A STUDY ON PROFITABILITY ANALYSIS

OF
NABIL BANK LIMITED

A Project Work Report Proposal

Submitted By
SANDESH BHANDARI
Group: Finance
T.U. Registered No.: 7-2-920-121-2016
Danfe College

Submitted To
The Faculty of Management
Tribhuvan University
Kathmandu

In partial Fulfillment of the Requirements for the Degree

Of
Bachelor of Business Studies (BBS)
Kathmandu, Nepal
January, 2020
1. INTRODUCTION..................................................................................................3
1.1 Meaning of Bank.............................................................................................3
1.2 Background of Study.......................................................................................3
1.3 Profile of Organization....................................................................................4
1.4 Objectives of Study.........................................................................................4
1.5 Statement of Problem......................................................................................5
1.6 Rationale of Study...........................................................................................6
1.7 Review of Literature........................................................................................6
1.8 Organization of the Study................................................................................7
1.9 Methods of Study............................................................................................7
1.10 Limitations of Study....................................................................................8
2. RATIO & ANALYSIS...........................................................................................9
2.1 Data Presentation.............................................................................................9
2.2 Ratio Analysis.................................................................................................9
2.3 Types and Purpose of Ratios.........................................................................10
2.4 Profitability Ratios.........................................................................................10
2.5 References.....................................................................................................12

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 CHAPTER -1

1. INTRODUCTION
1.1 Meaning of Bank
The term 'Bank' is derived from Italian word 'Banko' which means a counter table or
bench used by medieval money exchanges. According to oxford dictionary bank
means "an establishment for keeping money and valuable safety of the money being
paid out on the customer order by means of cheque.
To sum up, banks accumulate idle money from general public by providing attractive
sound interest rate in their deposits and disburse the collected deposits as loan to
business, organization, Agricultural sector, Industrial sectors and needy people, etc.
So, we can say that main task of commercial bank is to mobilize resource in
productive area by collecting it from scattered sources and generating profit.
The history of banking dates bank to sixteenth century. However in Nepal formal
banking system was introduced only on Kartik 30th 1994 was the establishment of
Nepal Bank Limited, which is regarded as pioneer Institution of modern banking
system and served as a role financial institution of country for nearly two decades
prior to establishment of this bank, the banking needs of people were fulfilled to
certain extent only by organized financial institution the "Tejartha Adda".. Nepal
Rastra Bank (NRB) came into existence in April 26th 1956 as country's central bank.
After this NRB diverted its attention towards the development of banking system by
formulating relevant policies and procedures in this commotion commercial bank act
1963 was formulated, credit control regulation too was formulated hence, further
shouldering the banking services. The Rastriya Banijya Bank (RBB) was established
in 1966 under RBB Act 1964 with fully government owned commercial bank.

1.2 Background of Study

Profitability indicates an ability of a company to use its resources in an effective way
to generate revenue in excess of its expenses. In other words, it is a company’s
capability of generating profits by involving in its operating activities. Profitability
analysis plays a dominant role in the decision making process by the top level
management. Profitability is one of the four building blocks for analyzing financial
statements and company’s performance as a whole while the other three are
efficiency, solvency, and market prospects.
Profitability analysis is widely used by investors, creditors, debtors, management and
other persons who want to learn about the financial performance of the organization.
Management uses this analysis to make various decisions and investors use this
analysis to decide whether or not to make investment in the organization. Similarly,
Creditors use this analysis to know if the organization will be able to settle the amount

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lent on time or not. Therefore, the study is conducted to analyze the profitability of
Nabil Bank Limited with reference to its financial statements. This reference will look
at the relevant factor of financial performance of Nabil Bank Limited.

1.3 Profile of Organization

27 years ago, Nabil pioneered professionalism in the banking industry in Nepal giving
it a drive. Doubtless, there were banks in Nepal but a customer focused approach and
philosophy commenced with Nabil. It set up a marketing department establishing an
example that it cares for its customers. Till then the practice was that the customers
had to satisfy bankers and with Nabil’s advent in the industry it took a new
turnaround. The banker has to delight the customer first, not the other way around.
That is how Nabil pillared its corporate culture over two and half decades ago. Now it
proceed with the same culture, and now it is called as Nabil Culture. Nab Culture
stands for Nabil’s core values. Nabil’s core values drive all its stakeholders to team up
and work to co-create values through collaborative endeavors in the common interests
of all. Nabil commenced operation in Nepal on the 12th of July 1984 partnering with
Dubai Bank Ltd., through a Technical Service Agreement. Looking back upon a long
stretch of time it has had a series of achievements to glory in. Difficulties and crises
were there, unsurprisingly, yet Nabil saw a sea of opportunities and worked to cash in
on them. Our inexorable endeavors and a clear vision seasoned and capacitated us to
plough through some of the most testing moments.
NABIL Bank Ltd. is the Nepal’s first ever joint venture bank that initiated its
operation on 12th July 1984. Nepal bank (international) limited Ireland was its joint
venture partner at that time. It also received management support from national bank
of Bangladesh, Dhaka at the time of inauguration. Its authorized capital used to have
only NPR.100 million at the starting time. Now it has ascended its capital to NPR 9
billion. NABIL provides different services like ATM, credit cards, tele-banking
services, e-banking services, safe deposit locker services from 79 branches and 132
ATMs booth across the country. Besides these services NABIL is the only bank to
maneuver inside the international airport of arrival and departure of cargoes.

1.4 Objectives of Study

The main objective of the study is to analyze financial performance and profitability
of this bank through the use of different ratios other objective of this study are as
following:-
 To learn about how effectively Nabil Bank has been able to generate
profit in various years.
 To learn about the trend of profitability of Nabil Bank Ltd.
 To know about the Earning per Share along with comparison of EPS
ratio with the past and to know the trend of EPS.

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  To learn whether Nabil Bank has been able to pay the dividend to its
shareholders effectively on yearly basis or not. If yes, whether the
Dividend Payout Ratio is increasing or decreasing and its trend.
 To make necessary suggestion and recommendation for effective
planning and effective management process to be adopted to increase
the profitability of Bank.

1.5 Statement of Problem

Nepal is a country which is made up of villages and rural areas mostly and where
there is predominance of agriculture sector. It is difficult to solve the credit problems
of the country through commercial bank and which are relevant to intramural and
agriculture is to overcome these change.
The Nepal Rastra Bank has mandated commercial Bank to open the branches in urban
areas. However, the challenge for country is to direct these commercial bank to
provide service to small and middle entrepreneur. These rural branches of commercial
Banks opened in the rural area of Nepal don’t seem to be effective in their role of
effective deposit mobilization and loan distribution.
As there is advancement in technology due to globalization, it has resulted in a fierce
competition between various organizations. As per the list issued by NRB as of Mid-
June 2019, the modern banking sector includes 28 Commercial Banks, 33
Development Banks, 25 Finance Companies, and 25 Micro Credit Development
Banks in Nepal. Due to large number of banks and financial institutions, there is
fierce competition among the banks and financial institution. All commercial banks
do not have same level of performance due to which they have undergone merger and
acquisition. As a result, it has become a necessity to development banks and small
financial institutions to analyze their profitability status and work effectively. Hence,
this proposal has been made to make a report mainly focusing on the profitability
analysis of Nabil Bank Ltd. Attempts are made shortly to answer the following
questions:-
 What is the percentage of profit on the total capital employed in the
organization?
 Whether the profit is increasing or decreasing (trends) along with their
comparison from previous periods.
 How sound are operational results in relation to their profitability?
 Profitability ratio in relation to total assets of the organization.
 Percentage of Return on the shareholders fund.
 Performance of an organization in relation to past years.
 Dividend paid by an organization out of profit (DPS) compared to past
years.
 Earnings per share

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1.6 Rationale of Study
Profitability analysis is of immense importance to various financial users who are
debtors, creditors, money lenders, debenture holders, equity holders and various other
persons. Though various users use this analysis for various purposes and for their
differing interest in the organization, however the technique of analysis is same. This
study focuses mainly on the profitability analysis and examination of financial
position of Nabil Bank Limited. Thus, this study will be most suitable to the following
mentioned users:
 To investors for making decision whether to make investment in the
organization or not by analyzing the organizations payout ratios and
returns on investments.
 To Creditors to learn about whether the organization will be able to
meet its financial obligation on time or not.
 To money lenders and debenture holders to know if the organization
can settle the money lent by them on time or not.
 To shareholders to know whether the organization is performing well
and providing good return on their investment or not.
 Most importantly to management to make decisions regarding various
issues like Performance evaluation, and to make other important
decisions.
Also, financial executive as well as those other policy making bodies which are
concerned with banking would also find it useful to the advance teachers and students
of the subjects particularly those in commerce, charted accountancy and institution of
Finance.

1.7 Review of Literature

The study of profitability analysis of different bank has already been done by many
researchers in past periods. In their research, they have presented that the performance
of bank is satisfactory. Here are some conclusions drawn by various researchers on
various Banks.
Agrawal (2011) carried the project report on “Profitability Analysis of Standard
Chartered Bank Nepal Ltd.”. The objectives of the study were to analyze the
profitability position of SCBNL and to make necessary suggestion and
recommendation for effective financial performance in future. The data were
collected from the website and the annual report of the bank.
The major finding of the study was that, the bank was not perfect in all aspects. The
profits after taxes were decreasing implying DPS and EPS to follow decreasing trend.
The major recommendation of the study was to mobilize its fixed deposit to different
productive sector in form of loan and advances or investment etc.
Jaiswal (2012) performed a survey on "Analyze & interpret the profitability status of
the NABIL Bank Ltd.". The objectives of the study were to analyze the profitability

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ratios of the NABIL Bank Ltd. and to suggest necessary suggestion and recommend
the bank for the effective financial performance in coming future. Data necessary in
the research work was collected through secondary sources, mainly from the annual
financial report.
The major finding of the study was that the bank's performance was satisfactory as
compared to other banks. The profit after taxes of the bank was found to be following
the increasing trend but the increased figure was not satisfactory as compared to
others. However, the DPS was constant every year. The recommendation provided
through the survey was to increase its investment toward government securities and
decrease a variation of investment on government securities.

1.8 Organization of the Study

The study has been organized into five parts. The title of these chapters as follows:
 Chapter-I: Introduction
 Chapter-II: Data Presentation and Analysis
 Chapter-III: Summary, Conclusions and Recommendation

1.8.1 Chapter-I Introduction

The first chapter contains the introductory part of the study. As already mentioned,
this chapter describes the major issues to be investigated along with the general
background and objective of the study.

1.8.2 Chapter-II Data Presentation and Analysis

The second chapter presents the collected data will be tabulated and analyzed by
using various financial tools, mathematical and statistical tools under data
presentation and analysis.

1.8.3 Chapter-III Summary, Conclusions and Recommendation

The third chapter presents of the brief summary of whole research report and
conclusions. It also provides some useful suggestion and recommendations to
concerned parties.

1.9 Methods of Study

A well designed research method is a must to prepare a better and qualitative report. I
have tried my optimum effort to create a proper methodology that will be applied
while preparing the report to achieve the set of objective determined in the proposal
ahead in the Introduction chapter.

1.9.1 Research Gap

Banks strength and its performance play an important role in the stability and growth
of the economy. Bank must be operated smoothly in order to have long term operation
of its activities. And the smooth operation depends on profitability and capital
adequacy maintained by the bank. There is time gap between their research and mine.
So, there may be difference in the decision of our research.

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1.9.2 Research Design
Research design is a detailed outline of how a research will take place. A research
design will typically include how data is to be collected, what instruments will be
used, how the instruments will be used and the intended means for analyzing the
collected data. For my research purpose, I will be following historical research design
method which is related with past annual report published.

1.9.3 Population and Sample

Since the objective of the study is to learn about the profitability status and the
limitation prevails as it is not possible to take data’s from all the financial institutions
prevailing in Nepal. Thus, I have chosen Nabil Bank as a sample from among the 28
Commercial Banks, 33 Development Banks, 25 Finance Companies, and 25 Micro
Credit Development Banks.

1.9.4 Types of Data

The primary data for one person can be the secondary data for some others. So, data
which are originally collected but obtained from either published sources or
unpublished sources are secondary data. These data are obtained from books and
internet.
 Annual reports, newspaper declarations, advertisements, notices etc. of Nabil
Bank Limited.
 Official websites of Nabil Bank Limited and other different websites related to
the topic.
 NRB directives and circular related to Development and Commercial Banks.

1.9.5 Data Collection Procedure

This research has been conducted in secondary data basis and data’s taken for the
profitability analysis is of last five years. Data has been mostly collected from the
following sources:
 Website of the bank
 Annual Report of the bank

1.9.6 Techniques of Data Analysis

The collected data is tabulated after adjusting necessarily amounts of each overhead,
however for the analysis of the data; following tools are used along with various
profitability analysis ratios which are mentioned below:
 Tables, Charts, Bar Diagrams and Pie Charts
 Ratios like Profit margin ratios, Return on Total Assets, Return on Capital
employed, Earning Per Share, Dividend Payout Ratio etc.

1.10 Limitations of Study

Though I have tried my best and given my optimal focus on presenting the research
design without error, there are some uncontrollable issues and limitations faced and

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have a considerable place for arguing about its accuracy and reliability. The proposed
study is not a free from limitations. It has also some limitations which are as follows:-
 The study is confined only to the financial performance analysis of
Nabil Bank Limited and not of other banks.
 The study is time bound.
 Not free from biasness.
 This study is conducted in partial fulfillment of the requirement for the
Bachelor of Business Studies (BBS) 4th Year.
 Lack of proper information
 The period considered for the study is only five years i.e; from period
Fiscal Year 2071/72 To Fiscal Year 2075/76

CHAPTER -2

2. RATIO & ANALYSIS

2.1 Data Presentation
Data presentation and analysis forms a major part of the research studies which helps
in analyzing the data and interpreting them to make the relevant decisions regarding
various things and answer the research questions. Data analysis starts with collection
of data followed by data processing and sorting it. Presenting the data includes the
pictorial presentation of the data by using graphs, charts, maps, and other methods.
These methods help in adding the visual aspect to data which makes it much more
comfortable and quicker to understand. Data has been presented in the Tables, bar
diagrams and pie charts and relevant figures wherever necessary. Analysis of data
involves financial ratio analysis of information available.

2.2 Ratio Analysis

A financial ratio is a relative magnitude of two selected numerical values taken from
an enterprise’s financial statements. Often used in finance and accounting, there are
many standard ratios used to try to evaluate the overall financial condition of a
corporation or other organization. Financial ratios may be used by managers within a
firm, by current and potential shareholders of the firm, and by a firm’s creditors.
Financial analysists use financial ratios to compare the strengths and weaknesses in
various companies. If shares of a company are traded in a financial market, the market
price of the shares is used in certain financial ratios.
Ratios can be expressed as a decimal value, such as 0.10, or as an equivalent percent
value, such as 10%. Some ratios are usually quoted as percentages, especially ratios
that are usually or always less then1, such as earnings yield, while others are usually

9
quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E
ratio; these latter are also called multiples.
Values used in calculating financial ratios are taken from the balance sheet, income
statement, statement of cash flows or (sometimes) the statement of changes in equity.

2.3 Types and Purpose of Ratios

Financial ratios quantify many aspects of a business and are an integral part of the
financial statement analysis. Financial ratios are categorized according to the financial
aspect of the business which the ratio measures.
 Liquidity ratios: Measures the availability of cash to pay debt.
 Activity ratios: Measures how quickly a firm converts non-cash assets to cash
assets.
 Debt ratios: Measures the firm’s ability to repay long-term debt.
 Profitability ratios: Measures the firm’s use of its assets and control of its
expenses to generate an acceptable rate of return.
 Market ratios: Measures investor response to owning a company’s stock and
also the cost of issuing stock.
Financial ratios allow for comparisons:
 Between companies,
 Between industries,
 Between different time periods for one company,
 Between a single company and its industry average.

2.4 Profitability Ratios

Profitability ratios are financial metrics used by analysts and investors to measure and
evaluate the ability of a company to generate income (profit) relative to revenue,
balance sheet assets, operating costs, and shareholders’ equity during a specific period
of time. They show how well a company utilizes its assets to produce profit and value
to its shareholders.
A higher ratio or value is commonly sought-after by most companies, as this usually
means the business is performing well by generating revenues, profits, and cash flow.
The ratios are most useful when they are analyzed in comparison to similar companies
or compared to previous periods. The most commonly used profitability ratios are
listed as under:

2.4.1 Net Interest Margin

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Net Interest Margin (NIM) = Interest Income−Interest Expense
Average Earning Assets

2.4.2 Operating Profit Margin

Operating Profit Margin (OPM) = Net Interest Income−Operating Expense

Total Interest Income

2.4.3 Cost to Income Ratio

Cost to Income ratio = Operating Expenses

(Net Interest Income + Non Interest Income)

2.4.4 Other Income to Total Income

Other Income to Total Income = Other Income

Total Income

2.4.5 Return on Equity

Return on Equity = Net Income

Shareholders′ Equity

2.4.6 Return on Assets

Return on Assets = Net Income

Total Assets

2.4.7 Return on Capital Employed

Return on Capital Employed = Earning Before Tax (EBT)

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 Capital Employed

2.4.8 Earnings per Share

Earning Per Share (EPS) = Net Income – Preferred Dividend

Weighted Average Common Shares

2.4.9 Dividend per Share

Dividend Per Share (DPS) = Total Dividends Paid

Shares Outstanding

2.4.10 Price Earnings Ratio

P/E Ratio = Market Price per Share

Earning per Share

2.5 References
Agrawal, J. N. (2011). Profitability Analysis of Standard Chartered Bank Nepal Ltd,
May, 2011
Jaiswal, R. K. (2012). Analyze and Interpret the Profitability Status of NABIL Bank
Ltd, April, 2012
https://www.nrb.org.np/
https://www.google.com/
https://www.Nabilbank.com/

***The End***

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