PROFITABILITY ANALYSIS OF
SANIMA BANK LIMITED
A Project Report
Submitted by:
Mohan Bahadur Sen
Pokhara Multimodal Campus
T.U. Registration No: 7-2-397-10-2018
Exam Roll No.: 703970003
Submitted to:
The Faculty of Management
Tribhuvan University
Kathmandu
In the partial fulfillment of the requirement for the degree of
BACHELOR OF BUSINESS STUDIES (BBS)
Pokhara
April, 2023
DECLARATION
I hereby declare that the project work entitled “PROFITABILITY ANALYSIS OF
SANIMA BANK LIMITED” submitted to the Faculty of Management, Tribhuvan
University, Kathmandu is an original piece of work under the supervision of NIRMAL
PAHARI, faculty member, POKHARA MULTIMODAL CAMPUS, Pokhara, and is
submitted in partial fulfillment of the requirements for 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.
.....................
MOHAN BAHADUR SEN
April, 2023
ii
SUPERVISOR’S RECOMMENDATION
The project work report entitled “PROFITABILITY ANALYSIS OF SANIMA BANK
LIMITED” submitted by MOHAN BAHADUR SEN of POKHARA MULTIMODAL
CAMPUS, Pokhara, 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 degree of BACHELOR OF BUSINESS
STUDIES (BBS). I, therefore, recommend the project work report for evaluation.
....................
NIRMAL PAHARI
April, 2023
iii
ENDORSEMENT
We hereby endorse the project work report entitled “PROFITABILITY ANALYSIS
OF SANIMA BANK LIMITED” submitted by MOHAN BAHADUR SEN of
POKHARA MULTIMODAL CAMPUS, Pokhara, in partial fulfillment of the
requirements for the degree of the BACHELOR OF BUSINESS STUDIES (BBS) for
external evaluation.
......................... …………………..
Baburam Lamichhane Krishna Bahadur K.C
Chairman, Research Committee Campus Chief
(Pokhara Multimodal Campus) (Pokhara Multimodal Campus)
April, 2023 April, 2023
iv
ACKNOWLEDGEMENT
This study attempts to examine the Profitability Analysis of SANIMA Bank limited
with available data and information. It also deals with problem identification besides
this field study to acquire the reality of banking operation of SANIMA Bank. For easier
study, the data has been presented by tables, graphs and have been interpreted using
various statistical methods. This report tries to focus on the study of SANIMA Bank
only. I express my heartiest gratitude to NIRMAL PAHARI for guiding and inspiring
me to do this project-work. I would also like to thank Krishna Bahadur K.C (Campus
Chief), Baburam Lamichhane (Head of Research Department) and the entire staff
members for their kind co-operation and supports providing valuable information
required for the completion of the report. Finally, I want to thank my colleagues for
their continued moral support.
Mohan Bahadur Sen
v
TABLE OF CONTENTS
Title Page ... ... ... ...... ... ... ... ... ... ... ... … … … ... ... ... … ... . ... ... …i
Declaration .... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... … … … … ... ..ii
Supervisor’s Recommendation ... ... ... ... ... ... ... ... ... … … … … ... ..iii
Endorsement ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ....iv
Acknowledgements ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..v
Table of Contents... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...... ... .... ..vi
List of Tables ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... … ... ... .... .. vii
List of Figures ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... viii
Abbreviations............................................................................................ ix
CHAPTER I: INTRODUCTION ... ... ... ... .. ... ... ... ... ... ... ... ... ... ..1
1.1 Background of the Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..1
1.2 Brief Introduction of SANIMA Bank Ltd. ... ... ... ... ... ... ... ...6
1.3 Objectives of the Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .8
1.4 Rationale/Significance of the Study ... ... ... ... ... ... ... ... ... ... ..8
1.5 Literature Review ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..8
1.6 Methods of Study ... ... ... ... ... ... ... ... ... ... ... ... ... ... . .... .. ... 16
1.7 Limitations of Study... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..17
CHAPTERII: RESULTS AND ANALYSIS ........................................18
2.1 Data Presentation ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .18
2.2 Findings .. ... ... ... ... ... ... ... ... ... ... ... .. ... ... ... ... ... ... ... ... .25
CHAPTER III: SUMMARY AND CONCLUSION... ... ... ... ... ... ... ..28
3.1 Summary... ... ... ... ... ... .... ... ... ... ... ... ... ... ... ... ... ... ... . ..28
3.2 Conclusion... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .29
BIBLIOGRAPHY
vi
LIST OF TABLES
Table 2.1: Net Profit Margin of Sanima Bank ...............................................19
Table 2.2: Return on Assets of Sanima Bank..................................................20
Table 2.3: Return on Shareholder’s Equity.....................................................21
Table 2.4: Dividend Per Share of Sanima Bank..............................................23
Table 2.5: Earnings Per Share of Sanima Bank...............................................24
vii
LIST OF FIGURES
Figure 2.1: Net Profit Margin of Sanima Bank ................................................ 19
Figure 2.2: Return on Assets of Sanima Bank...................................................20
Figure 2.3: Return on Shareholder’s Equity......................................................22
Figure 2.4: Dividend Per Share of Sanima Bank..............................................23
Figure 2.5: Earnings Per Share of Sanima Bank..............................................24
viii
ABBREVIATIONS
% - Percentage
ASBA - Application Supported by Blocked Amount
ATM - Automated Teller Machine
BFI - Banks and Financial Institutions
DPS - Dividend Per Share
EPS - Earning per Share
Etc - Etcetera
FD - Fixed Deposit
FY - Fiscal Year
FOM - Faculty of Management
i.e. - That is
Ltd - Limited
NPAT - Net Profit after Tax
NTB - Nepal Rastra Bank
NRs - Nepalese Rupees
ROA - Return on Asset
ROE - Return on Equity
FIG - Figure
ix
1
Chapter I
INTRODUCTION
[Link] of the Study
In the context of Nepal, there is different types of banking sector. It has mainly four
categories of banks and financial institutions in Nepal which are Class 'A', Class 'B',
Class 'C' and Class 'D' institutions. Class 'A' refers to commercial banks, Class 'B' refers
to Development Banks, Class 'C' refers to Finance Companies and Class 'D' refers to
Micro Finance Companies. And then, the term commercial bank refers to a financial
institution that accepts deposits, offers checking account services, makes various
loans, and offers basic financial products like certificates of deposits (CDs) and
savings accounts to individuals and small businesses. A commercial bank is where
most people do their banking.
Commercial banks make money by providing and earning interest from loans such as
mortgages, auto loans, business loans, and personal loans. Customer deposits provide
banks with the capital to make these loans. Commercial banks have traditionally been
located in buildings where customers come to use teller window services
and automated teller machines (ATMs) to do their routine banking. With the rise in
internet technology, most banks now allow their customers to do most of the same
services online that they could do in person including transfers, deposits, and bill
payments. (investopedia,2021 AD).
2
Profitability is a measure of an organization’s profit relative to its expenses.
Organizations that are more efficient will realize more profit as a percentage of its
expenses than a less-efficient organization, which must spend more to generate the
same profit. In order to perform a profitability analysis, all costs of an organization have
to be allocated to output units by using intermediate allocation steps and drivers. This
process is called costing. When the costs have been allocated, they can be deducted
from the revenues per output unit. The remainder shows the unit margin of a product,
client, location, channel or transaction. After calculating the profit per unit, managers
or decision makers can use the outcome to substantiate management decisions.
Managers can decide to stop selling loss making products, to reduce costs for loss
making customers or to increase sales in profitable locations.
(wikipedia/profitability_analysis,2019AD).
The Profitability Score is a relevant measure for the assessment of a stock
attractiveness. SANIMA BANK shows a Profitability Score of N/A. The Profitability
Score for SANIMA BANK is lower than its peer group's. This means that SANIMA
BANK has a lower profitability than its peer group. 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 customers
through full-fledged branches from Mechi to Mahakali(coursehero, 2022AD).
3
1.1.1 History of Banking Sector
Banking began with the first prototype banks of merchants of the ancient world, which
made grain loans to farmers and traders who carried goods between cities. This began
around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the
Roman Empire, lenders based in temples made loans and added two important
innovations: they accepted deposits and changed money. Archaeology from this period
in ancient China and India also shows evidence of money lending activity.
The origins of modern banking can be traced to medieval and early Renaissance Italy,
to the rich cities in the center and north like Florence, Lucca, Siena, Venice and Genoa.
The Bardi and Peruzzi families dominated banking in 14th-century Florence,
establishing branches in many other parts of Europe. One of the most famous Italian
banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The
earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was
founded in 1407 at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of
banknotes, emerged in the 17th and 18th centuries. Merchants started to store their
gold with the goldsmiths of London, who possessed private vaults, and charged a fee
for that service. In exchange for each deposit of precious metal, the goldsmiths issued
receipts certifying the quantity and purity of the metal they held as a bailee; these
receipts could not be assigned; only the original depositor could collect the stored
goods. Gradually the goldsmiths began to lend the money out on behalf of the
depositor, which led to the development of modern banking practices; promissory
notes (which evolved into banknotes) were issued for money deposited as a loan to the
goldsmith. The goldsmith paid interest on these deposits. Since the promissory notes
4
were payable on demand, and the advances (loans) to the goldsmith's customers were
repayable over a longer time period, this was an early form of fractional reserve
banking. The promissory notes developed into an assignable instrument which could
circulate as a safe and convenient form of money backed by the goldsmith's promise
to pay, allowing goldsmiths to advance loans with little risk of default. Thus, the
goldsmiths of London became the forerunners of banking by creating new money
based on credit. The Bank of England was the first to begin the permanent issue of
banknotes, in 1695. The Royal Bank of Scotland established the first overdraft facility
in 1728. By the beginning of the 19th century a bankers' clearing house was established
in London to allow multiple banks to clear transactions. The Rothschilds pioneered
international finance on a large scale, financing the purchase of the Suez canal for the
British government. ([Link])
1.1.2 History of Banking Sector in Nepal
According to the history, it is found that people of our country have been involved in
business and trade since long time ago. Though the production of copper utensils had
been started during the 7th century, business relationship could not be established with
India since India was involved in the production of copper utensil. However, the craft
concerned with copper, wood and metal in our country did attract the Chinese and the
Tibetan a lot, thus resulting in the establishment of business relationship with China
and Tibet.
In 12th century there was silver coin called 'Dam'. Later on in 14th century
'TANKADHARI' one is that dealt with the lending money to the public. Its remain
objective was to earn profit, so they used to change high interest rate. To control
interest rate 'TEJARATH ADDA' was established in 19th century. It provides loans to
5
the people working in government offices on the basis of the security and to public on
the basis of collateral they deposit. It charges only 5% interest rate per annum. It only
provides loans but does not accept deposit.
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 the modern banking in Nepal. This was established in 1937 A.D. Nepal Bank
Ltd. remained the only financial institution of the country until the foundation of Nepal
Rastra Bank is 1956 A.D.
In 1957 A.D. Industrial Development Bank was established to promote the
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. As the agriculture
is the basic occupation of major Nepalese, the development of this sector plays in the
prime role in the economy. So, separate Agricultural Development Bank was
established in 1968 A.D. This is the first institution in agricultural financing.
(wikipedia, 2022AD)
There are various types of bank working in modern banking system in Nepal. It
includes central, development; commercial, financial, co-operative and Micro Credit
(Grameen) banks. 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. There are 23 commercial banks, 17 development banks, 17
6
financial companies, 64 micro finance financial institutions (licensed by Nepal Rastra
Bank) are established so far in Nepal. ([Link]
1.2. Brief Introduction of Sanima Bank Ltd
Sanima Bank Ltd. is one of the latest commercial banks in the Nepalese banking
industry. It is promoted by prominent and dynamic Non-Resident Nepalese (NRNs)
businessmen. It started its operation as a National level development bank in 2004. In
2012, the bank upgraded itself from a ‘B class’ development bank to ‘A-class’
commercial bank. It increased its paid-up capital from Rs. 80 crores to Rs.2 Arab by
issuing 1:1.5 right shares and received the license from Nepal Rastra Bank to operate
as a commercial bank. The bank’s head office is located at ‘Alakapuri’, Naxal,
Kathmandu, Nepal. The management team seems capable to grow the business at a
steady pace and also management team has done a good job in the past to bring the
bank at this level so quickly. And we can trust and believe that they will continue to do
so in the future. And, the decision to invest in shares of Sanima bank lies solely in the
nature of the individual. If you are a short-term investor, you will likely do well if you
avoid this. The continuously depressive stock market, the recurring credit crunch and
higher interest rates in the banking industry have hit the entire share market. The market
recovery seems like a distant dream. On the other hand, if you are a long-term investor
and do not concern yourself with the current predicament, then Sanima bank is a good
company to include in your portfolio. If you can see beyond the current clouds of
uncertainty and hold the shares for the long run, you will be able to reap the rewards
that this promising company will offer you in the future. So that the bank team is
7
committed to providing the good quality of products and services to its valued
customers with utmost courtesy and care.
1.2.1 Banking Service and Product provided by Sanima Bank
A) Product
-Home Loan
- Education Loan
-Auto Loan
- Personal Loan
B) Services
-Mobile and Internet Banking
-ATM machines in every district
-Cash Deposit/Withdrawal service for 365 days
-Foreign currencies purchase and sales(as per NRB policy)
-Remittance, etc
1.2.2 Problem Statement
The number of bank and financial institutions are increasing rapidly in Nepalese
market. There already twenty-six commercial bank in operation, consequences of
which the liquidity position of banks is weak and nearly to breach the regulatory
requirement (CCD ratio). This is an attempt made to analyze the efficiency of Nepalese
commercial bank based on the profitability ratio analysis made by the sample bank.
Therefore, there are two main statement of the problem in SANIMA Bank. They are as
follows:
•What is the position of different Profitability Ratio in Sanima Bank Limited ?
•What is the relation of Profitability ratio on total earning of Sanima Bank Limited ?
8
1.3. Objectives of the Study
The main objectives of study is to explore the condition of different Profitability ratio
of Sanima Bank Limited. The specific objectives are:
•To assess the position of different profitability ratio of Sanima Bank Limited.
•To analyze the relation of Profitability ratio on total profit of Sanima Bank Limited.
1.4. Rationale/Significance of the Study
Generally, the study gives emphasis on the welfare of students while preparing research
report; they gain knowledge through their own experience enabling them to deal with
problems relating to their studies. The study also intends to let students know about
required information by them. The following are the few points that highlights of the
significance of proposal:
• It helps to increase the practical knowledge.
• It can be used as guideline while preparing a small project proposal.
• By analyzing the problem, it provides chances to improve.
• It makes the student more creative.
1.5. Literature Review
This chapter is basically concerned with the review of literature relevant to the topic
profitability analysis. Thus, the determinants of bank profitability can be split between
those that are internal and external. Internal determinants of bank profitability can be
defined as those factors that are influenced by the bank’s management decisions and
policy objectives. And also to evaluate the profitability ratio of a firm, the analyst needs
a certain parameters of the company by which the quantitative relationship and its
9
position come out. The most widely and effective used tool of the profitability ratio is
the ratio analysis. The profitability ratio is the measurement of relationship between
two accounting figures, expressed in mathematical way or the numerical relationship
between two variables expressed as (i) percentage or, (ii) fraction or (iii) in proportion
of numbers.
1.5.1 Conceptual Review
The modern financial evaluation has greatly affected the Profitability ratio of banks’.
Nowadays, finance is best characterized as ever changing with new ideas and
techniques. Only efficient manager of the company can achieve the set up goals. If a
bank does not maintain adequate equity capital, it makes the bank more risky. If a bank
has inadequate equity capital, it must be used more debt that has high fixed cost. So any
firm must have adequate equity capital in their capital structure. The main objectives of
the bank are to collect deposits as much as possible from the customers and to mobilize
into the most profitable sector. If a bank fails to utilize its collected resources than it
cannot generate revenue. Resource mobilization management of bank includes resource
collection, investment portfolio, loans and advances, working capital, fixed assets
management etc. It measures the extent to which bank is successful to utilize its
resources. To measure the bank profitability in many aspects, we should analyze its
indicator with the help of financial statements. Profitability ratio is the process of
identifying the financial strength and weakness of the concerned bank. It is the process
of finding strength and weakness of the concerned bank.
10
Financial Analysis
Financial statement analysis generally begins with the calculation of set of financial
ratios designed to reveal the relative strength and weaknesses of a company as
compared to other companies in the same industry and to show weather the firm's
position has been improving or deteriorating over time.
Ratio Analysis
Ratio analysis is the systematic use of profitability ratio information of the firm’s
strength and weakness as its historical performance, and current condition can be
determined. After calculating various ratios, we need to compare with the certain
standard and draw out the conclusion of the result. The comparison classified by
Weston and Brigham into six types viz; (i) Liquidity ratios, (ii) leverage ratios, (iii)
Activity ratios, (iv) Profitability ratios, (v) Growth ratios and (vi) Valuation ratios.
Profitability Ratio
Profitability ratios are related to profit. These ratios are designed to highlight the end
result of business activities. The operating efficiency of a firm and its ability to ensure
adequate return to its shareholders depends ultimately on the profits earned by it. In this
regards, profitability ratios are the measure of efficiency and the search for. These ratios
measure the overall effectiveness of management. It provides an incentive to achieve
efficiency. In this report, the following profitability ratios are used:
A) Margin Ratios
Gross profit margin – compares gross profit to sales revenue. This shows how much
a business is earning, taking into account the needed costs to produce its goods and
services. A high gross profit margin ratio reflects a higher efficiency of core operations,
11
meaning it can still cover operating expenses, fixed costs, dividends, and depreciation,
while also providing net earnings to the business. It is calculated by
Net Sales−COGS
Gross Profit Margin=
Net Sales
Where, COGS: Cost of Goods Sold
Operating profit margin- looks at earnings as a percentage of sales before interest
expense and income taxes are deduced. Operating profit margin is frequently used to
assess the strength of a company’s management since good management can
substantially improve the profitability of a company by managing its operating costs. It
Operating Profit
is calculated by Operating Profit Margin =
Total Revenue
where,
Operating Profit = Sales – COGS – Operating Expenses – Depreciation & Amortization
B) Net Profit Margin
Net profit margin is the bottom line. It looks at a company’s net income and divides it
into total revenue. It provides the final picture of how profitable a company is after all
expenses, including interest and taxes, have been taken into account. A reason to use
the net profit margin as a measure of profitability is that it takes everything into account.
Revenue−Cost
It is calculated by Net Profit Margin =
Revenue
C) Dividend Per Share (DPS)
Dividend Per Share (DPS) is the total amount of dividends attributed to each individual
share outstanding of a company. Calculating the dividend per share allows an investor
to determine how much income from the company he or she will receive on a per-share
12
basis. Dividends are usually a cash payment paid to the investors in a company,
although there are other types of payment that can be received like property dividends,
stock dividends, scrip dividends, etc.
Total Dividends Paid
DPS= 𝑂𝑟 EPS ∗ Dividend Payout Ratio
Share Outstanding
D) Return on Assets
Return on assets (ROA), as the name suggests, shows the percentage of net earnings
relative to the company’s total assets. The ROA ratio specifically reveals how much
after-tax profit a company generates for every one dollar of assets it holds. It also
measures the asset intensity of a business. The lower the profit per dollar of assets, the
more asset-intensive a company is considered to be. Highly asset-intensive companies
require big investments to purchase machinery and equipment in order to generate
Net income
income. It is calculated by Return on Assets(ROA) =
Total Assets
E) Return on Equity
Return on equity (ROE) – expresses the percentage of net income relative to
stockholders’ equity, or the rate of return on the money that equity investors have put
into the business. The ROE ratio is one that is particularly watched by stock analysts
and investors. A favorably high ROE ratio is often cited as a reason to purchase a
company’s stock. Companies with a high return on equity are usually more capable of
generating cash internally, and therefore less dependent on debt financing. It is
calculated by
Net Income
Return on Equity(ROE) =
Shareholder′ s Equity
13
F) Earnings per Share
Earnings per share (EPS), also called net income per share, is a market prospect ratio
that measures the amount of net income earned per share of stock outstanding. In other
words, this is the amount of money each share of stock would receive if all of the profits
were distributed to the outstanding shares at the end of the year. It is the ratio of net
profit after tax between numbers of common share. It is calculated by
Net income− Preferred Dividend
EPS =
Weighted Average Number of Shares Outstanding
(CFI Team,2022AD).
1.5.2 Empirical Review
An empirical literature review is more commonly called a systematic literature review
and it examines past empirical studies to answer a particular research question. The
empirical studies we examine are usually random controlled trials (RCTs).
Sayers. R.S.(1976) argued that Ordinary banking business consist of changing cash for
bank deposits and bank deposits from one person to corporation (one depositor to
another) giving bank deposits in exchange for bill of exchange, government banks,
recurred and unsecured promises businessmen to repay.
Pandey. I.M.(2005) suggest that A firm should ensure that it does not suffer from lack
of liquid. And also that it is not too much highly liquid. The failure of a company to
meet its obligations, due to lack of sufficient liquidity will result in bad credit image.
Loss of creditor’s confidence, or even in low suits resulting in the closure of the
company. A very high degree of liquidity is also bad; idle assets earn nothing. The
firm’s funds will be unnecessarily tied up in current assets. Therefore, it is necessary to
14
strike a proper balance between liquidity and lack of liquid. Liquidity is measured by
the speed with which a bank’s assets can be converted into cash and other current
obligations. It is also important in view of survival and growth of a bank.
Drury and Tayles(2006) suggest that Recent research into management accounting
practices suggests that companies are now placing considerable emphasis on
profitability analysis and consider it to be one of the most important management
accounting practices. In particular, it focuses on the nature, content and role of
profitability analysis carrying out some exploratory analysis and testing various
propositions to explain the divergence in observed practices.
Ali et. al (2011)examined the profitability indicators of public and private commercial
banks of Pakistan explored in 2006-2009. The return on assets (ROA) and return on
equity (ROE) are used as profitability measures to determine the affect of bank-specific
and macroeconomic indicators on profitability. The descriptive, correlation and
regression analysis results are derived with the help of SPSS. The efficient asset
management and economic growth establish positive and significant relation with
profitability in both models (measured by ROA & ROE). The high credit risk and
capitalization lead to lower profitability measured by return on assets (ROA). The
operating efficiency tends to exhibit the higher profitability level as measured by return
on equity.
Rouniyar (2013) studied on liquidity and profitability analysis of four listed commercial
banks (with reference to NABIL, SCBNL, EBL and SBI). The study has made
objectives to assess the profitability and liquidity position of the commercial banks and
15
to evaluate the relationship between selected dependent and independent variables
regarding liquidity and profitability of the banks. The study has covers the data of ten
fiscal year i.e. fiscal year 2001/02 to 2010/[Link] finding made by study were that the
return on equity was highest of SCBNL and lowest of SBI among the four sample
banks. SBI has more risky than other sample banks. In the same way, return on capital
fund or employed to risked assets for SBI was more volatile than other sample banks.
SBI has not managed its profitability to maintain capital adequacy than other sample
banks. NABIL was more uniformity which has less CV than others. Net profit to total
deposit ratio for the bank was satisfactory i.e. well management in earning profit. Net
profit to total loan and advances ratio was highest of SCBNL.
Regmi (2015) argued that Performance of Public Sector Banks analyzed the
profitability of NIC Asia bank by analyzing the relationship between EPS, DPS and
MPS of the bank. The study, however, did not deal with the profitability forecasting
through capital budgeting techniques.
Begum (2016) investigated the relationship between banks' liquidity and profitability
and the impact of liquidity on bank's profitability. The paper applies the ordinary least
square (OLS) method for the sample period from 1997 to 2014 to examine the impact
of liquidity on banks' profitability. The paper finds that the advance deposit ratio
positively impacts banks' profitability while profitability is defined as return on asset
(ROA). Call money rates, non performing loans (NPLs), and excess liquidity impact
banks' profitability in a negative fashion. The negative relationship between NPLs and
ROA has been a major concern for the policymakers in the banking industry of
16
Bangladesh since NPLs in the banking sector have increased during the last three years
in the post 2011 period.
Shah (2016) suggest that Commercial banks of Nepal stated that banks’ financial
performance not only benefits its shareholders but also plays a crucial role in handling
the economy of the country.
Erich A. H.(2017) argued that Profitability ratio is both an analytic and judgmental
process that helps to answer the questions that have been properly posed to and
therefore, it is a mean to an end. We can stress enough that financial analysis is an aid
that allows those responsible for results to make sound decisions. Liquidity is other
financial indicator of the business enterprises.
1.6. Methods of Study
Evaluating the profitability analysis of SANIMA BANK LIMITED in a micro level
and to highlight the efforts of the profitability analysis of these banks in the economy
at the macro level forms for the basic objective of this research.
1.6.1 Research Design
Keeping in mind the objective of the study, descriptive research design has been
followed. The study is based on the wide range of variables and factors influencing
profitability ratio of the bank. Comparative data banks are presented in such a way to
make the report informative to the reader.
1.6.2 Population and Sample
Among 23 commercial banks, SANIMA Bank Limited have been selected for the
present study. The recommendation and suggestions, which are derived from the study,
17
by taking the above commercial banks as samples, will be equally useful for the other
commercial banks in Nepal.
1.6.3 Nature & Sources of Data
This study is based on quantitative secondary data. Secondary data can defined as the
data collected earlier for a purpose other than one currently being pursued. And the
main secondary data are collected from annual report of SANIMA Bank Limited.
1.6.4 Techniques of Analysis
In the course of analysis, data gathered from the various sources will be inserted in the
tabular form, according to their homogeneous nature. They are table, graph, mean,
standard deviation ratio and percentage.
[Link] of Study
The major limitations of the study are as follows:
• Though there are 23 commercial banks, this study covers only on SANIMA Bank Ltd.
• Limited variable has been selected.
• Simple techniques has been used in analysis.
• The study is mainly based on secondary data.
• The study covers only five fiscal years, i.e. from the fiscal year 2017/18 AD to 2021/22
AD.
18
CHAPTER II
RESULTS AND ANALYSIS
2.1 Data Presentation
Presentation and data analysis of data is the main body of the study. Introduction,
review of literature and research methodology is presented in the previous chapter that
provide the basic inputs to analyze and interpret the data. In this chapter, data are
presented and analyzed.
2.1.1 Financial Analysis
Financial statement analysis generally begins with the calculation of set of financial
ratios designed to reveal the relative strength and weaknesses of a company as
compared to other companies in the same industry and to show weather the firm's
position has been improving or deteriorating over time. It helps the concerned parties
to spot out the financial strength and weakness of the firm.
2.1.2 Ratio Analysis
Ratio analysis is the systematic use of profitability ratio information of the firm’s
strength and weakness as its historical performance, and current condition can be
determined. It provides the trends of organization's financial performance. Ratios are
very useful, essential and powerful tools to interpret the financial performance of the
company. In this report, following ratios are used:
A) Net Profit Margin
The net profit margin, or simply net margin, measures how much net income or profit
is generated as a percentage of revenue. It is the ratio of net profits to revenues for a
company or business segment. It is calculated by
NPAT
Net Profit Margin = ∗ 100
Total Operating Revenue
19
Table 2.1: Net profit Margin of Sanima Bank
F/Y NPAT Total Operating Revenue NPM (%)
2017/18 1,697,503,224 4,009,133,567 42.34
2018/19 2,258,067,506 5,357,619,093 42.15
2019/20 1,776,234,524 5,289,807,151 33.58
2020/21 2,317,821,580 5,817,551,633 39.84
2021/22 2,093,115,828 6,029,701,884 34.71
Source: Annual Report of SBL
Net Profit Margin
45
40
35
30
25
20
15
10
5
0
2017/18 2018/19 2019/20 2020/21 2021/22
F/Y
Figure 2.1: Trend Line Showing Net Profit Margin (NPM)
Table and figure 2.1 shows net profit margin of the bank from FY 2017/18 to 2021/22.
In FY 2017/18 the percentage of NPM is 42.34%. It slightly decrease in FY 2018/19
which is 42.15%. And again NPM of the bank is drastically falls in FY 2019/20 which
is 33.58%. But in next FY 2020/21 , the NPM is increased to 39.84 and then in FY
2021/22 the NPM is decreased which is 34.71%. The NPM of the bank is in fluctuating
situation. In some fiscal year, NPM of the bank is highly increased and in some fiscal
year, it is highly decreased. It shows that the NPM may goes upward in next fiscal year.
The increase and decrease in NPM of the bank due to the change in NPAT and Total
Operating Revenue.
20
B) Return on Assets (ROA)
The term return on assets (ROA) refers to a financial ratio that indicates how profitable
a company is in relation to its total assets. Corporate management, analysts, and
investors can use ROA to determine how efficiently a company uses its assets to
NPAT
generate a profit. It is calculated by Return on Assets(ROA) = ∗ 100
Total Assets
Table 2.2: Return on Assets of Sanima Bank
F/Y NPAT Total Assets ROA (%)
2017/18 1,697,503,224 91,821,952,303 1.85
2018/19 2,258,067,506 109,064,487,965 2.07
2019/20 1,776,234,524 123,310,981,152 1.41
2020/21 2,317,821,580 160,750,584,166 1.44
2021/22 2,093,115,828 192,511,092,727 1.09
Source: Annual Report of SBL
ROA
2.5
1.5
0.5
0
2017/18 2018/19 2019/20 2020/21 2021/22
F/Y
Figure 2.2: Trend Line Showing ROA
Table and figure 2.2 shows the return of assets of Sanima Bank Limited. There is no
any high difference between the minimum and the maximum point of the ROA. It
slightly fluctuate in small difference. In FY 2017/18, ROA of the bank is 1.85%
21
whereas in FY 2018/19 is slightly increase to 2.07%. But in FY 2019/20 ROA is again
decreased to 1.41%. The ROA is slightly increase in FY 2020/21 which is 1.44% and
again it decrease in FY 2021/22 i.e. 1.09%. The return on assets ratio measure how
effectively a company can earn a return on its investment in assets. In other words,
ROA shows how efficiently a company can convert the money used to purchase assets
into net income or profits. The ROA of the bank is in fluctuating situation . Analyzing
the return on assets of the bank , the ratio is 1.6% means, every rupees that bank invested
in assets during the year produced Rs.1.6 of net income. Depending on the economy,
this can be a healthy return rate no matter what the investment is. The bank return on
assets is very low in each year as it is commercial bank.
C) Return on Equity(ROE)
Return on equity (ROE) is the measure of a company's net income divided by its
shareholders' equity. ROE is a gauge of a corporation's profitability and how efficiently
it generates those profits. The higher the ROE, the better a company is at converting its
equity financing into profits. It is calculated by
NPAT
Return on Equity(ROE) = x 100
Equity
Table 2.3: Return on Equity of Sanima Bank
F/Y Shareholder’s Equity NPAT ROE(%)
2017/18 10,787,885,501 1,697,503,224 18.67
2018/19 11,989,548,059 2,258,067,506 23.20
2019/20 12,818,604,934 1,776,234,524 16.09
2020/21 14,923,413,378 2,317,821,580 18.57
2021/22 16,911,170,411 2,093,115,828 14.13
Source: Annual Report of SBL
22
ROE
25
20
15
10
0
2017/18 2018/19 2019/20 2020/21 2021/22
F/Y
Fig 2.3 Trend Line Showing Return On Equity (ROE)
Table and figure 2.3 shows the return on shareholder’s equity of Sanima Bank Limited.
The ROE of the bank is 18.67 in FY 2017/18. Similarly, the ROE of the bank is slightly
increase to 23.20 in FY 2018/19 and highly decreased in FY 2029/20 i.e. 16.09. But in
FY 2020/21 the ROE is slightly increase to 18.57. And again, it decrease to 14.13 in
FY 2021/22. Analyzing the ROE of the bank it decrease in first fiscal year but slightly
increase in second fiscal year. And then again, it decrease in next fiscal year. As it
analyzing the overall ROE of the bank , the ROE is in fluctuating trend as the year
increases.
D) Dividends Per Share(DPS)
Dividend Per Share (DPS) is the total amount of dividends attributed to
each individual share outstanding of a company. It is calculated by
Total Dividend
DPS: [Link] Common Share x 100
23
Table 2.4: DPS of Sanima Bank
F/Y Total Dividend No. Of Common Share DPS
2017/18 11,201,758 80,012,554 14.00
2018/19 16,842,343 80,012,554 21.05
2019/20 11,969,878 88,013,810 13.60
2020/21 17,320,238 96,815,191 17.89
2021/22 12,437,460 113,273,773 10.98
Source:Annual Report of SANIMA Bank
DPS
25
20
15
10
0
2017/18 2018/19 2019/20 2020/21 2021/22
F/Y
Fig 2.4: Trend Line Showing Dividend Per Share (DPS)
Table and figure 2.4 shows the dividend per share of Sanima Bank Limited. It shows
the fluctuating situation of DPS during this study period. The DPS in FY 2017/18 is
14.00 but in FY 2018/19 is highly increased to 21.05. And again it highly decreased to
13.60 in FY 2019/20. Similarly , in FY 2020/21 DPS of the bank is slightly increases
to 17.89. And again it decrease to 10.98 in FY 2021/22. Analyzing the DPS of the bank
in first fiscal year is decreased but in second fiscal year, it highly increasing and vice:
versa. Analyzing in overall DPS of the bank is in fluctuating situation. Therefore, DPS
24
of the bank is slightly decreasing year by year due to the change in total dividend and
common share.
E) Earning per Share(EPS)
Earnings Per Share (EPS) is a financial metric calculated by dividing the Net income
by the total number of outstanding common shares. Investors use EPS to assess a
company’s performance and profitability before investing. Higher EPS means the
NPAT
company is more profitable. It is calculated by EPS =
No of Common Share
Table 2.5: EPS of Sanima Bank
F/Y NPAT No. Of Common Share EPS
2017/18 1,697,503,224 80,012,554 21.22
2018/19 2,258,067,506 80,012,554 28.22
2019/20 1,776,234,524 88,013,810 20.18
2020/21 2,317,821,580 96,815,191 23.94
2021/22 2,093,115,828 113,273,773 18.48
Source: Annual report of SBL
EPS
30
25
20
15
10
0
2017/18 2018/19 2019/20 2020/21 2021/22
F/Y
Fig 2.5: Trend Line Showing Earning Per Share (EPS)
25
Table and figure 2.5 shows the earning per share of Sanima Bank Limited. The EPS of
the bank is 21.22 in FY 2017/18. Similarly, EPS of the bank is increases to 28.22 in FY
2018/19. Again the EPS of the bank is decrease in FY 2019/20 i. e. 20.18 whereas in
next FY 2020/21, it slightly increase to 23.94. But again in FY 2021/22, EPS of the
bank is decreased to 18.48. Analyzing the EPS of the bank in second fiscal year, EPS
is increased but in next fiscal year it decreases. Similarly EPS of the bank is increasing
and decreasing year by year which means it is in fluctuating situation.
2.2. Findings
In this project work report, we study about the profitability analysis of Sanima Bank
Limited. And found that their ratio are in fluctuation situation due to change in all types
of materials and other information like total assets, total share, change in total profit in
every year, dividend and other components. In compliance with analysis, the following
findings as made:
• In table and figure 2.1 shows net profit margin of the bank from FY 2017/18 to
2021/22. In FY 2017/18 the percentage of NPM is 42.34%. It slightly decrease in FY
2018/19 which is 42.15%. And again NPM of the bank is drastically falls in FY 2019/20
which is 33.58%. But in next FY 2020/21 , the NPM is increased to 39.84 and then in
FY 2021/22 the NPM is decreased which is 34.71%. The NPM of the bank is in
fluctuating situation. In some fiscal year, It shows that the NPM may goes upward in
next fiscal year. The increase and decrease in NPM of the bank due to the change in
NPAT and Total Operating Revenue.
• In table and figure 2.2 shows the return of assets of Sanima Bank Limited. There is
no any high difference between the minimum and the maximum point of the ROA. It
26
slightly fluctuate in small difference. In FY 2017/18 ROA of the bank is 1.85% whereas
in FY 2018/19 is slightly increase to 2.07%. But in FY 2019/20 ROA is again decreased
to 1.41%. The ROA is slightly increase in FY 2020/21 which is 1.44% and again it
decrease in FY 2021/22 i.e. 1.09%. The return on assets ratio measure how effectively
a company can earn a return on its investment in assets. In other words, ROA shows
how efficiently a company can convert the money used to purchase assets into net
income or profits. Analyzing the return on assets of the bank , the ratio is 1.6% means,
every rupees that bank invested in assets during the year produced Rs.1.6 of net income.
Depending on the economy, this can be a healthy return rate no matter what the
investment is. The bank return on assets is very low in each year as it is commercial
bank.
• In table and figure 2.3 shows the return on shareholder’s equity of Sanima Bank
Limited. The ROE of the bank is 18.67 in FY 2017/18. Similarly, the ROE of the bank
is slightly increase to 23.20 in FY 2018/19 and highly decreased in FY 2029/20 i.e.
16.09. But in FY 2020/21 the ROE is slightly increase to 18.57. And again, it decrease
to 14.13 in FY 2021/22. Analyzing the ROE of the bank it decrease in first fiscal year
but slightly increase in second fiscal year. And then again, it decrease in next fiscal
year. As it analyzing the overall ROE of the bank , the ROE is in fluctuating trend as
the year increases.
• In table and figure 2.4 shows the dividend per share of Sanima Bank Limited. It shows
the fluctuating situation of DPS during this study period. The DPS in FY 2017/18 is
14.00 but in FY 2018/19 is highly increased to 21.05. And again it highly decreased to
13.60 in FY 2019/20. Similarly , in FY 2020/21 DPS of the bank is slightly increases
27
to 17.89. And again it decrease to 10.98 in FY 2021/22. Analyzing the DPS of the bank
in first fiscal year is decreased but in second fiscal year, it highly increasing and
vice:versa. Therefore, DPS of the bank is slightly decreasing year by year due to the
change in total dividend and common share.
• In table and figure 2.5 shows the earning per share of Sanima Bank Limited. The EPS
of the bank is 21.22 in FY 2017/18. Similarly, EPS of the bank is increases to 28.22 in
FY 2018/19. Again the EPS of the bank is decrease in FY 2019/20 i. e. 20.18 whereas
in next FY 2020/21, it slightly increase to 23.94. But again in FY 2021/22, EPS of the
bank is decreased to 18.48. Analyzing the EPS of the bank in second fiscal year, EPS
is increased but in next fiscal year it decreases. Similarly EPS of the bank is increasing
and decreasing year by year which means it is in fluctuating situation.
28
CHAPTER III
SUMMARY AND CONCLUSION
3.1. Summary
Nepal is one of the least developed countries of the world. For most of the developing
process, it is financially depending upon the foreign countries. It is economically too
weak. Thus, the economic condition of the people is weak. In Nepal 85% of the people
are depended upon agricultural sector which is unable to provide full employment to
the people. Nepal government has to activate people in the nation’s development
through overall industrialization of nation. For this purpose, development of sound
banking system is essential.
The commercial banks are of foremost importance to a country because of their roles
as a strong pillar for the economic development of a nation. With the wave of the
globalization and advancement in technologies, without the strong base of commercial
banking platform, the economic development of a nation is bound to be paralyzed.
Thus, it would be very legitimate to say that the commercial banks are of a more
importance to a developing country like Nepal and SANIMA Bank Ltd. being the
pioneer financial institutions of Nepal, has undouble filled such gap to a great extent.
Sanima Bank has been committed to meet customer expectations in all areas of its
business through continuous improvement of overall benefit of the economy. Sanima
Bank Limited is a national level commercial bank promoted by highly prominent
business personalities groups and reputed individuals of the region who have excelled
in their field of business/ profession with very good integrity and social standings.
29
The main objective of the study is to analyze the profitability position the the ratio
analysis of the bank. The ratios includes: NPM, ROA, ROE, DPS and EPS. The ratio
has been calculated as per the objective of the study. The bank is continuously
developing its capacity and extending its business area, for this the bank needs to well
equip and motivate its staff to do their work. The bank has invested in learning and
commercials programs so that it can add to the skill of employees to face future
challenges. It continuously looks for the opportunity for adding value to the
shareholders. The ratio is decrease because the market value per share of the bank is in
decreasing order and EPS also in decreasing order. Analyzing overall ROA of the bank
, ROA is decreasing in every year due to that bank makes less profit. Here, the ROA is
in fluctuating situation. It means the net profit of the bank is also fluctuating . The NPM
of the bank is also in fluctuation over the period.
3.2. Conclusion
With some commercial banks and development banks operating in Nepal, the market
seems over crowed and the banks are now finding a tough competition among
themselves. Since the entry barriers are not so high due to the government’s liberal
policy, this competition is expected to be more intense in the near future, as there is
always the possibility of a new player entering this sector. SANIMA Bank has not
maintained a balanced ratio among its deposit liabilities. Consequently, the bank does
not seem to be able to utilize its high cost resources in high yielding investment
portfolio. The investment portfolio of the bank has not been managed so efficiently as
to maximize the returns there from. The operational efficiency of the bank is found
30
unsatisfactory because of the series of operational loss over the period. Lower market
value is a reflection of a weaker profitability ratio of the bank.
On the basis of this study, the following conclusion can be made:
• The NPM of the bank is in fluctuating situation. In some fiscal year, NPM
is highly increased and in some fiscal year, it is highly decreased.. The
increase and decrease in NPM of the bank due to the change in NPAT and
Total Operating Revenue.
• The ROA of the bank is downward in every fiscal year due to change in
NPAT and total assets of the bank.
• The ROE of the bank , it increases in second fiscal year and again it starts
to decreased in next three fiscal year.
• In FY 2028/19 and FY 2020/21, DPS of the bank is increase as compared to
other fiscal year because it increases with the decreasing rate. So its DPS is
in decreasing trend.
• Analyzing the overall earnings per share of the bank , the EPS in FY 2018/19
is highly increased and other fiscal year EPS is slightly increasing and
decreasing. It means that EPS of the bank is in fluctuating trends as the year
increases.
31
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