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CHAPTER I

INTRODUCTION

1.1 Background of the Study

Nepal Bank Ltd.(NBL) 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 the 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. NBL 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 at that time) felt
the need of separate institution or body to issue national currencies and promote financial
organization in the country.

NBL remained the only financial institution of the country until the foundation of Nepal
Rastra Bank in 1956 A.D. Due to the absence of the central bank. NBL had to play the role of
central bank. Hence, the Nepal Rastra Bank Act 1955 was formulated, which was approved
by Nepal Government accordingly, the NRB was established in 1956 A.D. as the central bank
of Nepal. NRB makes various guidelines for the banking sector of the country.

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

Banking plays significant role in the economic development of a country. Bank is a resource
for the economic development which maintains the self-confidence of various segments of
society and extends credit to the people. So, commercial banks are those financial institutions
mainly dealing with activities of the trade, commerce, industry and agriculture that seek
regular financial and other helps from them for growing and flourishing. The objective of
commercial banks is to mobilize idle resources into the most profitable sector after collecting
them from scattered sources. Commercial banks contribute significantly in the formation and
mobilization of internal capital and development effort.
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1.2 Profile of Sanima Bank Ltd.

Sanima, promoted by prominent and dynamic Non-Resident Nepalese (NRNs) Businessmen,

commenced its operation in 2004 as a National Level Development Bank. Since February
2012, Sanima has been functioning as an "A" Class Commercial Bank with its registered
office at 'Alakpuri', Naxal, Kathmandu.

Sanima Bank is committed to provide one window financial solutions to the different
customer segments and to achieve healthy growth in profitability consistent with the bank's
risk appetite. The Bank has been dedicated to maintain the highest level of ethical standards,
professional integrity, corporate governance and regulatory compliance. As a result, Sanima
is perceived as a Strong and Reliable player in the banking industry.

Sanima has been committed to meet customer expectations in all areas of its business through
continuous improvement for overall benefit of the economy.

Sanima Bank offers a wide range of banking products and financial services to corporate and
retail customer through 58 full-fledge branches from Mechi to Mahakali and one extension
counter.

1.3 Objective of the Study

Each and every research study posses a certain objective. Research without any specific
objective will be worthless. The objectives summarize what is to be achieved by the study.
The objective includes answers to research questions or testing the research hypothesis. This
research study entitled "Analysis of Credit Risk Management of Sanima Bank" highlights to
attempt the following objectives:

i. To determine the impact of deposit in liquidity and its effect on lending practices.
ii. To determine whether the bank deposits mobilizations and credit management
effective and efficient.
iii. To analyze how effectively is the credit policy of the chosen bank being followed.

1.4 Rationale

Lending is one of the main functions of Commercial bank where the whole banking business
is rested upon. Sanima Bank Ltd. plays significant role in lending procedures. This study has
proposed to measure the efficiency of bank in its lending procedures. This study adds new
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idea and findings about the concerned bank. This study no doubt will have importance to
various groups but in particular is directed to a certain groups of people/organizations, which
are:

i. This study will provide information to those who are planning to invest in Sanima
Bank Ltd.
ii. Important to the management bodies of the bank for the evaluation of the
performance of bank.
iii. Important to the government bodies or the policy makers such as the central bank.
iv. The study will help general public to know about the overall financial position of
Sanima Bank Ltd.

So, this study helps to identify its hidden strength and weakness of bank as well as regarding
financial and credit condition of bank. Likely after the completion, this report will be kept in
the library, which will play the role of reference to the students making the similar study in
future.

1.5 Review

Review of literature means reviewing research studies which include the current knowledge
including substantive findings, as well as theoretical and methodological contributions to a
particular topic. It is also the study of other relevant proposition in the related area of the
study so that all the past and previous studies, their conclusion and perspective of deficiency
may be known and further research can be conducted or done. Literature reviews are
secondary sources, and do not report new or original experimental work. It is an integral
mandatory process in research works. It is a crucial part of all dissertations. In other words,
it's just like fact finding based on sound theoretical framework oriented towards discovery of
relationship guided by experience, resonating and empirical investigation. The primary
purpose of literature review is to learn which helps researcher to find out what research
studies have been conducted in one's chosen field of study, and what remains to be done. For
review study, the researcher uses different books and journals, reviews and abstract, indexes,
reports and dissertation or research studies published by various institutions, encyclopedia
etc.

We study the review of literature dividing two headings:

 Conceptual Review
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 Review of Related Studies

1.5.1 Conceptual Review

Simply, Bank is a financial institution that accepts deposits and invests the amount in the
lending activities and also provides commercial services. In ancient times, the word 'Bank'
was emerged from Latin word 'Bancus', French word 'Banque' and Italian word 'Banca',
which means a 'Bench' where sitting over there to invest, exchange and keep record of money
and cash. These all functional activities are formed as current banking activities.

Different Authors and Economists have given some structural and functional definition on
Bank from different angles:

 "Bank is a financial intermediary institution which deals in loans and advances"…

Cairn Cross
 "Bank is and institution which collects idle money temporarily from the public and
lends to other people as per need"…R.P. Kent
 "Bank is such a financial institution which collects money in current savings or fixed
deposit account, collects cheques as deposits and pays money from the depositors'
account through cheques"…Sir John Pagette

The word 'Bank' refer as Central bank, Commercial bank, Development bank, Exchange
bank, Saving bank, Co-operative bank, Merchant bank, Housing bank, Equipment bank,
Infrastructure bank and Mutual fund etc. They provide financial as well as non-financial
services. It is the financial intermediary between depositors or lenders and withdrawal or
loaner. Bank plays a great role that helps investors to invest in different sectors by giving a
loan and providing other consultancy and agency services. Thus the word 'Bank' itself
provides huge sense of banking activity.

1.5.2 Review of Related Study

Credit risk is the major risk that banks are exposed to during the normal course of lending
and credit underwriting. Within Basel II, there are two approaches for credit risk
measurement: the standardized approach and the internal ratings based (IRB) approach. Due
to various inherent constraints of the Nepalese banking system, the standardized approach in
its simplified form, Simplified Standardized Approach has been prescribed in the initial phase
(SSA), NRB directives 2058/59.
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1.5.2.1 Review of Journal, Reports, Books and Articles

Duchassi, Shawk and Seagle (2006) in their article "A Knowledge-Engineered System for
Commercial Loan Decisions" have showed Commercial Loan Analysis Support System
(CLASS) in their article. This article describe an expert system, commercial loan analysis
support system (CLASS) is an expert system designed to evaluate a company's financial
posture, recommend commercial loan decision an pertinent components, and document loan
analysis. Like a loan officer, CLASS constituently synthetics a large number of detailed facts
into a loan recommendation. CLASS has been designed to seek out any potential weakness in
the prospective borrower and conduct an extensive detailed analysis of each weakness.
Weakness may be over analyzed but none will be overlooked. This approach is consistent
with the general notion in commercial lending that one is primarily concerned with
weaknesses instead of strong points which are taken for granted. In addition to the limited
validation conducted by the expert a more comprehensive validation can be implemented in
two ways. First, the system can be empirically tested with a large sample of historical loan
decisions. Second, filed test can be conducted in which loan officer use CLASS while making
actual loan decisions. Their judgments can be compared to those of CLASS at each step in
the analysis. By building CLASS, it was demonstrated that financial knowledge can be
represented and applied to a complex financial problem. It is hoped that the approach
described will pave the way for building expert systems that address other important financial
problems.

Singh and Singh (2009) has mentioned in the book entitled "Financial Analysis for Credit
Management in Banks" that the investment (credit) policies of bank are conditioned to great
extent by the national policy framework, every banker has to apply his own judgment for
arriving at a credit decision, keeping his bank's credit policy also in mind.

Gitman and Joehk (2008) in the book entitled "Fundamentals of Investing" compare the bank
investment with a vehicle. He says that it is a vehicle into which funds can be placed with the
expectation that will preserve of inverse in a value and generates positive results. A banker
seeks optimum combination of earning, liquidity and safety while formulating policy.

Bhandari (2006) has mentioned in the book entitled "Banking Management" that in banking
sector or transaction an unavailability of loan management and it's methodology is regarded
very important. Under this management man is regarded very important. Under this
management many subject matters are considered and thought for example there are subject
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matters like policy of loan, the condition of loan flow, the provision of security, the
documents of loan flow, loan administration, audit of loan, renewal of loan, the provision of
the payment of capital and it's interest and other such preocedures. This management plays a
vital role in healthy competitive activities. (Bhandari, 2006) yet another dubbed as: loan and
advances dominate the asset side of the Balance sheet at any bank. Similarly, earnings from
such loan and advance occupy a major space in income statement of the bank. Lending can
be said to be the vision of the bank. However, it is very important to be denuded that most of
the bank failures in the world are due to shrinkage in the value of loans and advances. Hence
risk of non-payment of loan is known as credit risk or default risk.

As inference from all these above stated authors it can be said that loan management refers to
systematic identification of needy one or required party (loan taker), verifying their
documents, pre and post disbursement inspection cum sound recovery of granted loan as far
as practicable.

1.5.3 Research Gap

The review of above literature has contributed to the fundamental understanding and
knowledge, which is required to make this study meaningful and purposeful. The past
researcher in measuring credit management of bank have focused on the limit ratio which are
incapable of solving the problems. Actually credit management is determined by various
factors. In this research various ratios are systematically analyzed and generalized. Past
researcher have not properly analyzed about lending and its impact on the profitability. In this
research all ratios are categorized according to their area and nature.

In this study of analysis of credit risk management of Sanima bank Ltd., ratio analysis, trend
analysis and various statistical tools as well as financial tools are used for analyzing data.
This study tries to define credit management by applying and analyzing various financial
tools like liquidity ratio, leverage ratio, profitability ratio and lending efficiency ratio as well
as different statistical tools like coefficient of variations, correlation and trend analysis.
Updating the five fiscal year data with new 2016/17 annual report and data should be
appropriate research in the area of credit management of bank and financial institutions.

1.6 Methods

The methods section describes actions to be taken to investigate a research problem and the
rationale for the application of specific procedures or techniques used to identify, select,
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process and analyze information applied to understanding the problem, thereby, allowing the
reader to critically evaluate a study's overall validity and reliability. The methodology section
of a research answers two main questions: How was the data collected or generated? And,
how was it analyzed? This research methodology has primary sought the evaluation of the
credit management and practices of Sanima Bank Ltd. Research methodology refer to a
various sequential steps. It describes research design, source of data and analysis of data.

1.6.1 Research Design

A research design is an overall framework or plan for the collection and analysis of data. The
research design serves as framework for the study, guiding the collection and analysis of the
data. Design sets up the framework for adequate tests of the reactions among variables. It
tells us about, what observations to make, how to make them and how to analyze the
quantitative representation of the observation. Specifically research deign describes the
general plan for collecting, analyzing and evaluating data after identifying.

The present study follows the descriptive as well as analytical design to meet the stated
objective of the study. The importance of the research is to analyze Sanima Bank Ltd. In
relation to credit disbursement and recovery as well as overall management. This research
followed descriptive research design.

1.6.2 Nature and Sources of Data

The source of data collection is basically secondary and the research is based on secondary
sources of data.

1.6.2.1 Secondary Source

This refers to data that are already used and gathered by others. Secondary data are mostly
used for this research purpose. So the major sources of secondary data are as follows:

 Annual Reports of Sanima Bank

 Internet and Websites
 NRB Directives
 Newspaper, Journals, Articles and various Magazines
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1.6.2.2 Population and Sample

During the study period, there are 28 commercial banks, 57 development banks and 36
finance companies into operation in Nepal (Nepal Rastra Bank, 2015). For this study, Sanima
Bank has been selected as a sample which is situated at Kathmandu region. Good relation
with Sanima Bank's staff member facilities easy for finding required data and information of
the bank branch is suitable and easily reachable which saves time and money.

1.6.2.3 Data Collection Procedure

The annual report of Sanima Bank Ltd. from their websites is taken as the main source of
data collection for the purpose of report study. NRB publications such as economic report,
banking and financial statistics, annual reports, directives etc. are used. Other main sources
are NRB websites, newspapers, report reference, internet, Nepal share market, etc. Most of
the data are obtained from the above source.

1.6.2.4 Tools used for Data Analysis

For the purpose of the study, all data collected are arranged, tabulated under various heads
and then after statistical analysis have been carried out to enlighten the study. Mainly
financial methods are applied for the purpose of the study. Appropriate statistical tools are
used. To make the study more specific and reliable, two types of tools are used for analysis:

i. Financial Tools
ii. Statistical Tools

i) Financial Tools

Stakeholders of a business firm perform several types of analysis on a bank's financial

statements. All of these analysis rely on comparisons or relationship of data that enhance the
utility or practical value of accounting information. Financial statement analysis is a complex
process, but it can be approached systematically. Here the various elements of ratio analysis
are presented:

Ratio Analysis
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A ratio analysis is a quantitative analysis of information contained in a company's financial

statements. Ratio analysis is used to evaluate various aspects of a company's operating and
financial performance such as efficiency, liquidity, profitability and solvency.
ii) Statistical Tools
For supporting the study, statistical tools such as Mean, Standard Deviation, Coefficient of
Variation, Correlation and diagrammatic cum pictorial tools have been used.
a. Arithmetic Mean
The arithmetic mean (or mean or average) is the most commonly used and readily understood
measure of central tendency. The arithmetic mean is defined as being equal to the sum of the
numerical values of each and every observation divided by the total number of observations.
Arithmetic mean represents the entire data by a single value. It provides the gist and gives the
birds' eye view of the huge mass of a widely numerical data. It is calculated as:
n
1
X = ∑ Xi
n i=1
Where:
X = mean volume or arithmetic mean
n

∑ X i = sum of the observation

i=1

n = number of observation
b. Coefficient of Variation (C.V.)
The coefficient of variation measures the relative measure of dispersion, hence capable to
compare two variables independently in terms of variability.
σ
C.V. = × 100
x
σ = Standard Deviation

x = sum of the observation

1.7 Limitations

The study has been subjected to the following limitations:

a) There are many factors that affect profitability and valuation of the financial institutions.
However, this study will concentrate only on the factors that are related with loan and
advances.
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b) Mostly, secondary data analyzed are only of a period of 5 years trend is considered i.e.
from 2012/13 to 2015/16. Hence the conclusion drawn confines only to the above period.
c) The study is based on secondary data obtained from various sources. The reliability of
analysis depends on the reliability of the data.
d) This report will prepare for the partial fulfillment of BBS.

CHAPTER II
RESULTS AND ANALYSIS

This chapter is focused with the analysis, presentation, interpretation and major findings of
relevant data of Sanima Bank Ltd. in order to fulfill the objectives of research study.
To obtain better result, the data's have been analyzed according to the research methodology
as mentioned in first chapter. The main purpose of this chapter is to introduce the mechanics
of data analysis and interpretation. With the help of this analysis, efforts have been made to
highlight credit management of Sanima Bank as well as other cases or problems also. For
analysis, different types of analytical methods and tools such as financial ratio analysis as
well as statistical analysis are used. This chapter deals with the various aspects of credit
management such as financial ratios, impact of deposit in liquidity, priority sector lending,
lending efficiency, correlation and trend analysis.
2.1 Presentation of data in table and figure and their analysis
2.1.1 Financial Statement Analysis
Financial analysis is done by applying various financial tools in order to clear picture on the
viability of the project. The financial analysis is done to ascertain the liquidity, profitability,
leverage, debt servicing and interest servicing ability of the firm. The concept of financial
statement analysis has been already discussed in previous chapter. Here, we study and
analyze the data by using accounting tools.
2.1.1.1 Assets Management Ratio
Asset management means manage or utilization of all about asset. It is also known as
turnover or efficiency ratio or assets management ratio. It measures how efficiently the firm
employs the assets. Turnover means, how much number of times the assets flow through a
firm's operations and into sales greater rate of turnover or conversion indicates more
efficiency of a firm in managing and utilizing its assets, being other things equal. There are
some ratios examined under.
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i) Credit and Advances to Fixed Deposit Ratio

Credit and advances clearly state that it is the assets of the bank an fixed deposit is the
liability. It is also known as loan and advance ratio. So, this is the ratio between assets and
liability. This helps to show the ratio of Loan and advances to fixed deposit. We can also
conclude that what part of credit and advances is initiated against fixed deposit.
Credit∧ Advances
Credit & advances to fixed deposit =
¿ Deposit
Table No. 1
Credit and Advances to Fixed Deposit Ratio
(Amount in 1000 Millions)

Year Credit and advances Fixed Deposit Ratio(Times)

2013/14 15.52 9.24 1.67965

2014/15 20.62 9.44 2.18432
2015/16 28.59 11.71 2.44150
2016/17 40.90 12.65 3.23320
2017/18 51.84 24.33 2.13070
Mean 2.33387
Source: Annual Report of Sanima Bank

From the above table it is visualized that credit and advances to fixed deposit ratios are
increasing and decreasing trend in overall. The ratio of credit and advances to fixed deposit
ratio of Sanima bank in 203/14 is1.67965 after that the ratio increased to 2.18432 times in
2014/15. The increasing trend continued till 2016/17 to 3.23320 and then decreased to
2.13070 times in 2017/18. The mean average ratio is 2.33387 times at research period. Credit
and advances to fixed deposit ratio is represented in figure as follow:
Figure No.1
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ii) Credit and Advances to Total Deposit Ratio

Credit and advances is the investing activities of the bank and total deposit is the deposit
amount of the bank collected from its customers or depositors. So, we are trying to find out
the ratio between credit and advances to total deposit. This ratio measures the extent to which
the bank is successful to manage its total deposit on loan and advances for the purpose of
income generation. A high ratio indicates better mobilization of collected deposit and vice-
versa. However, it should be noted that too high ratio might not be better from liquidity point
of view.

Credit∧ Advances
Credit & Advances to total deposit ratio =
Total deposit

Table No.2

Credit and Advances to Total Deposit Ratio

(Amount in 1000 Millions)

Year Credit and advances Total Deposit Ratio(Times)

2013/14 15.52 17.79 0.87240

2014/15 20.62 24.87 0.82911
2015/16 28.59 34.05 0.83964
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2016/17 40.90 46.42 0.88108

2017/18 51.84 58.23 0.89026
Mean 0.86249
Source: Annual Report of Sanima Bank
Above table shows that the total loan advances to total deposit ratio of Sanima back is
constant not more fluctuating trend. The highest ratio is 0.89026 times in year 2017/18 and
lowest ratio is 0.82911 times in year 2014/15. The average mean ratio is 0.89026 times in the
study period. This means the bank is able to proper mobilize the collected deposits. So all of
the year, the bank tries to meet the NRB requirements or it has to utilize it's deposit to
provide loan. This means that credit management is in good position of the bank. Loan
advances and total deposit are presented in the line figure.

Figure No.2

iii)Credit and Advances to Total Assets Ratio

Credit and advances to total assets ratio is determined to find out the relationship between
credit & advances to total assets. Credit and advances is the part of total assets. This ratio
helps to find out that how much proportion of credit & advances to total assets.
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Credit∧ Advances
Credit & Advances to Total Assets = ×100 %
Total Assets

Table No.3
Credit and Advances to Total Assets Ratio
(Amount in 1000 millions)

Year Credit and Total Ratio(Times Ratio (%)

advances Assets )
2013/14 15.52 21.98 0.70609 70.61
2014/15 20.62 29.38 0.70183 70.18
2015/16 28.59 40.30 0.70942 70.94
2016/17 40.90 55.96 0.73088 73.09
2017/18 51.84 69.99 0.74067 74.07
Mean 71.78%
Sources: Annual Report of Sanima Bank
From the above table it shows that Sanima Bank has generally mixed or fluctuating trends of
credit and advances to total assets ratio under the study period. The ratios are 70.61%,
70.18%, 70.94%, 73.09% and 74.07% in their respective years. The highest ratio is 74.07% in
the year 2017/18 and the lowest ratio is 70.18% in year 2014/15. The average mean ratio is
71.78% at the time of study. It shows that the bank has capability in utilizing total assets in
the form of credit and advances. Consistency in the utilization of assets in the form of credit
and advances is satisfactory because the fluctuation of the ratio is minimum. Loan and
advances to total assets ratio is represented in figure as below.

Figure No. 3
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2.1.1.2 Leverage Ratio

These ratios are also called capital structure ratio or solvency ratio. These ratios indicate mix
of funds provided by owners and lenders. As a general rule, there should be an appropriate
mix of debt and owner's equity in financing the firm's assets. To judge the long-term financial
position of the firm, leverage ratios are calculated. This ratio highlights the long-term
financial health, debt servicing capacity, strength and weaknesses of the firm. Following
ratios are included under these leverage ratios:

i) Total Debt to Equity Ratio

Total debt is the liability of the firm and it is payable toward its creditors. Debt includes the
value of deposits from customers, loan & advances payable, bills payable and other liabilities.
Equity is the share capital and reserve of the firm. This ratio shows the comparison in
between total debt and equity.
Total debt = Debentures & Bonds + Borrowings + Deposits + Bills Payable + Proposed &
Undistributed Dividends + Income Tax Liabilities
Total Equity = Share Capital + Reserve and Surplus

Total Debt
Total debt equity ratio =
Equity
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Table No. 4

Total Debt to Equity Ratio

(Amount in Millions)

Year Total Debt Total Equity Ratio (Times)

2013/14 19553 2424 8.06642
2014/15 26544 2833 9.36957
2015/16 36871 3430 10.74956
2016/17 50534 5357 9.43327
2017/18 60935 9060 6.72572
Mean 8.86891
Source: Annual Report of Sanima Bank
Above table shows Debt to total equity ratio is in increasing trend till 2014/15 and in
decreasing trend from them onwards till the study period of 2017/18. The ratios are 8.06642,
9.36957, 10.74956, 9.43327 and 6.72572 times in the year 2013/14, 2014/15, 2015/16,
2016/17 and 2017/18 respectively. The average mean ratio is 8.86891 times. Excess amount
of debt capital structure results heavy burden in payment of interest. Risk of liquidation
increase if the debt cannot be repay in time. High earnings ratio nay provide high return to the
equity shareholders if the bank makes profit. Ratio is represented in figure below.

Figure No.4
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ii) Total Debt to Total Assets

A metric used to measure a company's financial risk by determining how much of the
company's assets have been financed by debt. Calculated by adding short-term and long-term
debt and then dividing by the company total assets. In general, creditors prefer a low debt
ratio & owner prefer a high debt ratio to magnify their earning on one hand and to maintain
their concerned control over the firm on the other hand.
Total Debt
Total debt to Total Assets Ratio =
Total Assets

Table No.5

Total Debt to Total Assets Ratio

(Amount in 1000 millions)

Year Total Debt Total Assets Ratio(Times)

2013/14 19.553 21.98 0.88958
2014/15 26.544 29.38 0.90347
2015/16 36.871 40.30 0.91491
2016/17 50.534 55.96 0.90304
2017/18 60.935 69.99 0.87062
Mean 0.89632
Source: Annual Report of Sanima Bank
In the above table the ratios are found as 0.88958, 0.90347, 0.91491, 0.90304 and 0.87062
times from 1st to 5th year of the study periods 2013/14 to 2017/18 respectively. The average
mean ratio in 5 years research period is 0.89632 times. It means almost 8% of total assets is
financed by the outsider’s finds. Ratio is represented in figured as below.

Figure No. 5
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iii) Total Assets to Total Book Net Worth Ratio

The ratio is calculated to find out the proportion of owner's fund to finance for the total
assets. Total assets comprises of the total value of the asset side of balance sheet where as net
worth is the sum of the paid-up capital plus reserve and retained of the bank. It is calculated
to see the amount of assets financed by net worth.

2.2 Major Findings

 Credit and advances to fixed deposit ratio of Sanima is fluctuating trend. The average
mean ratio is 2.33 times during the study period. Credit and advances to total deposit
ratio is little fluctuating trend. The mean ratio is 0.86 times during the study period.
Similarly, credit and advance to total assets ratio is also in fluctuating trend. The
average mean ratio percentage is 71.78% during the study period. The ratio indicates
the high contribution made by lending and investing activities. Thus, credit
management is in good position.
 The debt to equity ratio of Sanima Bank is in fluctuating trend during the study
period. The average mean ratio is 8.86891 times. Excess amount of debt capital
structure results heavy burden in payment of interest. Risk of liquidation increase if
the debt cannot be repay in the time.
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 The debt to assets ratio of Sanima is low or in other words they have not excessively
geared capital structure. On an average 8% of assets are financed through debt capital
that is outsiders cost bearing fund, which implies that the bank has low riskier debt
financing position. Total asset to net worth of Sanima Bank is in fluctuating trend.
The average mean ratio is 11.04 times at the study period. It is in good company.
 Profitability ratios are very helpful to measure the overall efficiency in operation of a
financial institution.
 Operating profit to loan and advances ratio of Sanima Bank is in increasing trend. The
average mean ratio percentage over the study period is 3.99%. This shows the better
profitability position of the bank.
 Return on loan and advance ratio of Sanima Bank is also in increasing trend during
the study period. It indicates contribution in return is increasing by loan and advance.
The average mean ratio percentage is 2.24%. This shows the normal earning capacity
of Sanima Bank in loan and advances.
 Loan loss provision to total loan advances ratio of Sanima Bank is in fluctuating
trend. The mean ratio percentage is 0.36% during the study period. This shows that
good quality of assets in total volume of loan and advances. It indicates aggregate
loan of banks are safe. Thus, credit management is in good position. So, the bank has
met and maintained the NRB requirement in all year.

CHAPTER III

SUMMARY AND CONCLUSIONS

The research is about the Analysis of Credit Risk Management of Sanima Bank. In this
chapter, summary conclusion and recommendations are included. All the summary and
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conclusions are made accordingly from obtained data from analysis. Recommendation has
made which would be beneficial for the management of the bank and other stakeholders.

3.1 Summary

These findings may be useful for them who are concerned directly or indirectly with the
credit management of the bank especially reference to Sanima Bank. On the basis of above
analysis and findings of the study, following suggestions and recommendations can be drawn
out:

 Cash and bank balance of Sanima Bank is high. Banks efficiency should be increased
to satisfy the demand of depositor as low level of cash and bank balance does not
provide return to the bank. Therefore some percentage of the cash and bank balance
should be invested in profitable sectors.
 Bank is suggested to make policy to ensure rapid identification of delinquent loans.
Bank should make immediate follow-up of loan until it is recovered. The recovery of
loan is very challenging as well as important part of the bank. Therefore bank must be
careful to strengthen credit collection policy.
 NRB recommended following NRB directives which will help to reduce credit risk
arising from defaulter, lack of proper credit appraisal, defaulter by block-listed
borrowers and professional defaulter. Government has established credit information
bureau, which will provide suggestion to commercial bank. So, Sanima is suggested
to collect as much information about borrowers and only lend to non-risky area and to
non-defaulter.
 Sanima Bank should be fulfilling some social obligations by extending their resources
to rural areas and promoting the development of poor and disadvantages group. In
order to do so, they should open their branches in the remote areas with the objective
to provide the banking services. The minimum deposit amounts should be reduced.
 The economic liberalization policy adopted by Nepal Government has created an
environment of cutthroat competition in the banking sectors. In this context, Sanima
Bank is suggested to formulate strategies to minimize their operational expenses to
meet required level of profitability.
 According to NRB directives, all the commercial banks should increase the capital up
to Rs. 8000 million. Sanima have met the required capital as by the NRB directives.

3.2 Conclusion
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The study is conducted on Analysis of Credit Risk Management of Sanima Bank Ltd., which
is one of the leading commercial banks of Nepal. Sanima has been maintaining a steady
growth rate over this period. Sanima has earned a net profit of Rs.1304.10 million for the
fiscal year 2017/18 and this comes to be significant increase as compared to the same period
in the previous fiscal year. Sanima earned an operating profit of Rs.2040.62 million for the
fiscal year 2017/18 and this comes to be 72.37% more as compared to the same period in the
previous fiscal year. Similarly, total deposit is Rs.58228.49 millions for the fiscal year
2017/18 and this comes to 79.73% more as compared to the same period in the previous
fiscal year. Similarly, total loan is Rs.51843 millions which is increased by 78.89% compared
to previous fiscal year.

Loan loss provision to total loans and advances ratio of Sanima Bank is in fluctuating trend.
This shows the good quality of assets in total volume of loans and advances. Ratio in
decreasing trend indicates that the bank is decreasing the non-performing loan from total
loan.

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Websites:

 www.google.com
 www.nrb.org.np
 www.sanimabank.com