchase, leasing, housing and service business.
• Engaging in Merchant Banking Business, subjective to the directives given by the
RastraBank.

Making arrangement for jointly supplying credit on the basis of co-financing in collaboration
with other licensed institutions in accord once with mutual agreement entered into for the
division by the collateral.
• Supplying credit against the guarantee of any native banks or financial institution.
• Issuing, accepting, paying, discounting or purchasing and selling bills of exchange,
promissory notes, checks, traveler's check drafts.
• Accepting deposits making payments and supplying credit though automatedteller
machine and cash machine and cash dispending machine.
• Providing overdraft to person whom it trusts.
• Obtaining credit against the security of its movable and immovable property .
• To issue and accept letter of credit subject to the conditions prescribed by the Rastra Bank .
• Acting as a commission agent of its customer taking custody of and arranging for the sale
or purchase of shares, debenture or securities, collecting interests, for dividends, profit etc.
accruing from shares, debentures or security.
• Purchasing, selling or accepting bond issued by the government of Nepal or the Rastra
Bank.
• Arranging for safe deposits vault.
• Carrying on off balance sheet transaction on such condition as may be prescribed by Rastra
Bank.
• Providing guarantee for the supply of credit to its customers by any other licensed
institutions. .
• Mobilizing capital through shares, debentures, bonds, saving bonds other financial
instruments within the limit prescribed by the Rastra Bank.
• Obtaining refinance credit from Rastra Bank as per necessarily or obtaining or supplying
credits to or from other licensed institutions.
• Supplying fund received from the government of Nepal or other native or other foreign
agencies as credit for the promoting of protects or managing such credits.

Supervisory and Monitoring System of the Nepal Rastra Bank

 14

Principally, the central bank has liability and obligating to maintain fair and healthy
environment of the economic activities of the nation. For this the necessary act, rules and
regulations are enacted. Thus, the act of checking whether the related officials and banks
honestly complied with the policy, regulations and supervisions enacted by controlled financial
system, itself is called inspection. As a central bank, the Nepal Rastra Bank has been
discharging such a serious and sensitive task.
Before the establishment of Nepal Rastra Bank, the function of inspection and supervision
used to be carried out by officials of His Majesty of the Government o auditor general. This
practice was contributing until the enactment of the commercial bank act 2020 BS. After the
introduction of this act, the function of inspection and supervision for the commercial bank was
given to Nepal Rastra Bank and this right was further strengthened by Nepal Rastra Bank act
and introducing of the Commercial Bank act 1974. The Nepal Rastra Bank has
been discharging the task of inspection from the FY2025 /026 BS.

Natarajunetal (1980) Calculated liquidity ratio to evaluate financial performance of the

costumer's co-operative stores in Andhara Pradesh, the study revealed that the liquidity position
was not satisfactory with current ratio compared to idle number 2: 1.

Kyriaki & Constantin (2008) in their studies of measurement of bank performance in Greece,
they had measured the financial performance of commercial banks and co-operative banks of
Greece using the same and different financial ratios for each type of banks. They had selected
eleven financial ratios for each type of bank commercial and co-operative example of such
ratios are Loan / Total Assets, Return on Equity, Return on Assets, Equity / Deposits, Equity /
Total Assets etc.
Sanju pun. (2018) has conducted report on "A study on Liquidity position of Aastha Saving
and Credit Co-operative limited. Unpublished BBS Report, Tribhuvan University.

James Clausen (2019), He state that the Profitability Ratio Analysis of Income Statement. and
Balance Sheet Ratio analysis of the income statement and balance sheet are used to measure
company profit performance. He said the learn ratio analyzes of the income statement and
balance sheet. The income statement and balance sheet are two important reports that show the
profit and net worth of the company. It analyzes how the well the company is doing in terms
of profits compared to sales. He also shows how well the assets are performing in terms of
 15

generating revenue. He defines the income statement shows the net profit of the company. by
subtracting expenses from gross profit (sales - cost of goods sold). Furthermore, the balance
sheet lists the value of the assets, as well as liabilities. ple terms, the main function of the
balance sheet is to show the company's net worth by subtracting liabilities from assets. He said
that the balance sheet does not report profits, there's an important relationship between assets
and profit. The business owner normally has a lot of investment in the company's
assets. reports that show the profit and net worth of the company. It analyzes shows how the
well the company is doing in terms of profits compared to sales. He also shows how well the
assets are performing in terms of generating revenue, He defines the income statement shows
the net profit of the company by subtracting expenses from gross profit (sales cost of goods
sold). Furthermore, the balance sheet lists the value of the assets, as well as liabilities. In
simple terms, the main function of the balance sheet is to show the company's net worth by
subtracting liabilities from assets. He said that the balance sheet does not report profits, there's
an important relationship between assets and profit. The business owner normally has a lot of
investment in the company's assets.

Research Methods

A systematic approach and methodology is needed in order to do any type of study and prepare
report on that study. Methodology is the description of the procedure followed while collecting
the necessary data and information needed for research work and report preparation. This
report has been designed to give a clear picture of the financial performed in Muktinath Bikas
Bank Limited. The research methodology includes, research design, data collection procedures
and research variables and tools use. The following step provides useful procedural guidelines,
So far as research methodology is concerned.

Research Design

A research design is a framework or plan for the activities to be undertaken during the course
of study. The study is conceded single unit thus will be followed the case study research
design. Under the case study descriptive and analytical research approach will be applied.

Sources and Nature of data

 16

This research will be based on secondary Sources. However, primary data will be obtained as
a research requirement. The secondary data will be gathered from annual reports, published
documents, meeting minutes of the board and website. Moreover, other necessary data and
information can be collected from newspaper, related publications and websites.

Population and Sample

As per umbrella act, bank and financial institutions can be classified as A,B,C and D classes
on the basic of minimum paid of capital. Accordingly, commercial bank are class A and they
are labeled as banks. Similarly development hanks, finance company, co-operative are
categorized into 'B', C and D class respectively. By the latest data information 201I8 there are
27 commercial banks of class A, 37 development hanks of B. 25 finance companies of class C,
46 Micro Credit Development Bank of class D. The umbrella act named as bank and financial
institution act, 2063 has been enacted effectively for the proper and smooth operation of the
banks. (NRB, 2072) All banks and financial institution are Population and Garima Bikas bank
is taken as sample. The objective of the study is to find the position of financial Performance
of Garima Bikas Bank Limited. I would like to select this Bank because it is the developmental
bank. earning high profit and providing loan to the public with lower interest rate and gives
effective interest rate to the deposit. The organization is the population for the research works
and convenience sampling method is used.

Data collection and Analysis

This section generally represents the research methodology adapted to carry out the field work
report A research design is a framework or plan for the activities to be undertaken during the
course of study. The research mostly based on the secondary data and information. So,
descriptive research design will be applied.

Data Collection Techniques

Most of the data are collected from the secondary sources. Some of the data are collected
through the discussion with the office staff and direct observation of the operational
tasks. Moreover practical approaches have been applied in collection the necessary data.
 17

Data Analysis Tools

The presentation and analysis of the collected and managed data has been analyzed and
interpreted through analytical approaches, the overall presentation and analysis is in
descriptive.

Limitation of the Study

This Study particularly involves the financial performance and liquidity position of Miuktinath
Bikas Bank limited to examine overall performance in terms of at analysis, financial ratios and
preference analysis. So the limitations of the study is only concentrated to the liquidity position
of the organization The accuracy and reliability of findings will be based on the accuracy of
the figures and information in annual budget, reports and published doctments This study will
analyze only the data of 5 years from fiscal year 2073/074 to 2077/2078 B
 18

CHAPTER II
DATA PRESENTATION AND ANALYSIS

This chapter deals with presentation and analysis of data collected from different sources and
components The main purpose of this chapter is to convert all the raw data in to understandable
formit is process of collecting organizing summarizing, tabulating and presenting data into
various charts able and other forms here the data collected from various sources have been
analyzed to meet the various dimensions of the problems of study and major findings of the
study are presented systematically.

Data Presentation and Analysis

Mainly, he data for this research study is based on the annual report, websites of the Bank The
data collected from different sources has been refined and documented in excel label which are
further processed to analyze and draw a conclusion at the findings on financial condition of
MNBBL

Analysis of Liquidity position By Using Liquidity Ratio

In financial analysis ratio used index yardstick for is as or evaluating the financial position and
performance of an enterprise. Generally, ratio can be classified into the following major groups
functionally: liquidity ratio, leverage ratio turnover ratio and profitability ratio. Among this
ratio researcher select liquidity ratio for financial analysis. Liquidity ratios are the ratios that
provide the quick measure of the liquidity position on the ability of the firm to meet its short
term obligation. In other words liquidity ratio i the indicator of shot term solvency or financial
strength of the firm. The most frequently used ratio in these categories is current and the quick
ratios.

Current Ratio

The current ratio is balance-sheet financial performance measure of company liquidity. The
current ratio indicates a company's ability to meet short-term debt obligations. The current
ratio measures whether or not a firm bas enough resources to pay its debts of the next 12
 19

months. Potential creditors use this ratio in determining whether or not to make short-term
loans. The current ratio can also give a sense of the efficiency o the company's operating cycle
or its ability to turn its product into cash. The current ratio is calculated by dividing current
assets by current liabilities:

Current Assets
Current ratio = Current Liabilities

The current ratio of MNBBL for the study period is shown below table and figure:

Table 1

Current Ratio

Fiscal Year Current Assets Current liabilities Current Ratio (times)

2016/17 19760356400 6775223460 2.9

2017/18 34949337000 10354294000 3.08

2018/19 48536713616 14470704753 3.35

2019/20 58694049651 17310862701 3.34

2020/21 99867615237 20659861883 4.8

Noted from Annual Report of MNBBL.

The current ratio of 2018/17 i.e (2.9 times) is the lowest ratio but from the beginning year it
starts to follows increasing trend except in 2019/20 where current ratio is decreasing as
compare to 2018/19 and in 2020/21 it reaches to highest current ratio which is 4.8 times which
means the company has 4.8 times current assets than the current liabilities. For better financial
position bank has to set 2:1 ratio of current ratios. In Above all those five years has more than
2 times of current ratios so all 5 years are performing well and highly liquid stock and quality
debtors.
 20

Current Ratio
6

5 4.8

4
3.35 3.34
3.08
2.9
3

0
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 1: Current Ratio

The above figure shows the increasing trend from the beginning year which is positive trend
which means the current ratio of MBBL is in good situation. The bank has enough current
assets to pay current liabilities.

Quick Ratio

The term "Acid-test ratio" is also known an quick ratio, The most basic definition of acid-test
ratio is that, "it measures current (short term) liquidity and position of the company. To do the
analysis accountants weicht current assets of the company agamit the current liabilities which
result in the rutie that highlights the liquidity of the company. The formula for the Quick ratio
is:

Quick Assets
Current ratio = Current Liabilities

Table 2:

Quick Ratio

Fiscal Year Quick Assets Current liabilities Quick Ratio (times)

2016/17 17260356400 6775223460 2.5

2017/18 29349337000 10354294000 2.8
 21

2018/19 42736713616 14470704753 3.0

2019/20 48094049651 17310862701 2.8
2020/21 84067615237 20659861883 4.1
Noted from Annual Report of MNBBL.

The quick ratio in the beginning year 2016/17 is 2.5 times from 2017/18 to 2018/19 it’s quick
ratio follows increasing, trend it reaches to 3.0 times in 2018/19 and in 2019/20 it again
follows decreasing trend but in 2020/21 it follows increasing trend and reaches to highest
quick ratio in overall last four years. For better financial position bank has to set 1:1 ratio of
quick ratio where bank has set above in all 5 years so bank has better financial position on
quick ratio.

Quick Ratio
4.5
4.1
4.0
3.5
2.8 3.0
3.0 2.8
2.5
2.5
2.0
1.5
1.0
0.5
0.0
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 2: Quick ratio

The above figure shows the increasing trend from the beginning year which is positive trend
which means the current ratio of MNBBL is in good situation. The bank has enough Quick
assets which can easily changes into cash to pay the current liabilities.

Cash Ratio

Cash ratio (also called cash asset ratio) is the ratio of a company's cash and cash equivalent
assets to its total liabilities Cash ratio is a refinement of quick ratio and indicates the extent to
which easily available funds, can pay off current liabilities. Potential creditors use this ratio as
a measure of a company's liquidity and how easily 1 can service debt and cover short-term
 22

liabilities. Cash ratio is the most stringent and conservative of the three liquidity ratios (current,
quick and cash ratio). It only looks at the company's most liquid short-term assets- cash and
cash equivalents- which can be most easily used to pay off current bonds. Calculation (formula)
Cash ratio is calculated by two methods:

Cash to Current Assets.

An organization should have the cash balance to meet its commitments otherwise it should
have enough current assets (other than cash) that give a promise of cash to come. Cash to
current assets ratio of MNBBL for the Study Period is shown below.

Cash
Cash to Current Assets = Current Assets

Table 3

Cash to Current Assets

Fiscal Year Cash Current Assets Cash to Current Ratio (In Times)

2016/17 1816096770 19760356400 0.092

2017/18 2133016000 34949337000 0.061

2018/19 8526257061 48536713616 0.176

2019/20 6365102902 58694049651 0.108

2020/21 8199382567 99867615237 0.082

Noted from Annual Report of MNBBL.

The cash to current assets in the beginning year is 0.092 times than its current ratio , in the
next year 2017/18 it follows decreasing trends and reaches to lowest cash ratio with 0.061
times and from 2018/19 it follows increasing trend and reaches to highest in 2018/19 with
0.176 times of cash ratio . But in 2019/20 and 2020/21 it follows again decreasing trend and
in 2020/21 it reaches to 0.082 times of cash ratio on current assets.
 23

Cash to Current Ratio

0.200
0.176
0.180
0.160
0.140
0.120 0.108
0.100 0.092
0.082
0.080 0.061
0.060
0.040
0.020
0.000
2016/17 2017/18 2018/19 2019/20 2020/21

Cash to Current Ratio (In Times)

Figure 3: Cash Ratio to Current Assets.

According to above diagram 2075/076 has the highest cash ratio on current assets and in
2074/075 it has the lowest cash ratio on current assets among all the five years. Highest the
cash ratio means the company has high cash balance on their total current assets and lowest
the cash ratio means the company has low cash balance on their total current assets. Low cash
on bank means it has high on other forms of current assets like accounts receivable to pay off
its debts.

Cash to current Liability ratio.

Cash to current liabilities ratio, also known as the cash ratio, is a cash flow measure that compares
the firm’s most liquid assets to its short-term obligations. This ratio allows an investor or analyst to
understand the ability of a company to meet its short-term liabilities. It is calculated as and shown in
the below table and diagram:

Cash
Cash to Current Liabilities = Current Liabilities

Table 4:

Cash to Current Liabilities

Fiscal Year Cash Current liabilities Cash to Current Liabilities (In times)

2016/17 1816096770 6775223460 0.268

 24

2017/18 2133016000 10354294000 0.206

2018/19 8526257061 14470704753 0.589

2019/20 6365102902 17310862701 0.368

2020/21 8199382567 20659861883 0.397

Noted from Annual report of MNBBL.

Cash to Current Liabilities in the beginning year 2016/17 it has the 0.268 times of cash ratio
of current liabilities. But in 2074/075 it follows decreasing trend and reaches to lowest 0.206
times. But in 2018/19 it follows increasing trend and reaches to highest 0.589 times and again
in 2018/19 it follow decreasing trend and in 2018/19 it again follow increasing trend and
reaches to 0.397 times of cash to current liabilities.

Cash to Current Liabilities (In times)

0.700

0.600

0.500

0.400

0.300

0.200

0.100

0.000
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 4: Cash to Current Liabilities

In above figures, it shows the relationship of cash to current liabilities, in the beginning year
it follows the decreasing trend but in 2018/19 it follows increasing trend and reaches to
highest point and from 2019/20 it again follows decreasing trend , but in 2020/21 it again try
to increased. Here in 2017/18 has the lowest cash to current liabilities and in 2018/19 has the
highest cash to current liabilities. A high or increasing cash to current liabilities ratio implies
that the company is not struggling to pay off its short-term debts and vice versa. This ratio
makes more sense if it is benchmarked against its peer companies in the industry, and
usually, a higher ratio is preferred.
 25

Cash and Cash Balance to Current and Saving Deposit

The ratio shows the ability of banks’ immediate funds to cover their deposit. Higher the
ratio shows higher liquidity position and ability to cover the deposits and vice versa. The
ratio is computed by dividing and bank balance by current and saving deposits. Cash and
bank balance to current and saving deposits ratio.

𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝐵𝑎𝑛𝑘 𝐵𝑎𝑙𝑎𝑛𝑐𝑒

Cash and Cash Balance to Current and Saving Deposit Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 & 𝑆𝑎𝑣𝑖𝑛𝑔 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠

Table 5:

Cash and Cash Balance to Current and Saving Deposit Ratio

Fiscal year Cash Balance Current and Saving Deposit Ratio

2016/17 1816096770 7,839,894,836 0.232

2017/18 2133016000 12,235,864,725 0.174

2018/19 8526257061 16,419,869,251 0.519

2019/20 6365102902 18,785,416,705 0.339

2020/21 8199382567 27,468,594,439 0.299

Noted from Annual Report of MNBBL

The highest ratio is 0.519(51.9%) during the year 2016/17. The ratio shows decreasing trend
from 2019/20 to 2020/21 and reaches to 0.228 in 2020/21. The lowest Ratio is in 2017/18
(0.174).

However short-term liquidity position is affected in year 2017/18 ,2019/20 to 2020/21.

Highest ratio in the year 2018/19 indicates idle cash and bank balance with the bank. Such
idle cash and bank hurts profitability and financial performance of the bank. In 2020/21 and
2017/18 bank has less amount of cash. So , In 2020/21 bank has more utilized it’s amount in
2020/21.
 26

Cash to Current and Saving Deposit

0.600
0.519
0.500

0.400
0.339
0.299
0.300
0.232
0.200 0.174

0.100

0.000
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 5: Cash to Current and Saving Deposit

Fixed Deposit to Total deposit ratio

The ratio shows what percentage of total deposit has been collected in form of fixed 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. It is calculated as follows:

𝐹𝑖𝑥𝑒𝑑 𝐷𝑒𝑝𝑜𝑠𝑖𝑡
Fixed Deposit to Total Deposit ratio= 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡

Table 6:

Fixed Deposit to Total Deposit

Fiscal year Fixed Deposit Total deposit Ratio

2016/17 6,229,354,261 15,232,244,119 0.409

2017/18 12,468,336,177 27,092,752,663 0.460

2018/19 21,026,716,031 41,470,704,753 0.507

2019/20 32,281,545,793 57,310,862,701 0.563

2020/21 52,361,075,375 86,902,914,373 0.603

Noted from Annual report of MNBBL
 27

The lowest ratio is 0.409(40.9%) during the year 2016/17. The ratio then follows increasing
trend from 2017/18 (0.460) to 2020/21 (0.603). The ratio is highest in the last year 2020/21.

The trend indicates the portion of total deposit occupied by fixed deposit is in increasings
trend. The bank is able to lock funds in long term profitable investments.

Fixed Deposit to Total Deposit ratio

0.700
0.603
0.600 0.563
0.507
0.500 0.460
0.409
0.400

0.300

0.200

0.100

0.000
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 6: Fixed Deposit to Total Deposit Ratio

Other Ratios

Earning per Share(EPS):

It is obtained by dividing earning available to common shareholders by number of equities

shares out-standing.It is calculated as:

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑡𝑜 𝐶𝑜𝑚𝑚𝑜𝑛 𝑒𝑞𝑢𝑖𝑡𝑦

EPS= 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

Table 7:

Earning per Share (EPS)

Fiscal year EPS

2016/17 32.09
2017/18 22.2
2018/19 20.84
2019/20 16.56
2020/21 24.03
 28

Noted from Annual Report of MNBBL.

During the study of EPS, it is found that the EPS is in peak in the beginning year 2016/17 is
Rs.32.09. Afterward, it is continually decreasing during 2019/20. However, the trend is
increasing in 2020/21 and reaches to Rs.24.03 in 2020/21.

EPS
35 32.09

30
24.03
25 22.2
20.84
20
16.56
15

10

0
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 7: Earning per Share (EPS)

By the analysis of the figure 7, it is seen that EPS is continually decreasing. It reaches to
Rs.16.56 in 2019/20 from Rs.32.09 in the year 2016/17 which shows EPS to be in decreasing
trend But in 2020/21 it again starts to incraesed. The earnings of each shares of the bank is
starts to increased. Since, EPS in its absolute term reflects very less about liquidity position it
is better suited and used with PE ratio as shown in the next section.

Price-Earnings Ratio (P/E Ratio):

P/E ratio is widely used to evaluate the bank's performance as expected by investors. It
measures how the market is responding towards the earning performance of the concerned
institution. High ratio indicates greater expectation of the market towards the firm.

𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

P/E Ratio= 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

Table 8:

Price-Earnings Ratio (P/E Ratio):

 29

Fiscal year EPS MPS P/E Ratio

2016/17 32.09 971 30.26

2017/18 22.2 378 17.03

2018/19 20.84 370 17.75

2019/20 16.56 312 18.84

2020/21 24.03 657 27.34

Noted from Annual report of MNBBL.

The PE ratio is highest during the year 2017/17. The ratio decreases to `17.03 times in the
year 2017/18. After that, PE ratio starts to increases and reaches 27.34 times in the year
2020/21.

P/E Ratio
35.00
30.26
30.00 27.34

25.00

20.00 18.84
17.03 17.75

15.00

10.00

5.00

0.00
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 8: Price earnings Ratio (P/E Ratio)

The expectation of the market towards the bank is in decreasing trend during the second
years. People are willing to pay less in 2017/18 for each rupee value of the stock. However,
the expectation of market increases in the final year (2018/19 to 2020/21). It shows growth
potential of the bank and expectations of the market.

Major Findings of Study

The major findings of the study have been summarized below:

 The current ratio of 2016/17 i.e (2.9 times) is the lowest ratio but from the beginning
year it starts to follows increasing trend except in 2019/20 where current ratio is
 30

decreasing as compare to 2018/19 and in 2020/21 it reaches to highest current ratio

which is 4.8 times which means the company has 4.8 times current assets than the
current liabilities.
 The quick ratio in the beginning year 2016/17 is 2.5 times from 2017/18 to 2018/19 it’s
quick ratio follows increasing, trend and in 2017/18 it reaches to 3.0 times in 2018/19
and in 2019/20 it again follows decreasing trend but in 2020/21 it follows increasing
trend and reaches to highest quick ratio in overall last four years.
 The cash to current assets in the beginning year is 0.092 times than its current ratio , in
the next year 2017/18 it follows decreasing trends and reaches to lowest cash ratio with
0.061 times and from 2018/19 it follows increasing trend and reaches to highest in
2018/19 with 0.176 times of cash ratio . But in 2019/20 and 2020/21 it follows again
decreasing trend and in 2020/21 it reaches to 0.082 times of cash ratio on current assets.
 Cash to Current Liabilities in the beginning year 2016/17 it has the 0.268 times of cash
ratio of current liabilities. But in 2017/18 it follows decreasing trend and reaches to
lowest 0.206 times. But in 2018/19 it follows increasing trend and reaches to highest
0.589 times and again in 2019/20 it follow decreasing trend and in 2020/21 it again
follow increasing trend and reaches to 0.397 times of cash to current liabilities.
 The highest ratio of Cash to Current And Saving deposit is 0.519(51.9%) during the
year 2018/10. The ratio shows decreasing trend from 2019/20 to 2020/21 and reaches
to 0.228(22.8% in 2020/21. The lowest Ratio is in 2017/78 is 0.174 (17.4%). However
short-term liquidity position is affected in year 2017/18 ,2019/20 to 2020/21. Highest
ratio in the year 2018/19 indicates idle cash and bank balance with the bank. Such idle
cash and bank hurts profitability and financial performance of the bank. In 2020/21 and
2017/18 bank has less amount of cash.So , In 2020/21 bank has more utilized it’s
amount in 2020/21.
 The lowest ratio of Fixed Deposit to Total Deposit is 0.409(40.9%) during the year
2016/17. The ratio then follows increasing trend from 2017/18 (0.460) to 2020/21
(0.603). The ratio is highest in the last year 2077/078. The trend indicates the portion
of total deposit occupied by fixed deposit is in increasing trend. The bank is able to lock
funds in long term profitable investments.
 It is found that the EPS is in peak in the beginning year 2016/17 is Rs.32.09. Afterward,
it is continually decreasing during 2019/20. However, the trend is increasing in 2020/21
and reaches to Rs.24.03 in 2020/21.
 31

 The PE ratio is highest during the year 2016/17. The ratio decreases to `17.03 times in
the year 2017/18. After that, PE ratio starts to increases and reaches 27.34 times in the
year 2020/21.
 32

CHAPTER THREE
SUMMARY AND CONCLUSION
Summary
The research work entitled liquidity position of Muktinath Bikas Bank Limited. The research
work should have reached the destiny where we satisfy with the queries of research problems
which were specified in the statement of the problem in introductory chapter. To conduct the
research work, the researcher consulted mainly the secondary sources of data such as
documents published by concerned bank. Before presenting and analyzing the data, there was
also need to review of related books, prior research on the topic, obviously, it helped the
researcher to construct conceptual framework and to analyze and interpret the secondary data
according to objective set forth previously. Then the research work was analyzed and
interpreted by liquidity tools such as, liquidity ratios, EPS and PE ratio. In this way, the
researcher analyzed and presented the second chapter which was the main body of the research
work.

On the basis of data analysis and presentation, the researcher extracted some major findings. It
has been explained along with the data analysis and presentation. So, on the basis of major
findings the researcher reached in the conclusions keeping in the previously set objectives in
mind. To know the real liquidity position of the bank, the researcher observed and analyzed
the liquidity analysis of the bank for five years period. It is hoped that the liquidity position
analysis of the bank will give a rational result and represent the overall banking scenario in
terms of liquidity position.

Conclusion
 By analyzing the current ratio of MNBBL, we can see that it is in increasing trend. The
bank is maintains high current ratio. It indicates that bank has maintain its current ratios
with more than 2 times. Therefore, the performance of bank in terms of current ratio is
satisfactory over different periods.
 By analyzing the quick ratio of MNBBL, we can see that it is in increasing trend. The
bank has maintains high quick ratio. It indicates that bank has maintain its quick ratio
with more than it’s current liabilities. Therefore, the performance of bank in terms of
quick ratio is satisfactory over different periods.
 By analyzing the liquidity ratio of MNBBL, we can see that it is in fluctuating trend.
The bank is maintaining it’s liquidity position. It indicates short term liquidity risk to
 33

meet short term income, which in turn to profitability. Therefore, the performance of
bank in terms of liquidity is satisfactory over different periods.
 In terms of fixed deposit it increases slightly which indicates the bank is able to lock
funds in long term profitable investments. Therefore, the performance of bank is
satisfactory for long term investment is satisfactory .
 The EPS is gradually decreasing. However, the number of outstanding shares is
relatively similar over five years but there is fluctuation in net income of the bank. It
shows the company has to reduce fixed expenses to increase the net profit.
 By analysis of P/E ratio, the expectation of the market towards the bank is in
increasing trend from first three years. But from last two years it started to increase,
from 2019/20. Therefore, is shows growth potential of the bank and expectations of
the market is to raise.
 Report writing is very useful for reader to know about the liquidity position of
Muktinath Bikash Bank Limited. The analysis of the presented data will be helpful to
know the liquidiity strength of Muktinath Bikas Bank Limited. It is hope that it will
become the most suitable literature for future study.
 If in future same research is conducted, the researcher shall consider more ratios
which indicate the liquidity position of development bank.
 Through the current research, the investor can take decision about investment on
development bank.
 By above analysis, the shareholders will know about the current position of MNBBL
in terms of liquidity, EPS & PE ratio.
 The above research can be a reference to stakeholders to know about the current
condition of other development banks also.
 34

BIBLIOGRAPHY

Banking Operation Department Mid-October 2001, "Banking & financial statistic No.38",
Nepal Rastra Bank

Bhandari, D. R. (2003) Banking & Insurance (Principle & Practices), Kathmandu: Aayush
Publication.

Bhandari, D.R. & Rai, B. (2017). Business Research Methods. Kathmandu: Sukunda Pustak
Bhawan Publishers & Distributors.

Clausen.J (2019). Profitability Ratio Analysis of Income Statement. and Balance Sheet Ratio
Analysis.’American Journal of Company Profit Performance.
Dahal B. & Sarita, 2002 Dec, "A hand book of banking", 2nd edition Asmita Books and
Stationery.
J. S. & Shrestha H. P, (2058). "Principle of Banking and Insurance", Taleju Prakashan
Kathmandu.
Kyriaki & Constantin (2008). “A study on Financial performance of Commercial Banks and
Co-operative’. Greece Journal of Measurement of Bank Performance.
Natarajunetal (1980). ‘A study on Financial performance of cutomers in Andhara Pradesh’.
Indian Journal of Liquidity Management.

Pun S.(2018) ."A study on Liquidity position of Aastha Saving and Credit Co-operative’.
Indian Journal of Liquidity Management

Websites:

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

https://www.muktinathbank.com.np/

https://www.simplilearn.com/

https://www.nrb.org.np/
35