AN ANALYSIS OF CAPITAL STRUCTURE OF LAXMI

BANK LIMITED

A RESEARCH PROPOSAL

Submitted by:
NAMITA KOIRALA
Premier College
T.U. Regd.No.
Symbol No:

Submitted to:
The Faculty of Management
Tribhuvan University
Kathmandu

In partial fulfillment of the requirement for the degree of

Bachelor of Business Studies (BBS)

Kathmandu, Nepal
December, 2022

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 TRIBHUVAN UNIVERSITY

Faculty of Management
Premier College

DECLARATION

I hereby, declare that the research proposal entitled “A study on analysis of credit
management of Laxmi Bank Limited” submitted to Office of the Dean, Faculty of
Management, Tribhuvan University, is my original work done in the form of partial
fulfillment of the requirement for the Bachelor of Business Studies (BBS) under the
supervision of Mr. Suresh Bhandari of Premier College, Kathmandu. This proposal
has not been submitted to any other university or institutions for the award of any
degree or diploma.

…………..…….………………………
Namita koirala
Researcher
T.U. Regd.No.
Symbol No.

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Modern banking is an essential
industry that operates within
the periphery of national as
well
as the international financial
system. Financial systems
allow funds to be allocated,
invested,
or moved between economic
sectors. The health of
national as well as global
economy
largely depends on a highly
regulated financial system.
Banking as a vital section of
such
system, Rose (2002) mentioned
that it is one of the most
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heavily regulated businesses in
the
world. Therefore, many
authors use to argue that no
institution has shaped the
economic
development of the world more
than the bank.
Reviewing the financial
literature it can be arg
Modern banking is an essential
industry that operates within
the periphery of national as
well
as the international financial
system. Financial systems
allow funds to be allocated,
invested,
4
or moved between economic
sectors. The health of
national as well as global
economy
largely depends on a highly
regulated financial system.
Banking as a vital section of
such
system, Rose (2002) mentioned
that it is one of the most
heavily regulated businesses in
the
world. Therefore, many
authors use to argue that no
institution has shaped the
economic
development of the world more
than the bank.
5
 Reviewing the financial
literature it can be arg
INTRODUCTION

1.1 Background of the study

The word bank was derived from the Italian word “Banco” which means
accumulation of money and stock. Bank was originated from Italy. The Bank of
Venice was the first bank in the history of banking which was established in 1157
A.D and The Bank of Barcelona Spain was the second bank which was established in
1404 A.D. As well as the Institutional development of modern banking in Nepal had
begun from early 1990s. With the establishment of Nepal Bank Limited in 1994 B.S,
the new era of banking sector had started in Nepal. Nepal Rastra Bank, as a Central
Bank was established in 2013 B.S with the objectives of helping in the development
of monetary and financial sector by undertaking various functions. In Nepal, the
commercial banking industry alone occupies 65 percent of the financial system’s total
assets in Nepal. There are 27 Commercial Bank along with 18 Development Bank and
15 Finance Companies in Nepal.

Banks are the financial institution which accepts deposits, makes business loans, and
offers different services to the customer. Banks also allow for a variety of deposit
accounts, such as checking, savings, and time deposits. Banking institutions are run to
make a profit and owned by a group of individuals. Banks offers the public both
deposit and credit services, such as investment advice, security underwriting, selling
insurance, and financial planning. Financial activities are run by banks so that their
activities should be focused on interest of customers. Banks are more focused toward
profit because it is only possible after delivery of quality service to the customers.

Capital Structure plays vital role to increase the profitability, to ensure the minimum
cost of capital and the maximum return to equity holder. Capital Structure is the
composition of debt and equity that comprise a firm’s financing of its assets. It is

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important in accelerating the economic growth of nation, which in turns in basically
determined, among others by saving and investment propensities. The capital
structure decision affects the total value of the firm. The proper balance between debt
and equity is necessary to ensure a tradeoff between risk and return to the
shareholders. The capital structure of the bank should be such that leads to the value
maximization. . The optimal capital structure, i.e. the capital structure with reasonable
proportion of debt and equity minimizes the opportunity cost of capital and
maximizes the shareholders' wealth.

1.2 Statement of the problem

Bank plays a significant role in the economic development of the country by

extending credit to the people. Although banking industry in Nepal is making
remarkable progress and growth. It's not without the problems. Optimal capital
structure plays vital role in every organization. There has been question about effects
of the capital structure on the growth of the firm and the extent to which the capital
structure policy is followed by the banks. The study concluded that banks are using
high percentage of total debt in raising the assets and all the banks are able to pay the
interest.

An optimal capital structure would fulfill the interest of equity shareholder and
financing requirement of a company as well as other concerned groups. Some experts
studied the impact of Capital Structure on value of a Firm to examine the
interrelationship between the objectives of achieving an optimal capital structure. The
success and prosperity of a bank relies heavily on maximization of the wealth of the
shareholders or return on equity. The combination of debt and equity used in the
capital structure is not proportionate which in turn affects the value maximization of
the bank. Therefore, it is necessary to analyze the ‘Capital Structure’ of the Laxmi
bank to make the balance between debt and equity. Thus this study addresses the
problem raised by dealing with the following issues:

i) Whether the capital structure affects the growth of Laxmi bank or not?
ii) To what extent the capital structure policy is followed by the Laxmi Bank?
iii) What are the main problems faced by the Laxmi Bank in developing and
implementing the capital structure policy?
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iv) What is the structure and pattern of capital structure in Laxmi Bank?

1.3 Objectives of the study

The general objective of the study is to assess the impact of capital structure of
Laxmi Bank Limited. The study involved the financial data of Laxmi Bank to
evaluate, compare and examine their capital structure. The specific objectives are
as follows:
i) To analyze the structure and pattern of capital structure in Laxmi Bank.
ii) To analyze the effects of capital structure on the growth of the Laxmi
Bank.
iii) To examine the relationship of capital structure with variables such as
earning per share, dividend per share, and net worth.
iv) To investigate the relationship of capital structure variables.

1.4 Rational of the study

Laxmi Bank was incorporated in April 2002 as the 16th commercial bank in
Nepal. The head office of Laxmi Bank is located at Hattisar, Kathmandu, Nepal.
Laxmi Bank has a paid up capital base of NPR 610M, which is currently one of
the largest amongst commercial banks in Nepal. This study aims to analyze the
impact of debt and equity of Laxmi Bank Limited. Therefore, this study is
expected to provide the empirical evidence about the impact of capital structure.

It provides the applicable and practical understanding to anyone who wishes to

understand the important dimension of capital structure. This study especially will
be beneficial to the bank in order to determine the optimal capital structure. This
study contributes the useful information to the shareholders, promoters,
management, regulators and other stakeholders of banks. This study helps the
companies and stakeholders to allocate their funds effectively. Furthermore, the

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 study will also be relevant to the upcoming researcher to investigate the impact of
capital structure.

1.5 Research Methodology

1.5.1 Research Design

Research design is the framework of research methods and techniques chosen by a
researcher to conduct a study. The design allows researchers to sharpen the
research method suitable for the subject matter and set up their studies for success.

This study will employ descriptive and casual comparative research designs. The
descriptive research design will be adopted for fact-finding and adequate
information gathering about the fundamentals issues associated with capital
structure variables of Laxmi Bank. It explains the real and actual conditions,
situations and facts.
This study will also adopt casual comparative research design to establish the
cause and effect of capital structure of Laxmi Bank.

1.5.2 Population and Sample

There are altogether 26 commercial banks functioning all over the kingdom and
most of their stocks are traded actively in stock market. In this study, the capital
structure of Laxmi Bank is selected from population as a sample.
The population is as follows:
i) Nepal Bank Limited
ii) Agriculture Development Bank Ltd.
iii) Nabil Bank Ltd.
iv) Nepal Investment Bank Ltd.
v) Standard Chartered Bank Nepal Ltd.
vi) Himalayan Bank Ltd.
vii) Nepal SBI Bank Ltd.
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viii) Everest Bank Ltd.
ix) Kumari Bank Ltd.
x) Laxmi Bank Ltd.
xi) Citizens Bank International Ltd.
xii) Prime Commercial Bank Ltd.
xiii) Sunrise Bank Ltd.
xiv) Century Commercial Bank Ltd.
xv) Sanima Bank Ltd.
xvi) Machhapuchhre Bank Ltd.
xvii) NIC Asia Bank Ltd.
xviii) Global IME Bank Ltd.
xix) NMB Bank Ltd.
xx) Prabhu Bank Ltd.
xxi) Siddhartha Bank Ltd.
xxii) Bank of Kathmandu Ltd.
xxiii) Civil Bank Ltd.
xxiv) Nepal Credit and Commerce Bank Ltd.
xxv) Rastriya Banijya Bank Ltd.
xxvi) Mega Bank Nepal Ltd.

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