CHAPTER ONE

INTRODUCTION

1.1 Background

Financial stability of a firm is associated with its ability to generate profit, increase
the value of invested capital and at the same time repay its short- and long-term
liabilities

Assessment of financial performance is primarily based on various methods of

financial analysis. Financial analysis is structural and logical way to present and
analyze overall financial information of a financial institution.

Performance evaluation is the important approach for enterprises to give incentive

and restraint to their operators and it is an important channel for enterprise
stakeholders to get the performance information (Sun, 2011).

The performance evaluation of a commercial bank is usually related to how well the
bank can use its assets, shareholders’ equities and liabilities, revenues and manage
expenses. In the practice of financial analysis, financial ratios are mainly used for
their simplicity and additional information value. Financial ratios are the most
popular and most widely used methods of financial analysis also because they can
be used as input data of more complex mathematical models.

Van Horne & Wachowicz Jr (2005) stated that,” To evaluate a firm’s financial
condition and performance, the financial analyst needs to perform “check-ups” on
various aspects of a firm’s financial health. A tool frequently used during these

1
check-ups is a financial ratio, or index, which relates two pieces of financial data by
dividing one quantity by the other”.

One can employ financial ratios to determine a firm’s liquidity, profitability,

solvency, and adequacy used financial ratios to show the financial position and
performance analysis of Bank.

To assess the results and to predict future financial development of a firm it is

necessary to connect data from financial analysis and other information that the firm
itself presents mainly in its annual report. Annual reports also present company’s
managerial priorities. To calculate this, quantitative data from bank’s financial
statement and other sources is sought.

(Pandey, 2004) James pointed out that financial ratios are used by bankers, creditors;
shareholders and accountants to evaluate data presented to an entity financial
statement. Depending on the results of the evaluations, bankers and creditors may
choose to extend or retract financing and potential shareholders may adjust the level
of commitment in a company. The evaluation of a firm’s performance usually
employs the financial ratio method, because it provides a simple description about
the firm’s financial performance in comparison with previous periods and helps to
improve its performance of management (Lin et al., 2005).

With this increase of competition in banking industry, every bank is trying to provide
their customers better services as much as possible to ensure maximum satisfaction
(Uppal, 2010). Evaluation of bank’s performance from time to time helps them to
know how well they are actually satisfying their customers and becoming successful.

If efficiency is gained in the banking sector, it will make the country domestically
and internationally more competitive and capable of generating more income and
employment opportunities. An appropriate evaluation of performance of selected

2
banks requires a range of financial, operational and economic indicators to be
applied (Chowdhury, 2002).

With respect to the Performances of Nepalese Banking sector, foreign and national
experts undertook number of studies. All these studies provide a great insight to
evaluate bank financial performance by using ratio, trend, correlation; the easiest
way to evaluate the performance of a firm is to compare its present ratio with the
past ratio. It gives an indicator of the direction of change and reflects whether the
firm’s financial performance has improved, deteriorated or remained constant
overtime.

1.2 Profile of Standard Chartered Bank

Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987
when it was initially registered as a joint-venture operation. Today, the Bank is an
integral part of Standard Chartered Group having an ownership of 70.21% in the
company with 29.79% shares owned by the Nepalese public. The Bank enjoys the
status of the only international bank currently operating in Nepal.IT is a leading
international banking group with a 160-year history in some of the world’s most
dynamic markets. Its heritage and values are expressed in its brand promise, Here
for good. Bank says “Our operations reflect our Purpose”, which is to drive
commerce and prosperity through unique diversity. SCB is present in 60 markets
and serve clients in a further 85.

The banks’ businesses serve four client segments in four regions- Europe &
Americas, Africa and Middle East, Asia & South Asia, Greater China & North Asia.
Standard Chartered PLC is listed on the London and Hong Kong Stock Exchanges
as well as the Bombay and National Stock Exchanges in India. With 15 points of

3
representation, 26 ATMs across the country and more than 531 local staff, Standard
Chartered Bank Nepal Limited is serving its clients and customers through an
extensive domestic network. In addition, the global network of Standard Chartered
Group enables the Bank to provide truly international banking services in Nepal.

Standard Chartered Bank Nepal Limited offers a full range of banking products and
services to a wide range of clients and customers including individuals, mid-market
local corporates, multinationals, large public-sector companies, government
corporations, airlines, hotels as well as the development organizations segment
comprising of embassies, aid agencies, bilateral entities, multilateral entities, non-
government organizations and international non-government organizations. The
Bank has been the pioneer in introducing client-focused products and services and
aspires to continue its leadership. It is the first Bank in Nepal to implement the Anti-
Money Laundering policy and to apply the ‘Know Your Customer’ procedure on all
the customer accounts.

The Bank believes in delivering shareholder value in a social, ethical and

environmentally responsible manner. Standard Chartered throughout its long history
has played an active role in supporting those communities in which its customers
and staff live.

Board of Directors details of Standard Chartered Bank Nepal:

Ms. Zarin Daruwala – Chairperson

Ms. Karen De Alwis – Director

Mr. Krishna Kumar Pradhan – Director

Mr. Bharat Kunwar – Director

Mr. Anirvan Ghosh Dastidar – Director

4
 Capital Structure Share Capital and Ownership

As on 31 Ashad 2077

Particulars Amount %
Authorized Capital
(90,000,000 Ordinary shares of Rs. 100 each) 9,000,000,000
Issued Capital
(80,114,306 Ordinary shares of Rs. 100 each) 8,011,430,667
Subscribed and paid-up capital
(80,114,306 Ordinary shares of Rs. 100 each) 8,011,430,667
Total 8,011,430,667

Particulars Amount ( %)
Domestic ownership 29.79
Nepal Government
"A" class licensed institution
Other licensed institutions
Other institutions 2.63
Public 27.16
Other
Foreign ownership 70.21
Total 100

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1.3 Statement of Problem

Financial statement analysis can be a very useful tool for understanding a firm’s
performance and conditions. However, there are certain problems and issues
encountered in such analysis which call for care, circumspection and judgment.

In Nepal, the profitability rate, operating expenses and dividend distribution rate
among the shareholders have been found different in the financial performance of
the bank in different periods of time. The problem of the study will ultimately find
out the reasons about difference in financial performance. A comparative analysis
of financial performance of the bank over different time periods would be highly
beneficial for pointing out its strength and weakness. Although commercial banks
are considered efficient, but how far are they efficient? This question does emerge
in banking sector. At present we have twenty-seven commercial banks. In spite of
rapid growth, some indicators show performance is not much encouraging towards
the service coverage. In such a situation, this study tries to analyze the present
performance of banks, which would give the answers to following queries:

a) What is the comparative liquidity, profitability and activity ratio of the bank
over different time periods?

b) Is the trend of different ratios of the bank satisfactory over different time
periods?

6
1.4 Objectives

PRIMARY OBJECTIVE:

 To analyze the financial performance with reference to Standard Chartered Bank

Nepal ltd.

 To evaluate the financial position in terms of profitability, activity, and earnings

ratios.

1.5 Rationale

Report writing is very significant to students as it helps to broaden their mind by

studying directly without another proper guide. The case of the study is related with
the financial performance of Standard Chartered bank Nepal ltd. The analysis will
be helpful to know the financial strength of the bank. It is hoped that the study will
help to improve the performance of the bank in future. Lastly, it becomes the most
suitable literature for future study.

1.6 Review

1.6.1 Conceptual Review

Ahuja (1998), “Financial Performance analysis is a study or relationship among the

various financial factor in business a disclosed by a single set of statement and a
study of the trend of these fact as shown in a series of statements. By establishing a
strategic relationship between the item of a balance sheet and income statements and
other operative data, the financial analysis unveils the meaning and signification of
such items.”

7
Pandey (1997) has defined as “The finance statement provides a summarized view
of the financial operation of the firm. Therefore, something can be learnt about a
firm and careful examination of the financial statements as invaluable documents or
performance reports. Thus, the analysis of financial statement is an important aid to
financial analysis or ratio analysis which is a main tool of financial statement
analysis.

According to Metcalf and Tatar (1996), “Financial Performance analysis is a process

of evaluating the relationship between components parts of a financial statement to
obtain a better understanding of a firm’s position and performance.”

Khan and Jain have defined that (1990) “The ratio analysis is defined as the
systematic use of ratio to interpret the financial performance so that the strength and
weakness of firm as well as its historical performance and current financial condition
can be determined.”

In the word of Horne (1994) “Financial ratio can be derived from the balance sheet
and the income statement. They must be analyzed on a comparative basis. Ratio may
also be judged in comparison with those of similar firms in the same line of business
and when appropriate, with an industry average and we can look to future progress
in this regard.”

A comparative study of financial performance is a basic process, which provides

information on profitability, liquidity position, earning capacity, efficiency in
operation, sources and use of capital, financial achievement and status of the
companies. This information will help to determine the extent of efficiency and
effectiveness of the company in respect of deploying financial resources in the
profitable manner.

8
Brigham and Houston (2004) views that financial profitability lies in a firm’s ability
to generate revenues in excess of its costs: for either long or short term. In the long
run, a firm should be able to maintain the value of invested capital and able to yield
a profit, which exceed the opportunity cost of cost of capital meaning that the yield
generated by the firm should exceed the opportunity cost of capital.

Elumilade et al. (2006) described investment decision as one of the most significant
decision Areas that affect the future profitability either because it might result in an
increase in revenue or because it can cause an increase in efficiency and reduction
in costs.

A tool used by individuals to conduct a quantitative analysis of information in a

company’s financial statements. Ratios are calculated from current year numbers
and are then compared to previous years, other companies, the industry, or even the
economy to judge the performance of the company. Ratio analysis is predominately
used by proponents of fundamental analysis (Investopedia)

1.6.2 Review of Previous Work

Prior to this study, the several researchers have found various studies regarding
financial performance of commercial and joint venture banks. In this study, only
relevant subject maters are reviewed.

Oberholzer & Van der Westhuizen (2004) investigated the efficiency and
profitability of ten banking regional offices of one of South Africa's larger banks.
This study demonstrates how conventional profitability and efficiency analyses can
be used in conjunction with DEA.

9
Although their study concentrated on banking regions; their findings confirm those
of Yeh (1996) that DEA results as an efficiency measure have a relationship with
both profitability and efficiency ratios. The conclusions were that there are
significant relationships between conventional profitability and efficiency measures
and allocative, cost and scale efficiency and no significant relationship with
technical efficiency.

Cronie (2007) who employed the DEA method and a sample of 13 South African
banks to provide a measure of the efficiency of the South African banks. His findings
show that out of the 13 banks, the three largest banks are efficient and serve as a
standard for the banks classified as inefficient.

The fourth largest bank showed a slight inefficiency. Overall, seven banks were
classified as inefficient and the article recommends target areas for the banks to
improve their efficiencies with guidelines that bankers in inefficient banks could use
to increase their sustainable profitability.

UK where Drake (2001) & Webb (2003) found the larger banks less efficient. This
difference could be attributed to the differences in operating environment as South
Africa is an emerging economy with a different political and economic history
whereas UK is a developed country.

Ncube (2009) who uses the stochastic frontier model to analyze the cost and profit
efficiency of four large and four small South African banks. The results of the study
show that South African banks have significantly improved their cost efficiencies
between 2000 and 2005 with the most cost-efficient banks also being most profit
efficient.

The measurement of bank performance particularly commercial banks is well

researched and has received increased attention over the past years (Sei ford and

10
Zhu, 1999). There have been a large number of empirical studies on commercial
bank performance around the world (see Yeh, 1996; Webb, 2003; Lacewell, 2003;
Halkos and Salamouris, 2004; Tarawneh, 2006).

Traditionally accounting methods primarily based on the use of financial ratios have
been employed for assessing bank performance (Ncube, 2009). However, the
limitations of this method coupled with advances in management sciences have led
to the development of alternate methods such as non-parametric DEA and
parametric Stochastic Frontier Approach (hereafters) (Berger and Humphrey, 1997).

Shrestha (2003) Profitability in future is sound for the commercial banks in Nepal.
Since the only 15 years old commercial banks are selected as a sample and weighted
interest rate is used as discounting rate; the result should not be generalized from
this study.

In the Samad (2004) investigated the performance of seven locally incorporated

commercial banks during the period 1994-2001. Financial ratios were used to
evaluate the credit quality, profitability, and liquidity performances. The
performance of the seven commercial banks was compared with the banking
industry in Bahrain which was considered a benchmark. The article applied a
Student’s t-test to measure the statistical significance for the measures of
performance. The results revealed that commercial banks in Bahrain were relatively
less profitable, less liquid and were exposed to higher credit risk than the banking
industry, in which wholesale banks are the main component.

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1.7 Research Methods

1.7.1 Research Design

Research design is the task of defining the research problem. In other words, "A
research design is the arrangement of conditions, for collection and analysis of data
in a manner that aims to combine relevance to the research purpose with economy
in procedure. In fact, the research design is the conceptual structure within which
the research is conduct. General objective of this research is to examine and evaluate
the financial performance of joint venture bank especially that of Standard Chartered
Bank Nepal. In order to achieve this objective, descriptive research design has been
followed. Also, the research is based on historical research design (used of historical
data for analysis).

1.7.2 Population and Sample

The population for this study comprises of 27 commercial banks currently operating
in the country. The sample consists of one judgmentally selected bank- Standard
Chartered Bank Nepal ltd. This unit represents 3.70% of the total population.

1.7.3 Sources of Data

The present study is based on secondary data. The necessary data is obtained from
published Annual report containing Statement Of financial position, Statement of
Comprehensive Income and other related statements of the bank. Likewise, other
relevant information’s are also obtained from various sources such as various
publications, business magazines, journals and newspaper. According to the need
and objectives, secondary data are compiled, processed and tabulated in time series.
In order to judge the reliability of data provided by the bank and other sources they
were complied with the annual reports of the bank. The data used in this study is
mainly based on the annual reports of Standard Chartered Bank Nepal ltd.

12
1.7.4 Data Collection Strategy

The study is based on secondary data from annual financial report of SCBNL.It relies
on both published and unpublished report that relate to this study. The conclusion is
based on financial statement of SCBNL.

1.7.5 Tools of Data Analysis

Data Analysis tools are those, that are used for the analysis and interpretation of
financial data. These tools are fruitful in exploring the strengths and weaknesses of
the financial policies and strategies. In the study various financial tools have been
used, which are as follows.

Liquidity Ratios:

 Cash and Bank Balance to Current & Saving Deposit Ratio.

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

 Fixed Deposit to Total Deposit Ratio

The ratio shows what percentage of total deposit has been collected in form of fixed
deposit. High ratio indicates better opportunity available to the bank to invest in
sufficient profit generating long-term loans. Low ratio means bank should invest the
fund of low cost in shortterm loans.

13
Profitability Ratios:

 Return on Asset

The ratio is calculated by dividing net profit after tax by total on asset on the bank.
Net profit refers to the profit deduction of interest and tax. A total asset means the
assets that appear in asset of balance sheet. It measures the efficiency of bank in
utilization of the overall assets. High ratio indicates the success of management in
overall operation. Lower ratio means insufficient operation of the bank.

 Return on Net Worth

The ratio is computed by dividing net profit after tax by net worth. The ratio is tested
to see the profitability of the owner's investment "reflects the extent to which the
objective of business is accomplished".

 Return on Total Deposit

The ratio is computed by dividing net profit after tax by total deposit. The ratio
shows the relation of net profit earned by the bank with the total deposit
accumulated. High ratio is the index of strong profitability position.

Turnover ratio:

 Loan and Advanced to Total Deposit Ratio

The ratio is computed by dividing total loans and advances by total deposit liabilities.
High ratio means the greater use of deposits for investing in loans and advances.
However, very high ratio shows poor liquidity position and risk in loans on the
contrary; too low ratio may be the causes of idle cash or use of fund less efficiently.

14
 Investment to Total Deposit Ratio

The ratio obtained by dividing investment by total deposits collection in the bank.
The ratio shows how efficiently the major resources of the bank have been
mobilized. High ratio indicates managerial efficiency regarding the utilization of
deposits. Low ratio is the result of less efficiency in use of funds.

Other Ratios:

 Capital Adequacy Ratio

The capital adequacy ratio (CAR) is a measurement of a bank's available capital

expressed as a percentage of a bank's risk-weighted credit exposures. The capital
adequacy ratio is used to protect depositors and promote the stability and efficiency
of financial systems around the world.

 Earnings Per Share (EPS)

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

equities shares out-standing. Earnings per share refers to the income available to the
common shareholders on per share basis, it enables us to compare whether the
earning based on per share basis has changed over past period or not. The investors
favor high EPS. It reflects the sound profitability of the bank.

 Price-Earnings Ratio (P/E Ratio)

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

15
1.8 Limitations of the Study

The major limitations of the study are as follows:

 Limited variables have been selected.

 This study is based on secondary data.

 It ignores the qualitative aspects.

 Only selected financial and statistical tools and techniques have been used.

 This study covers data of past five years only.

16
 CHAPTER TWO

RESULT AND ANALYSIS

Results

The report mainly focuses firm with its profitability, liquidity, turnover, capital
exposure and PE ratio. These are important tools used to measure financial
performance of an entity. In the Report, Profitability ratios are used to determine
efficiency and performance. Profitability ratio are two types: margins and return.
Only relevant return type is used in our report. It shows overall efficiency of firm in
generating returns for its shareholders. It provides stakeholder a measure to judge a
company’s ability to make profits and be considered a worthy investment. Liquidity
ratio is used to measure ability of bank to meet its short-term obligations. However,
Higher ratio indicates idle fund with the bank and inefficiency of its utilization. It
hurts profitability and financial performance of the bank. Turnover ratio is used as
an indicator of the efficiency with which the bank is using its assets to generate
revenue. The higher turnover ratio, the more efficient the bank is at generating
revenue from its assets. Conversely, if the bank has a low turnover ratio, it indicates
it is not efficiently using its assets to generate revenue. Capital adequacy is measured
in order to see legal compliance with unified directives issued by NRB. More is the
capital adequacy ratio; more is the buffer provided to depositors and creditor from
risk exposure.PE ratio is used in order to analyze whether the bank is expected to
perform well in future or not. It shows expectations of the investors in the market
toward the bank. High PE ratio indicates high expectations and hence high growth
potential. Low PE ratio may indicate low market expectations or sometimes.it is the
case of undervaluation if measured in relative terms with peer companies.

17
Liquidity Ratios:

Cash and Bank Balance to Current & Saving Deposit Ratio

The ratio is computed by dividing cash and bank balance by current and saving
deposits. It can be shown with the help of table below:

Table 1

Cash and Bank Balance to Current & Saving Deposit Ratio

Year Cash and Bank Current plus saving Ratio

Balance
2016/17 15,549,042,772 40,601,638,126 0.38
2017/18 22,397,734,122 29,434,203,611 0.76
2018/19 22,048,328,040 36,128,648,005 0.61
2019/20 12,626,985,439 38,946,538,581 0.32
2020/21 39,244,049,170 47,522,438,603 0.83
Noted from Annual reports of SCBNL

The highest ratio is 0.83(83%) during the year 2020/21. The ratio shows decreasing
trend from 2016/17 to 2020/21. The ratio follows increasing trend from 0.32 in
2019/20 to 0.83 in 2020/21.

The increase in the ratio in the first year and final year shows the increase in ability
of the bank to meet short term obligations. However short-term liquidity position is
affected in year 2017/18 and 2018/19. Highest ratio in the year 2020/21 indicates
idle cash and bank balance with the bank. Such idle cash and bank hurts profitability
and financial performance of the bank.

18
 Cash and Bank to Current & Saving Deposit Ratio
0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

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

Figure 1: Cash and Bank Balance to Current & Saving Deposit Ratio

Fixed Deposit to Total Deposit Ratio

The ratio is computed by dividing fixed deposit by total deposits. It can be shown
with the help of table below:

Table 2

Fixed Deposit to Total Deposit Ratio

Year Fixed Deposit Total Deposit Ratio

2016/17 3,214,055,415 55,727,178,456 0.06
2017/18 27,133,198,495 59,694,608,671 0.45
2018/19 24,731,725,866 67,061,046,522 0.37
2019/20 24,068,349,788 75,731,572,432 0.32
2020/21 24,224,366,515 95,020,841,249 0.25
Noted from Annual reports of SCBNL

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The highest ratio is 0.45(45%) during the year 2017/18. The ratio then follows
decreasing trend from 2017/18(0.45) to 2020/21 (0.25). The ratio is lowest in the
first year which is 0.06.

The trend indicates the portion of total deposit occupied by fixed deposit is in
decreasing trend. The bank is not able to lock funds in long term profitable
investments.

Fixed Deposite to Total Deposit

0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2016/17
2017/18
2018/19
2019/20
2020/21

Figure 2 : Fixed Deposit to Total Deposit

Profitability Ratios:

Return on Asset

The ratio is calculated by dividing net profit after tax by total on asset on the bank.
It can be shown with the help of table below:

Table 3 Return on Asset

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 Year NPAT Total Assets ROA
2016/17 1,264,648,000 65,348,423,874 0.01935
2017/18 1,549,986,963 78,356,012,689 0.01978
2018/19 2,189,898,090 84,031,554,906 0.02606
2019/20 2,434,664,521 93,264,183,123 0.02611
2020/21 1,987,390,942 116,438,273,521 0.01707
Noted from Annual reports of SCBNL

In the first year, the ROA was 0.01935(1.93%). From 2016/17 to 2017/18 it follows
increasing trend. But in from 2017/18 to 2019/20 it increases slightly and thereafter
reaches to 0.0170 (1.70%) in the year 2020/21 which is again in decreasing trend.

The trend line in figure 3 show increasing trend up to first four years and thereafter
the trend declines in last year. The decrease in ROA during the year 2019/20 shows
inefficiency in utilization of assets of the bank. Further, the performance of the
management is less satisfactory in the year 2019/20 in comparison to previous four
years.

ROA
0.03

0.025

0.02

0.015

0.01

0.005

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

Figure 3 : Return on Assets (ROA)

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Return on Net Worth/Return on Equity

The ratio is computed by dividing net profit after tax by net worth. It can be shown
with the help of table below:

Table 4

Return on Net Worth

Year NPAT Net Worth ROE

2016/17 1,264,648,000 7,736,209,000 0.1635
2017/18 1,549,986,963 12,379,792,867 0.1252
2018/19 2,189,898,090 13,925,502,179 0.1573
2019/20 2,434,664,521 14,927,074,559 0.1631
2020/21 1,987,390,942 15,102,495,274 0.1316
Noted from Annual reports of SCBNL

The return generated by the equity during the year 2016/17 is highest (16.35%)
which indicates better financial performance during the year. The return declined in
the next year to 12.52% and again spiked and followed increasing trend up to year
2018/19 reaching 16.31%. The RONW again decreased in the year 2020/21.

The highest RONW during year 2016/17 indicates effectiveness of utilization of

funds contributed by equity including cumulative retained earnings. The bank ability
to covert equity funds into net profit (earnings) is found to be higher during the year
2016/17 and from 2016/17 to 2018/19. It shows better financial performance of the
bank in terms of profitability during those years. However, there is decrease in
RONW during the year 2017/18 and 2020/21.This shows volatility in profitability
indicating volatility in financial performance of the bank indicating negative trend
in return to shareholder’s equity.

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 RONW
0.18

0.16

0.14

0.12

0.1

0.08

0.06

0.04

0.02

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

Figure 4: Return on Net worth (RONW)

Return on Total Deposit

The ratio is computed by dividing net profit after tax by total deposit. It can be shown
with the help of table below:

Table 5

Return on Total Deposit

Year NPAT Total Deposit ROTD

2016/17 1,264,684,000 55,727,178,456 0.023
2017/18 1,549,986,963 59,694,608,671 0.026
2018/19 2,189,898,090 67,061,046,522 0.033
2019/20 2,434,664,521 75,731,527,432 0.032
2020/21 1,987,390,942 95,020,841,249 0.021
Noted from Annual reports of SCBNL

23
The highest ratio is 0.033(3.3%) during the year 2018/19. The return generated by
Total deposit follows increasing trend from year 2016/17 to 2018/19. After that, the
return on total deposit follows decreasing trend up to year 2020/21.

The chart in figure 5 shows fluctuating return on total deposit especially during the
year 2019/20 and 2020/21. It means the ability of banks total deposit to generate
revenue or income is low during those years. The decrease in the revenue generated
by asset is hurting profitability and hence performance of the bank is in decreasing
trend.

ROTD

16% 17%

2016/17
2017/18
2018/19
24% 19%
2019/20
2020/21

24%

Figure 5 : Return on Total Deposit (ROTD)

24
Turnover ratio:

Loan and Advances to Total Deposit Ratio:

The ratio is computed by dividing total loans and advances by total deposit liabilities.
It can be shown with the help of table below:

Table 6

Loan and Advances to Total Deposit Ratio

Year Loan and Total Deposit Ratio

Advances
2016/17 50,419,575,666 55,727,178,456 0.90
2017/18 40,044,317,000 59,694,608,671 0.67
2018/19 46,696,179,867 67,061,046,522 0.70
2019/20 55,633,581,545 75,731,527,432 0.73
2020/21 56,935,754,731 95,020,841,249 0.60
Noted from Annual reports of SCBNL

The highest ratio is 0.90(90%) during the year 2016/17. It decreases to 67% in the
year 2017/18 and thereafter follows increasing trend up to year 2018/19. The ratio
again decreases from year 2019/20 to 2021/22.

The conversion of deposit into loans is decreasing in the first year and it increases
up to year 2018/19 and again decreases. The banks’ ability to attract and retain
customer is volatile over past five years. The bank is earning more from year 2016/17
to 2020/21. In total, the banks’ ability to cover unexpected withdrawals and loan
losses is not compromised.

25
 Loans & Advances to Total Deposit
1

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

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

Figure 6 : Loans and Advances to Total Deposit

Investment to Total Deposit Ratio

The ratio obtained by dividing investment by total deposits collection in the bank. It
can be shown with the help of table below:

Table 7

Investment to Total Deposit Ratio

Year Investment Total Deposit Ratio

2016/17 402,477,960 55,727,178,456 0.01
2017/18 4,810,675,143 59,694,608,671 0.08
2018/19 4,660,992,993 67,061,046,522 0.07
2019/20 11,538,225,160 75,731,527,432 0.15
2020/21 13,058,680,842 95,020,841,249 0.14

26
Noted from Annual reports of SCBNL

The highest ratio is 0.15 during the year 2018/19. The investment to total deposit
ratio is lowest in the first year and it follows increasing trend up to year 2018/19.
Thereafter the ratio decreases from the year 2019/20 to 2020/21.

The bank is utilizing its deposit in the form of investment in different sector in the
first 4 years. However, there is less utilization of deposit in investment activities of
the bank during the last year.

Investment to Total Deposit

2020/21

2019/20

2018/19

2017/18

2016/17

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

Figure 7 : Investment to Total Deposit

27
 Other Ratios:

Capital Adequacy Ratio

The capital adequacy ratio (CAR) is a measurement of a bank's available capital

expressed as a percentage of a bank's risk-weighted credit exposures. It can be shown
with the help of table below:

Table 8

Capital Adequacy Ratio

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

Total RWE(B) 83,299,506,133 76,051,928,650 60,838,819,524 56,801,993,000 47,485,471,000
Risk due to 74,924,511,754 68,087,413,285 54,179,644,262 50,192,675,000 41,402,347,000
credit risk
Risk due to 1,378,548,499 1,536,868,035 1,380,549,380 1,330,724,000 1,155,729,000
market risk
Risk due to 6,048,974,948 5,491,535,583 4,598,925,881 4,598,926,000 4,350,273,000
Operational risk
Capital
Core capital 14,033,589,281 13,926,067,639 13,034,300,357 11,119,338,000 6,684,918,000
(Tier 1)
Paid up Equity 8,011,430,667 8,011,430,667 8,011,430,667 4,005,715,000 2,812,426,000
Share Capital
Proposed
Bonus Equity 0 0 0 4,005,715,0000 937,475,0000
Share 0 0 0
Share Premium
Statutory

28
General 4,504,238,725 4,106,847,847 3,619,827,633 3,181,848,000 2,897,529,000
Reserves
Retained 1,517,919,889 1,807,876,436 1,403,042,058 9,786,000 115,368,000
Earnings
Un-audited 0 0 0 0 0
Current Year
Other Free 0 0 0 0 0
Reserve
Less: Deferred 0 0 0 83,726,000 77,880,000
Tax Assets
Less: Fictitious 0 0 0 0 0
Assets
Supplementary 1,388,345,459 1,044,922,315 952,545,226 855,763,000 1,094,490,000
Capital (Tier 2)
General loan 852,161,527 549,599,930 486,039,696 411,953,000 333,114,000
Loss provision
Exchange
Equalization 536,183,931 495,322,385 466,505,530 438,422,000 413,839,000
Reserve
Subordinated 0 0 0 0 0
Term Debts
Deductions 0 0 0 0
from capital
investment
Adjustment 0 0 0 5,388,00 347,537,000
Reserve
Total 15,421,934,73 14,970,989,95 13,986,845,58 11,975,101,00 7,779,409,000
Qualifying 9 4 3 0
Capital(A)
Capital
Adequacy
Ratio

29
Total Capital 18.51% 19.69% 22.99% 21.08% 16.38%
to Total risk
exposure 16.85% 18.31% 21.42% 19.58% 14.08%
Tier 1 to Total
risk exposure

30
Noted from Annual reports of SCBNL
As per Unified directives issued by Nepal Rastra Bank, Banks shall maintain a
minimum total capital (MTC) of 8.5% of total risk weighted assets (RWAs) i.e.,
Total capital to risk weighted exposure and 6% of Tier 1 to Total risk exposure.

The adequacy of capital provides buffer to risk exposure and protects depositors,
creditors as well as helps to increase public confidence in the banking system. Table
8 above shows adequate compliance of the bank towards capital adequacy ratio over
past five years.

Earnings Per Share (EPS)

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

equities shares out-standing. It can be shown with the help of table below:

Table 9
Earnings Per Share (EPS)

Year EAE No of Shares EPS

2016/17 1,264,684,862 23,130,903 45.96
2017/18 1,549,986,963 34,031,848 35.49
2018/19 2,189,898,090 80,114,307 27.33
2019/20 2,434,664,521 80,114,307 30.39
2020/21 1,987,390,942 80,114,307 24.81
Noted from Annual reports of SCBNL

During the study of EPS, it is found that the EPS is in peak in the initial year i.e.,
2016/17.Afterward, it is continually decreasing during the next two years. However,

31
the trend is increasing from 2017/18 and thereafter EPS again follows decreasing
trend from year 2019/20 to 2020/21.

By the analysis of the figure 8, it is seen that EPS is continually decreasing. It reaches
to RS 24.81 in 2019/20 from Rs 30.39 in the year 2020/21 which shows EPS to be
in decreasing trend. The earnings of each shares of the bank is in decreasing trend.
Since, EPS in its absolute term reflects very less about financial performance it is
better suited and used with PE ratio as shown in the next section.

EPS

50
45
40
35
30
25
20
15
10
5
0
2016/17 2017/18 2018/19 2019/20 2020/21

Figure 8 : Earnings per Share (EPS)

Price-Earnings Ratio (P/E Ratio)

It is computed by dividing market price per share by earnings per share. It can be
shown with the help of table below:

Table 10

Price-Earnings Ratio (P/E Ratio)

Noted from Annual reports of SCBNL

32
 Year EPS MPS PE Ratio
2016/17 45.96 3600 78.33
2017/18 35.49 2295 64.67
2018/19 27.33 755 27.63
2019/20 30.39 682 22.44
2020/21 24.81 645 26.00

The PE ratio is highest during the year 2016/17. The ratio decreases to 22.44 times
in the year 2019/20.After that, PE ratio increases to 26 times in the year 2020/21.

The expectation of the market towards the bank is in decreasing trend during the first
four years. People are willing to pay less every year up to 2019/20 for each rupee
value of the stock. However, the expectation of market increases in the final year
(2020/21). It shows growth potential of the bank and expectations of the market.

PE Ratio
90

80

70

60

50

40

30

20

10

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

Figure 9 : PE Ratio (Price to Earnings Ratio)

33
Major Findings of the Study

The major findings of the study have been summarized below:

 The Liquidity ratio (cash and bank to current & savings deposit ratio) is 0.83(83%)
during the year 2020/21. The ratio shows decreasing trend from 2017/18 to 2019/20.
The ratio follows increasing trend from 0.32 in 2019/20 to 0.83 in 2020/21. Also,
the fixed deposit to total deposit ratio shows decreasing trend from 2017/18 (0.45)
to 2020/21 (0.25). Therefore, this fluctuation shows idle cash and bank balance not
properly utilized. It hurts financial performance.

 The ROA of bank from year 2018/19 to 2019/20 increases slightly and thereafter
reaches to 0.0170 (1.70%) in the year 2020/21 which is again in decreasing trend.
The decrease in ROA during the year 2020/21 shows inefficiency in utilization of
assets of the bank. The performance of the management is less satisfactory in the
year 2019/20 in comparison to previous four years.

 The ROE showing the banks’ ability to covert equity funds into net profit
(earnings) is found to be higher during the year 2016/17 and from 2017/18 to
2019/20. It shows better financial performance of the bank in terms of profitability
during those years. However, there is decrease in ROE during the year 2017/18 and
2019/20.This shows volatility in profitability indicating volatility in financial
performance of the bank indicating negative trend in return to shareholder’s equity.

 The return generated by Total deposit follows increasing trend from year 2016/17
to 2019/20. After that, the return on total deposit follows decreasing trend up to year
2020/21. The decrease in the revenue generated by asset is hurting profitability and
hence performance of the bank is in decreasing trend.

34
 Loans and advances to Total deposit ratio shows decreasing trend in the first year
and increasing trend up to year 2019/20 and again it shows increasing trend. The
banks’ ability to attract and retain customer is volatile over past five years. In total,
the banks’ ability to cover unexpected withdrawals and loan losses is not
compromised.

 Investment to Deposit ratio follows increasing trend up to year 2019/20. Thereafter

the ratio decreases from the year 2019/20 to 2020/21. This shows volatility in
utilisation of deposit for investing activities over past years.

 Capital adequacy ratio shows adequate compliance of the bank towards capital
adequacy requirement issued by NRB over past five years.

 It is seen that EPS is continually decreasing. It reaches to Rs 24.81 in 2020/21 from

Rs 30.39 in the year 2019/20 which shows EPS to be in decreasing trend. Therefore,
the earnings of each shares of the bank are in decreasing trend.

 By analysis of PE ratio, the expectation of the market towards the bank is in

decreasing trend during the first four years. People are willing to pay less every year
up to 2018/19 for each rupee value of the stock. However, the expectation of market
increases in the final year (2020/21). It shows growth potential of the bank and
expectations of the market to be rising.

35
 CHAPTER THREE
SUMMARY AND CONCLUSION

3.1 Summary

The research work entitled financial performance analysis of Standard Chartered

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

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

36
3.2 Conclusion

 By analyzing the liquidity ratio of SCBNL, we can see that it is in fluctuating trend.
The bank is not maintaining stable liquidity position. It indicates short term liquidity
risk to meet short term obligations, which in turn hurts profitability. Therefore, the
performance of bank in terms of liquidity is not satisfactory over different periods.

 The decrease in ROA over past five years indicates that the company is not making
enough income from the use of its assets. It may be due to low-income efficiency
and poor management. The bank is not using its total asset to generate maximum
revenue. The rate of ROA indicated inefficient management at using its assets to
generate earnings. Therefore, the performance of bank in terms of ROA is not
satisfactory over different periods.

 By analyzing ROE, we can see that it is fluctuating over past five years. It means
the management team is not managing the equity properly that the shareholders have
contributed to the company. Therefore, the performance of bank in terms of ROE is
not satisfactory over different periods.

 By analysis of Loans and advances to Total deposit ratio, we can see that it is
volatile over past five years. This may hurt the banks’ ability to attract and retain
customer over long period of time. Therefore, the performance of bank is not
satisfactory over different periods.

 By analysis of Compliance of the bank towards capital adequacy requirement

issued by NRB, we can say bank is maintaining proper buffer for overall risk
exposures.

37
 The EPS is gradually decreasing. However, the number of outstanding shares is
relatively similar over five years but there is fluctuation in net income of the bank.
It shows the company has to reduce fixed expenses to increase the net profit.

 By analysis of PE ratio, we can see that people are willing to pay less every year
up to 2019/20 for each rupee value of the stock. However, the expectation of market
increases in the final year (2020/21). It shows growth potential of the bank and
expectations of the market to be rising. Therefore, the performance of bank is
expected to rise in future.

 Report writing is very useful for reader to know about the financial state of
Standard Chartered Bank Nepal limited. The case of the study is related with the
profitability position and the capital structure of the bank. The analysis of the
presented data will be helpful to know the financial strength of Standard Chartered
Bank Nepal limited. It is hope that it will become the most suitable literature for
future study.

 If in future same research is conducted, the researcher shall consider more ratios
which indicate the financial performance of bank.

 Through the current research, the investor can take decision about investment on
commercial bank.

 By above analysis, the shareholders will know about the current position of
SCBNL in terms of profitability, liquidity, Turnover and PE ratio.

 The above research can be a reference to stakeholders to know about the current
condition of other commercial banks also.

38
 Bibliography

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Fabozzi, F., & Modigliani, F. (2013). Foundation of Financial Market and

Institutions (4th edition). New Delhi, India: Pearson New International.

Van Horne, J.C. (2000). Financial Management Policy (11th edition). New Delhi:
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Adhikari, D. R & Pandey, D.L. (2012). Business research methods. Kathmandu:

AsmitaBooks Publishers.

Horne, V. J. C., & Wachowicz, J.M. (2005). Financial statement analysis (11th
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Khan, M.Y. and Jain P.K. (1997). Management Accountancy, New Delhi: Mc Graw-
Hill Publishing company Ltd

Pandey, I. M. (2004). Financial statement analysis (9th edition). New Delhi, India:
Vikas Publishing House Pvt Limited.

Weston, J. F., & Brigham, Eugene F. (1972). Managerial Finance, New York, Holt
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Saunders, A., & Cornett, M.M. (2019). Financial Markets and Institutions (7th
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39
Websites:

https://www.sc.com/np/

www.nrb.org.np

https://www.simplilearn.com/financial-performance-rar21-article

https://www.investopedia.com

40
 Appendix
Table 1
Cash and Bank Balance to Current & Saving Deposit Ratio
Cash and Bank Balance
Current & Saving Deposits

Table 2
Fixed Deposit to Total Deposit Ratio

Fixed Deposit
Total Deposit

Table 3

Return on Asset

Net Profit After Tax

Total Asset

Table 4
Return on Net Worth
Net Profit After Tax
Net Worth

Table 5
Return on Total Deposit
Net Profit After Tax
Total Deposit

41
Table 6
Loan and Advances to Total Deposit Ratio
Loan and Advances
Total Deposit

Table 7
Investment to Total Deposit Ratio
Investment
Total Deposit

Table 8
Capital Adequacy Ratio
Total Capital
Total Risk Exposure

Tier 1 Capital
Total Risk Exposure

Table 9
Earnings Per Share (EPS)
Earning available to Common equity
Number of Equity Shares outstanding

Table 10
Price-Earnings Ratio (P/E Ratio)

Market Value per Share

Earning per Share

42