LIQUIDITY ANALYSIS OF PRIME COMMERCIAL

BANK LIMITED

A Project Work Report

Submitted By:
Punam Gautam
T.U. Regd No.: 7-2-491-15-2018
Symbol No: 704910009
Galkot Multiple campus

Submitted To:
Faculty of Management
Tribhuvan University

In Partial Fulfillment of the Requirement for the Degree of

Bachelor of Business Studies (BBS)

Kathmandu, Nepal
April, 2023
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 DECLARATION

I hereby declare that the project work entitled LIQUIDITY ANALYSIS OF PRIME
COMMERCIAL BANK LIMITED submitted to the Faculty of Management, Tribhuvan
University, Kathmandu, is an original piece of work under the supervision of Krishna Bohara.
Faculty Member, Galkot Multiple Campus, Baglung 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.

Signature:
Name of Student: Punam Gautam
Date:

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 SUPERVISOR’S RECOMMENDATION

Punam Gautam has defended project report work entitled "Impact of Liquidity on Profitability of
Prime Commercial Bank Limited” successfully. The supervisor has registered the project report
for further progress. It is recommended to carry out the work as per suggestion and guideline of
supervisor Mr. Krishna Bohara and submit the project report work for evaluation and viva-
voce examination.

Mr.Krishna Bohara Project Report work Proposal Defended Date:

Position .................................. ………............................................................

Signature................................

Project Report Work Viva-voce Date:

…...........................................................

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 ENDORSEMENT

We hereby endorse the project work report entitled LIQUIDITY ANALYSIS OF PRIME
COMMERCIAL BANK LIMITED, submitted by Punam Gautam of Galkot Multiple Campus,
Baglung, in partial fulfillment of the requirementsfor the degree of the Bachelor of Business Studies
(BBS) for external evaluation.

Signature: Signature:
Name of Chairperson: Mr. Khim Gautam Name of Chief: Mr. Mukunda Bhandari
Chairman, Research Committee Campus Chief/Principal
Date: Date:

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 ACKNOWLEDGEMENTS
Liquidity and profitability terms are merely contrary since if we preserve high liquidity to meet
daily payment such as deposit withdrawal, salary for staffs, interest on deposit etc. without
making investment as loan and advances by bank while profitability comes from investment
without which bank return on its investment will be low. Market liquidity reflects to liquidity
within market, such as the stock market or real estate market whereas accounting
liquidity reflects to the capability of a business or individual to meet their short term debt
commitments. Rather, an individual or business that has their cash tied up in assets cannot be
converted to cash promptly may be somewhat illiquid. A class commercial bank has been a
sample for this project report to get liquidity and it impact on profitability for the bank.
Therefore, the motives of study is to figure out current status of liquidity ratio, ascertain level of
liquidity issues and ascertain the liquidity factors that impact on profitability. This project report
work is purely performed to accomplish the partial requirement of Bachelor of Business Studies
(BBS). Thus, many personalities have involved providing this shape of project report on this
behalf. I must extend my gratitude for those individuals for their determined support to make
this report successful.

I must extend my thanks to Prime Commercial Bank Limited’s authorities who support
providing the demanded materials, that is, annual reports of the bank without whose backing this
piece of work has not been fulfilled.

Similarly, I must be indebted to Mr Krishna Bohara, Galkot Multiple Campus, Baglung, for
his/her arduous corporation in scrutinizing project report work, made necessary suggestions
where required. I should either prolong my thankfulness to Mr. Khim Gautam Chairperson,
Research Committee, Galkot Multiple Campus, Baglung, for providing considerate track to
make this work successful.
Finally, I am very grateful to Tribhuvan University Central Library staffs who allowed me to
have a look on research papers relating to this title. Further, all the staffs and teachers of Galkot
Multiple Campus, Baglung who supported to accomplish this project report. For the most, I
would like to extend my appreciation to Miss Sabita Khatiwada for his help support giving
direction for report writing. This report may have deficiency in which I take full responsibility in
this regard for suchetc.

Punam Gautam

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 TABLE OF CONTENTS

Project Report Title …………………………………………………………………………………… i

Declaration ……………………………………………………………………………………………… ii
Supervisor’s Recommendation ……………………………………………………………………….. iii
Endorsement ……………………………………………………………………………………………... iv
Acknowledgement ……………………………………………………………………………………… v
Table of Contents ………………………………………………………………………………………… vi
List of Tables ……………………………………………………………………………………………… viii
List of Figures …………………………………………………………………………………………….. ix
Abbreviations ……………………………………………………………………………………………... x

CHAPTER I INTRODUCTION …………………………………………………… 1-12

1.1 Study Background …...………………………………………………… 1

1.2 Organization Profile ………………………………………………….. 2

1.3 Problem Statements ……..……………………………………………… 3

1.4 Objectives of the Study ………………………………………………… 3

1.5 Rationales of the Study ………………………………………………… 3

1.6 Literature Review ……….……………………………………………… 4

1.6.1 Conceptual Framework ………………………………………………… 4

1.6.2 Review from Related Studies …………………………………………… 5

1.7 Research Methodology …………………………………………………. 8

1.7.1 Research Design ………………………………………………………. 9

1.7.2 Population and Sample ………………………………………………….. 9

1.7.3 Sources of Data …………………………………………………………. 9

1.7.4 Data Procurement Procedure ……………………………………………….. 10

1.7.5 Tools and Techniques for Analyzing Data ………………………………... 10

1.7.6 Hypothesis Testing ……………………………………………………….. 10

1.8 Limitation of the Study …………………………………………………… 11

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 1.9 Structure of the Study ……………………………………………………. 12

CHAPTER II RESULT AND ANALYSIS ………………………………………… 13-24

2.1 Data Presentation ………………….……………………………………… 13

2.1.1 Current Ratio …………... ………………………………………………… 13

2.1.2 Liquid Ratio ……………………………………………………………… 14

2.1.3 LDR …… ………………………………………………………………….. 15

2.1.4 CRR ……………………...………………………………………………… 16

2.1.5 SLR …………………… ………………………………………………… 17

2.1.6 ICR ….……………………………………………………………………. 17

2.1.7 Profitability for PCBL …………………………………………………….. 18

2.2 ANOVA ……………….…………………………………………………... 20

2.3 Hypothesis Testing ………………………………………………………. 20

2.4 Findings and Discussions ………………………………………………….. 22

2.4.1 Findings ……………………………………………………………………. 22

2.4.2 Discussions ………………………………………………………………… 23

CHAPTER III SUMMARY AND CONCLUSION …………………………………… 25-26

3.1 Summary ………………………………………………………………… 25

3.2 Conclusion ………………………………………………………………… 26

REFERENCES 27

APPENDICES 29

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 LIST OF TABLES

2.1 Computation of CR …. ………………………………………………………. 13

2.2 Computation of LR ……...…...………………………………………………. 14

2.3 Calculation of LDR ….……………………………………………………… 15

2.4 Calculation of CRR ……….……………………………………………….. 16

2.5 Calculation of SLR ……………………………………………………... 17

2.6 Calculation of ICR ………………………………………………………. 17

2.7 PCBL’s Profitability ..…………………..…………………………………... 18

2.8 PCBL’s Descriptive Statistics …………...…………….……………………… 18

2.9 PCBL’s Correlation Matrix ………………………………………………… 19

2.10 PCBL’s Model Summary ……………………….………………………….. 20

2.11 PCBL’s ANOVA ………..……………………………………………… 20

2.12 PCBL’s Coefficientsa ……………………………………………………... 22

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 LIST OF FIGURES

2.1 CA & CL …………………………………..…………………….………………… 14

2.2 CA & CL …………………………………..……….……………………………… 15
2.3 Total Deposit, Loan and Advances ……………………………………………….. 16

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 ABBREVIATIONS

ANOVA Analysis of Variance

CA Current Assets
CL Current Liability
CR Current Ratio
CRR Cash Reserve Ratio
FY Fiscal Year
ICR Interest Coverage Ratio
LDR Loan to Deposit Ratio
LR Liquid Ratio
NEPSE Nepal Stock Exchange
PCBL Prime Commercial Bank Ltd.
ROA Return on Assets
SLR Statutory Liquidity Ratio
H1 Alternative Hypothesis
β Beta Coefficient
R2 Coefficient of Determination
df Degree of Freedom
X¯ Mean
R Multiple Correlation
H0 Null Hypothesis
Sig Significance
 Standard Deviation
2 Variance

x
 CHAPTER ONE
INTRODUCTION

1.1 Study Background

Liquidity is an appraisal of how readily a security can be transformed into cash at a price that
reflects its fundamental value. Ready cash is considered to be the furthermost liquid possible
asset, since it entails no conversion and is spendable as is. Properties namely real estate,
collectibles, inventories and so forth, are regarded comparatively illiquid since they can take
a while to discover a purchaser at the suitable amount and settle the transaction. Common
stocks or other openly traded financial instruments fall somewhere along the center of
liquidity range. In other words, liquidity denotes to the comfort with which an asset, or
security, can be transformed into ready cash without affecting its value. There are two
categories of liquidity namely market and accounting liquidity. Market liquidity reflects to
liquidity within market, such as the stock market or real estate market whereas accounting
liquidity reflects to the capability of a business or individual to meet their short term debt
commitments. Rather, an individual or business that has their cash tied up in assets cannot be
converted to cash promptly may be somewhat illiquid.

Soprano (2015) defined the term liquidity risk can be refer to different aspects of risk
exposure, indeed though generally indicated as liquidity, one has quite a range of exposures.
Possibly, the first distinction we want to make is that between trading versus banking book
liquidity exposure, the market liquidity risk and funding liquidity risk. Market liquidity risk
as the impact on the price of an asset when on disposes of it onto the market/liquidates it.

Liquidity management is the arrangement any bank approves to enhance, exploit, and protect
its liquidity. Sound liquidity management is regarded as by full reflectivity into spend, cash,
liabilities, and financial properties-not just the better financial picture. To make the right
decisions at the right time, finance teams also requisite to perceive each transaction and cash
flow statement, each guideline that effect financial responsibilities, and each payment to each
dealer. Thus, better liquidity management policies are entrenched in a set of practices that
warrant organizations make procurement and tracking decisions in the interests of both the
bottom line and company efficiency, a exercise that produces a unified source-to-resolve

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process across treasury and procurement for a complete, incorporated view of all spend and
financial assets.

Chorafas (2002) made a statement on liquidity management as liquidity is no real problem

when the market goes up. It becomes a challenge when: the bank system get destabilize, as in
japan and market psychology turns negative, with stock prices going south. A rational
approach to liquidity management would look into the growing interdependence between
economic risk and entrepreneurial risk. It will do so primary on the basis of day-to-day
operations, but without losing sight of the longer-term aftermath.

Deficient liquidity is rarely one of the primary symptoms of unhealthy financial issue of a
bank. The distress a bank ordinarily pledges to lose deposits which wear away its supply of
money and compels the bank to dispose of its more liquid resources. Other rival banks
become ever more hesitant to lead the troubled bank any funds without supplementary
security or a higher rate of interest, which further withholds the earnings of the troubled bank
and threatens it with letdown. Every bank adopts that liquidity funds can be borrowed
effectively without any time boundaries required. Hence, liquidity management is a serious
action to be notable. A bank could be bankrupt if it won‟t make itself capable enough to raise
adequate liquidity while precisely, it may still be bankrupt.

1.2 Organization Profile

Prime Commercial Bank Ltd. (PCBL) was incorporated in September 2007 as the 21st
commercial bank in Nepal. Category „A‟ Financial Institution registered under the “Banks
and Financial Institutions Act” of Nepal. It has been established by prominent business
personnel and professionals from diversified areas with a prime objective of providing
'Banking Services to Everyone' in the country where still large number of population are
deprived of Banking Services. The bank has established itself as an emerging player in
financial sector with focus in customer service excellence maintaining excellent relationship
with valued customers. It is counted among the top 10 commercial banks in Nepal by
independent raters and publications in the country. The Bank‟s shares are listed and actively
traded in the Nepal Stock Exchange (NEPSE). (PCBL, 2023)

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1.3 Problem Statements
Stakeholders sense doubtful in case of insufficient liquidity in banking system. Recently,
banks have faced cash shortage due to lack in deposit and numerous loan demands, in turn,
inadequate amount of liquidity to bank. It is a great deal for bankers to insolvent from
liquidity crisis and to achieve clients‟ confidence by addressing genuine demands any time in
case of they are requested to do so. Accordingly, this project report work emphases on
problems regarding liquidity crisis and its management to meet client contentment and to
generate its day to day operational cash demand as well. Hence, this study is based on
liquidity crisis and liquidity management as a result of innumerable identified and
unidentified forces that desperately hits day to day operations, in turn, poor liquidity
management heading to banking cash requirement stress. So, the following research problems
are demonstrated as below;
1. Which ratios regarding liquidity crisis for PCBL is to be addressed to display its
contemporary liquidity issues?
2. How to evaluate liquidity management?
3. What are the liquidity factors that impact the profitability of the PCBL?

1.4 Objectives of the Study

Based on the research problems addressed above, the objectives of this project report are
displayed as;
I. To analysis Capital Adequacy ratio of PCBL.
II. To ascertain level of liquidity issues.
III. To suggest to improve liquidity ratio of the PCBL.

1.5 Rationales of the Study

The aim of studying liquidity management is to confirm the bank has cash available when
looked-for. This is realized by managing the bank's liquidity as effectively and efficiently as
possible. Sample commercial bank and its connection with liquidity crisis and its
management are allied with each other for customers‟ liquidity requirement, that is, cash
requirement. Conversely, what effort has been made by sample commercial bank to maintain
satisfactory level cash requirement day to day to meet contemporary demand of cash
requirement is a big question. These days this question is growing concern of commercial
bank to retain its client for long run business of financial institutions. Thus, it is anticipated to

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make a research on liquidity management analysis along with critical ratio analysis belonging
to liquidity crisis to acquaint stakeholders about their cash concern with banks. This study
helps allow accustomed to the concerned organization as well to develop awareness about
how liquidity crisis creates financial burden to depositors, banks and overall Nepal‟s
economy. Besides, this project report conveys constraint for prospective researchers to
perform further analysis in this regard and help deliver discrimination about liquidity
management for smooth operation of banking system. This study also pursues to figure out
factors that impact the liquidity management that hits the profitability as a whole financial
institution, that is, bank.

1.6 Literature Review

A literature review is a survey of intellectual sources on a liquidity analysis in this project
report. This provides an outline of current knowledge about liquidity, granting to identify
significant theories, ways and gaps in existing research that can be applied in this project
report topic. It is process to be followed by a researcher as searching relevant literature
materials, evaluate such sources, identifying the subjects, discussions and gaps in previous
study, outline the structure and write the report for literature review. Hence, reviewing a
literature is a pursuit of materials required; its assessment thereby composed literature in
liquidity management. It aims surveys the literature in liquidity, produces the information in
that literature, critically inspects the information assembled by sensing gaps in current
acquaintance; showing confines of theories; and by expressing areas for further research and
reviewing areas of difference of opinion. Thus, to complete the research theory and
application following materials are reviewed as;
Conceptual Framework
Review from Related Studies

1.6.1. Conceptual Framework

The term liquidity refers to having a good or detailed knowledge about a measure of a bank‟s
ability to rapidly translate assets to cash. Some assets may be more liquid than others: current
assets excluding inventory are most liquid. These current assets can be castoff dealings
almost all of a sudden. Other current assets includes marketable securities, accounts
receivable are less liquid due to necessity to be sold to be changed into cash. Long-term
assets less considered to be liquid due to the time consumption required to convert these

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assets into cash literally months or long time of period. Liquidity looks sound when a bank
produces more and more current asset except inventories and prepaid expenses.
Ross, Westerfield, and Jordan (2010) defined liquidity management concerns the optimal
quantity of liquid assets a firm should have on hand, and it is one particular aspect of the
current asset management policies.
Liquidity management is the preemptive course of confirming a bank has the enough cash on
hand to encounter its financial obligations as they come outstanding. It is a serious
component of financial performance as it directly affects a bank‟s working capital. The
difference between bank‟s current assets and current liabilities is the working capital for
bank; sometime negative or positive working capital, the excess of current assets over current
liabilities is regarded as positive working capital and or excess of current liabilities over
current assets is known as negative working capital and is at risk of default on its financial
duties.
Bankakademie, (2000) defined the general goals of liquidity management are to honor all
cash outflow commitments on a daily and ongoing basis, minimize the cost of foregone
earnings on idle liquidity, satisfy minimum reserve requirements and other regulatory
liquidity standards, avoid additional cost of emergency borrowing and forced liquidation of
assets. Liquidity management therefore is not about determining a single optimal level of
cash to hold. It is about charting a reasonable compromise between the risk of a liquidity
shortage and the loss of income from not investing idle resources in interest earning assets.

1.6.2. Review from Related Studies

K.C. (2021), performed a research entitled “Comparative Analysis of Managing Liquidity in
Nepalese Commercial Banks”. The objectives of the study were to analyze the liquidity
position, identify the factors affecting liquidity position and to measure the impact of
liquidity in bank‟s profitability and found that Nabil and SCBL both have negative
correlation between liquidity and profitability. Nabil has high degree of negative correlation
between liquidity and profitability. Increase in profitability is explained by Nabil‟s
correlation coefficient and vice versa. Likewise, SCBL has low degree of negative correlation,
that is, due to small degree of decrease in the liquidity will result in small amount of increase

5
in profitability for SCBL. EPS for Nabil is less performing compared to SCBL based on the
least square method for regression analysis for both banks. Further, this study concluded that
if Nabil tries to decrease it liquidity it will generate more profit and vice versa. On the other
hand, if SCBL tries to increase small amount of liquidity will decrease small amount of profit
as the study made with the help of research methodology a comparative study among SCBL
and Nabil‟s liquidity ratios, cash and bank balance to total deposit ratio, CCR, investment in
government securities to current assets ratio which affect the profitability of banks.

Pandey and Budhathoki (2020), researched entitled “Impact of Liquidity on the Profitability
of the Commercial Banks of Nepal.” with the objective of impact of liquidity on the
profitability of Nepalese commercial banks. The research methodology realized under study
was impact of liquidity variables (CR, LR, and IR) on profitability (ROA) with 27
commercial government and private banks operating in Nepal with the help of ordinary least
square (OLS) mode to figure out objective. It was found that IR and LR have negative
correlation with ROA while CR has positive correlation. The study also found that beta
coefficients for IR and LR were negative with ROA indicating increased investment ratio and
liquidity ratio decrease the ROA of the bank. Beta coefficient was positive for CR with ROA
at 5 percent significance level. This study concluded that increased CR increases the bank
performance, however, beta for LR and IR were negative with ROA indicating increased
liquidity ratio and IR decreases that liquidity status of bank plays important role in banking
performance in case of Nepalese commercial banks.

Sah and Lertjanyakit (2019), conducted a research on “Liquidity Management and Financial
Performance of Nepalese Commercial Banks.” The objective of the research was to
investigate the impact of liquidity management on the financial performance of Nepalese
commercial banks with the research methodology was Tobin‟s Q and net worth per share
dependent on independent variables such a credit-deposit ratio, capital adequacy ratio,
liquidity ratio. Regression model was designed to test the hypothesis that there was a
significant relationship between liquidity management and performance of commercial banks.
The model generated for the study was expressed in the regression equation. This study found
that liquidity has significant positive effect on Tobin‟s Q, which means bank liquidity and
financial performance were positively related. Cash reserve ratio by central bank, increase
intermediation costs as the spreads between lending and deposit rates rises. The study

6
concluded that higher liquidity ratio would be higher Tobin‟s Q. Cash reserve ratio has a
significant negative effect on Tobin‟s Q. This means bank liquidity and market value of
financial performance were negatively related. Further, capital adequacy ratio has a
significant and positive effect on net worth per share. Every change in credit-deposit ratio and
liquidity ratio would lead to decline in net worth per share.

Tran, Nguyen, Nguyen and Tran (2019), researched entitled “The Determinants of Liquidity
Risk of Commercial Banks in Vietnam.” The objective of the study was to identify factors
that explain the liquidity of commercial banks in the Vietnam banking system. The study
found that the inter-bank market helps commercial banks improve their liquidity, the larger
the loan size, the higher the liquidity risk, good credit risk management has positive impact
on liquidity risk management and long-terms interest rate is negatively related to liquidity of
commercial banks with the help of OLS research methodology. The study concluded that the
study did not find effect of M2 (economic growth rate), GDP and inflation on liquidity risk-
taking at Vietnamese commercial bank. However, this study points out that the higher the
long-term lending interest rate was, the higher the capability which the bank faces liquidity
risk was. Policy makers in regulating bank liquidity in Vietnam were by facilitating the
control of the long term lending rate. There was a nexus between control variable and
dependent variable. In other words, the number of operating years affects the liquidity risk of
the commercial banks in Vietnam.

Adhikari (2018), made a research entitled “Analysis of Liquidity and Profitability of

Commercial Banks in Nepal: with Reference to Comparative Study on NABIL and Nepal
SBI Bank Ltd.” The objectives of the study were to identify the liquidity position, identify the
status of profitability and risk position, and to examine the trend and relationship of total
deposit, investment and total loans of selected commercial banks with the research
methodology of descriptive as well as analytical research design. Besides, some simple
questions have been asked to the concerned personnel in the course of visiting the bank with
primary data along with secondary data to analyze current ratio, cash reserve ratio, cash and
bank balance to current assets ratio, assets management ratio and profitability ratio. The study
found that liquidity position of Nabil was comparatively lower than SBI, lower cash and bank
balance to total deposit, loan and advances to current assets but it has average consistency.
Nabil has the highest investment in government securities and lower into shares and
debentures having stable and consistent ratios than other bank. There was significant

7
relationship between deposit and total investment and deposit and loan and advances but
negative relationship between outside assets and net profit of Nabil. All the variables of SBI
have positive relationship with each other. This study concluded that Nabil was
comparatively lower than SBI but it has the highest investment in government securities to
current assets ratio. Loan and advance to total deposit and total investment to total deposit
ratios of Nabil were greater than SBI. Liquidity position and growth rate was not satisfactory
and it has average risk ratio for Nabil. In the case of SBI it has good liquidity position as well
as minimum risk in comparison to that of Nabil‟s capital risk ratio.

Aryal (2017), conducted a research on topic “Comparative Liquidity Analysis of Nepal

Investment Bank Limited and Prabhu Bank Limited.” The objectives of the study were to
examine liquidity position and to analyze the comparative liquidity position of Nepal
Investment Bank Limited and Prabhu Bank Limited with the research methodology of
descriptive and analytical research in nature with the population of 28 commercial banks, two
sample banks comparison was done via liquidity ratios analysis. The study found that
liquidity ratio for both sample banks were below standard, PBL has been able to utilize
deposits in terms of loan and advances for profit. NIBL was higher liquidity than PBL. CRR
showed NIBL has higher balance in NRB account. The liquidity position of cash and bank to
total deposit ratio of PBL was higher than that of NIBL. Further, this study concluded PBL
has sufficient cash and bank balance to current and saving deposit than that of NIBL.

1.7 Research Methodology

Research methodology is the precise measures or methods used to recognize, choose, process,
and investigate information about a liquidity analysis. In a paper, the methodology section
permits the reader to judgmentally estimate a study's complete soundness and consistency. It
is a summary of how a given piece of investigation is performed. It expresses the methods or
measures that are used to recognize and examine information regarding a liquidity analysis.
Thus, it has to do with how a researcher designs their study in a manner that permits them to
acquire useable and reliable outcomes and meet their research objectives as liquidity analysis.
Walliaman (2011) defined research methodology is the techniques you use to do research.
They represent the tools of the trade, and provide you with ways to collect, sort and analyze
information so that you can come to some conclusions. If you see the right sort of methods
for your particular type of research, then you should be able to convince other people that

8
your conclusions have some validity, and that the new knowledge you have created is
soundly based.

1.7.1 Research Design

There are various kinds of research design that are appropriate for the different categories of
research project nature. The choice of which design to relate depends on the nature of the
problems posed by objectives set. Thus, descriptive research comprises valuations and fact
discovery enquiries of different kinds. The major purpose of descriptive research is
description of the state of affairs as it exists at present such average, standard deviation,
variation etc. The main distinctive character of this technique is that the researcher has no
control over the variables; he can only report what has happened or what is happening.
Explanatory research is a way of making research that explores what is the cause and effect
when information is limited. This research design is also known as causal research design.
Causal statements define what is a cause and effect in relationship. The cause is independent
variable whereas effect is the dependent variable. The example of causal research includes
correlation among variable and regression describes the cause and effect between the
variables. In this case, liquidity is the cause and it impact on profitability on PCBL known as
effect on variable.

1.7.2 Population and Sample

The population denotes to the NEPSE listed A class commercial banks whereas sample refers
to those which is measured as the research sample commercial bank which falls under the
research study listed under NEPSE, that is, PCBL. Till date, NEPSE listed A class
commercial bank comprises of twenty two A class commercial banks.

1.7.3 Sources of Data

To evaluate the contemporary research problem relating this project report work a historical
data has been obtained via annual reports as a historical or secondary data. Such annual
reports from 2012/13 to 2021/22 are processed to evaluate to figure out liquidity analysis for
project work. Such analyses are done to know the cause of the liquidity crisis and or it
management related activities by bank and its effect on overall profitability for the PCBL.
Hence, this project report work wholly depends on secondary sources of data.

9
1.7.4 Data Procurement Procedure
Historical data concerning to liquidity analysis and profitability of PCBL has been performed
to analyze current ratio, loan to deposit ratio, cash and bank balance to total deposit ratio,
NRB balance to fixed, current and saving deposit ratio, CRR are to be analyzed with
descriptive statistics such as measure of dispersion namely, standard deviation, variation are
analyzed. Under the explanatory research correlation regression and ANOVA have been
performed for the significance of the study to figure out the cause and effect between
liquidity and profitability (ROA) for PCBL. These statistics are to be analyzed via SPSP and
figures are to be presented with the help of Ms. Excel where necessary.

1.7.5 Tools and Techniques for Analyzing Data

Collected secondary data from bank‟s annual reports have been arranged as per the
requirement of liquidity analysis accordingly to find out impact on profitability for bank.
For this cause can be review via averages, standard deviation, variances and coefficient of
variation. Effects are measured via relationship and its impact via independent variables like
liquidity ratios and to profitability namely correlation, regression and analysis of variance.
Moreover, figures are as well be demonstrated as per the demand of the project report work

As said earlier, data analysis regarding liquidity analysis various averages are to be derived as
mean (X̄), variation in sample bank liquidity measure as standard deviation (), variance (2),
Pearson‟s correlation coefficient () and regression analysis (β) and hypothesis (ANOVA)
were computed under this project report. Analysis of data has been introduced as descriptive
and explanatory research design from historical data is that are grouped into standardized
nature.

1.7.6 The Hypothesis Testing

This is a principle, way and practice of testing a hypothesis by matching it with the null
hypothesis with alternative hypothesis. The null hypothesis is only rejected if its probability
falls below a prearranged significance level, in which case the hypothesis being tested is said
to have that level of significance.
The Null Hypothesis:
H0: that is, current ratio does not impact negatively on profitability of PCBL.
H0: that is, CRR does not impact negatively on profitability of PCBL.

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H0: that is, loan deposit ratio does not impact positively on profitability of PCBL.
H0: that is, liquidity ratio does not impact negatively on profitability of PCBL.
H0: that is, interest coverage ratio does not impact negatively on profitability of PCBL.
H0: that is, statutory liquidity ratio does not impact negatively on profitability of PCBL.

The alternative hypothesis:

H1: that is, current ratio impacts negatively on profitability of PCBL.
H2: that is, CRR negatively impacts on profitability of PCBL.
H3: that is, loan deposit ratio impacts positively on profitability of PCBL.
H4: that is, liquidity ratio impacts negatively on profitability of PCBL.
H5: that is, interest coverage ratio impacts positively on profitability of PCBL.
H6: that is, statutory liquidity ratio impacts negatively on profitability of PCBL.

In order to perform hypothesis testing first set the null and alternative hypothesis as providing
explanatory variable differences, calculate ANOVA, compare the calculated value of F to
compare with the tabulated value and provide decision with level of significance and its
degree of freedom

1.8 Limitations of the Study

This project report work has been restricted with the selected sample commercial bank
namely PCBL, no other commercial banks have been encircled in this project report work,
following limitations have been drawn;
I. A sample bank has covered under this project report, no all financial institutes
fall under the study.
II. This study restricts the fiscal year from 2012/13 to 2021/22, other fiscal years
have been omitted from the study.
III. Some of important ratios such as interest coverage, current, liquidity, loan
deposit ratio, and CRR have been considered as the cause for the profitability
and ROA as effect for the research variables, all other aspect of dependent
variables have been excluded from the study.

11
1.9 Structure of the Study
This project work comprises of three chapters, that is, chapter one comprises of background
of the study, organization profile, statements of the problem, objectives of the study, rationale
of the study, literature review, research methodology, limitations of the study and finally
followed by the structure of the study. Chapter two comprises of result and analysis from the
data thus gathered. This contains input of data, is processed and analyzed to figure out some
outcome relating to liquidity management and profitability for PCBL. Further, this study
covers the descriptive statistic and explanatory research to find measure of dispersion along
with correlation and regression analysis with variations if any thus computed data. At last,
chapter three comprises project report work summary and conclusion. This helps understand
glimpse of the study for the above-mentioned sample commercial bank for appropriate
measures to help improve liquidity crisis with the help of appropriate liquidity management
in order to profitability for PCBL. This also draws a conclusion regarding impact of liquidity
to profitability for PCBL. Some of them are current ratio, CRR, loan to deposit ratio, liquidity
ratio and interest coverage ratio statistically significant positively or negatively to
profitability for PCBL along the relationship among the research variables.
~~~

12
 CHAPTER TWO
RESULT AND ANALYSIS

Result and analysis section ensures data presentation, analysis and findings from the analysis
regarding the topic liquidity analysis based on the data available from PCBL annual reports.
The objective of this section is present data thus gathered from annual report, analysis of data
via various statistical tool with the help of SPSS to figure out some important aspect of
liquidity analysis and its impact on profitability of bank and are tabulated shown in figure to
give picture of the bank.

2.1 Data Presentation

Data compiled from annual reports of PCBL from the FY 2012/13 to 2021/22 are presented
in the form of table regarding liquidity analysis and profitability for the bank. Some of them
are;

2.1.1 Current Ratio

Current assets (CA) include all short term assets included in the balance sheet items in PCBL
and current liabilities include all balance sheet items, liquid assets includes cash in hand and
equivalent, cash in other financial institutions and central bank of Nepal, accounts receivable,
gold, silver, excludes all the item that is, prepaid expenses, inventory, advance payment to
employees. The CA for PCBL has been calculated as.

Table 2.1: Computation of CR

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
1.20 1.22 0.90 0.39 0.43 0.32 0.34 0.37 0.35 0.35
(Source: Appendix 1)

The CR with ratio more than 1.0 time is regarded as optimum ratio to be maintained by the
commercial bank in Nepal. For the first two year of the study period, that is, during 2012/13
to 2013/14 PCBL was able to maintain 1.20 and 1.22 times CR. This indicates that PCBL is
able to pay-off its current liabilities in short notice with any changes in value of assets. Even
it pays all of its liabilities it has 20 and 22 percent excess current assets in balance sheet.
However, from the fiscal years 2014/15 to 2021/22, PCBL‟s CR is below standard, that is, 10

13
percent short fall to pay-off its liabilities in the FY 2014/15. Moreover, PCBL was not able to
pay-off its current liabilities more than 60 percent from 2015/16 to 2021/22 onward which
ranges from 0.32 to 0.43 times. Thus, the overall CR for PCB was not satisfactory during the
study period because it short fall its CR.

Figure 2.1: CA and CL

120,000,000,000.00

100,000,000,000.00

80,000,000,000.00

60,000,000,000.00
CL

40,000,000,000.00 CA

20,000,000,000.00

0.00
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22

(Source: Ms Excel)

Table 2.1 represents the CA and CL of PCBL during the study period. CL climbs up
considerably while CA climbs smoothly. This is the reason why CR is high in first two FY
while these ratios were decline there onwards.

2.1.2 Liquid Ratio

As mentioned earlier, LR includes liquid assets divided by current liabilities, in which, LA
comprises of cash in hand, with financial institutions, and with NRB, account receivable
excludes all the prepaid expenses, advance payment made and inventory with the bank. Thus,
the LR has been obtained as;
Table 2.2: Computation of LR
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
1.18 1.18 0.85 0.39 0.42 0.31 0.34 0.36 0.34 0.32
(Source: Appendix 1)

14
The LR is considered as optimum when the LR represents the ratio 1.0 time. Here in this case,
LR in the FY 2012/13 and 2013/14 was 1.18 times, which indicates that the LR for the first
two fiscal years was satisfactory. As the LR is regarded as liquid when the ratio stands 1.0
time, however, the ratio from FY 2014/15 stood less than 1.0 which short fall during the FY
2014/15 to 2021/22. In other words, if the current liabilities are to be paid off by PCBL it
short falls ranging from 0.15 to 0.68 times during the study period.

Figure 2.2: CA and LA

80,000,000,000.00
70,000,000,000.00
60,000,000,000.00
50,000,000,000.00
40,000,000,000.00
LA
30,000,000,000.00
CL
20,000,000,000.00
10,000,000,000.00
0.00
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22

(Source: Ms Excel)

Table 2.2 represents the LA and CL of PCBL during the study period. CL climbs up
considerably while CA climbs smoothly. This is the reason why LR is high in first two FY
while these ratios were decline there onwards same as CR.

2.1.3 Loan Deposit Ratio (LDR)

This ratio analyzes the amount of cash outflows and cash inflows and 80 to 90 percent is
considered as the appropriate ratio. This is obtained by total loan and advances divided by
total deposit.
Table 2.3: Calculation of LDR
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
0.74 0.80 0.80 0.83 0.88 0.96 0.98 0.96 0.92 0.96
(Source: Appendix 2)

15
Table 4.3 shows the ratio between total loan and advances and total deposits. During the FY
2012/13 LDR stood 74 percent, that is, PCBL has been able to flow its cash as loan and
advances from its deposit about 74 percent. Normally, between 80 to 90 percent ratio is
considered as the ideal ratio. During the fiscal 2013/14 to 2016/17 PCBL, LDR has ideal ratio,
however, the ratios during 2017/18 to 2021/22 bit high compare to 80 to 90 percent which
stood 2 to 8 percent more in this period.

Figure 2.3: Total Deposit, Loan and Advances

180,000,000,000.00
160,000,000,000.00
140,000,000,000.00
120,000,000,000.00
100,000,000,000.00
80,000,000,000.00 TD
60,000,000,000.00 TL
40,000,000,000.00
20,000,000,000.00
0.00
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22

(Source: Ms Excel)

Figure 2.3 represents total deposit and total loan and advances made by PCBL. Dotted line
represents the total loan and advances made by bank and straight line represents the total
deposits made into the bank.

2.1.4 Cash Reserve Ratio (CRR)

CRR is the ratio to be maintained by commercial bank in NRB. NRB (2022), CRR to be
maintained by the BFIs will remain unchanged at three percent.
Table 2.4: Calculation of CRR
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
0.11 0.16 0.10 0.11 0.13 0.02 0.10 0.07 0.07 0.06
(Source: Appendix 2)

16
Thus, from above table as guided by NRB, PCBL was able to maintain its CRR ratios except
in FY 2017/18 which was 3 percent of its total deposits amount. The range of CRR lies
between 6 to 16 percent which is 3 to 13 percent above the standard asked by NRB.

2.1.5 Statutory Liquidity Ratio (SLR)

Statutory liquidity ratio (SLR) is to be maintained by bank as liquid assets, this is, cash to be
maintained to bank itself, other financial institutions and NRB which is 12 percent is
considered as ideal. Adhikari (2022), A provision will be made whereby the commercial
banks need to maintain the SLR of 12 percent and development banks as well as finance
companies need to maintain 10 percent from mid-January 2023.

Table 2.5: Calculation of SLR

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
0.26 0.27 0.20 0.19 0.21 0.29 0.19 0.23 0.20 0.18
(Source: Appendix 2)

As directed by NRB, SLR to be maintained by PCBL was 12 percent, which is above

standard, that is, PCBL has been able to high above the statutory level. The SLR was 6 to 17
percent above the statutory level. Thus, the SLR for PCBL was satisfactory.

2.1.6 Interest Coverage Ratio (ICR)

Interest coverage ratio (ICR) represents how much amount of interest is to be paid by PCBL
from its earnings before interest and taxes (EBIT). ICR is a debt and profitability ratio used to
estimate how easily a bank can pay interest on its outstanding debt from its EBIT.

Table 2.6: Calculation of ICR

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Ratio
0.6991 0.6756 0.6016 0.5285 0.6097 0.7066 0.6645 0.6991 0.6324 0.7540
(Source: Appendix 3)

From table 4.4, PCBL has been able to pay 69.91, 67.56, 60.16, 52.85, 70.66, 66.45, 69.91,
63.24 and 75.40 percent as interest from it EBIT during the fiscal year 2012/13 to 2021/22.
Thus, the interest coverage made by the PCBL range was 52.85 to 75.40 percent.

17
2.1.7 Profitability for PCBL
ROA is derived by earnings after taxes and interest divided by total assets. Table 4.5
represents the term ROA denotes to a ratio that designates how profitable a bank is relative to
its total assets. Investors can use ROA to determine how resourcefully a bank utilizes its
assets to create a profit.
Table 2.7: PCBL’s Profitability
2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
ROA
0.0232 0.0229 0.0256 0.0323 0.0190 0.0182 0.0215 0.0148 0.0171 0.0133
(Source: Appendix 3)

PCBL has been able to generate profits during the FY 2012/13 to 2021/22. Bank was able to
earn 2.32 percent during its first fiscal year. Likewise, it was able to earn 2.29, 2.56, 3.23,
1.82, 2.15, 1.48, 1.71 and 1.33 percent during its operating till 2021/22. Highest ROA was
3.23 percent whereas the lowest being 1.33 percent.

Table 2.8: PCBL’s Descriptive Statistics

X¯  N
Return on Assets .020790 .0055965 10
Current Ratio .587000 .3696259 10
Liquid Ratio .569000 .3586224 10
Loan Deposit Ratio .883000 .0853815 10
Cash Reserve Ratio .093000 .0394546 10
Statutory Liquidity Ratio .222000 .0385285 10
Interest Coverage Ratio .657110 .0651834 10
(Source: SPSS)

The bank; PCBL was able to earn average ROA; X¯ was 2.08 percent during the fiscal years
with standard deviation of 0.56 percent. Average CA was more than half times compared to
1.0 or more which was not satisfactory or below standard and the standard deviation of 36.96
percent. Similarly, LR stood 0.569 times which is less than 1.0. This ratio is also below
standard and standard deviation stood 56.90 percent as measure of dispersion. Further, LDR
stood 88.30 percent which was satisfactory as the ranges lies between 80 to 90 percent. CRR
stood 9.30 percent as NRB direct commercial bank to maintain 3 percent, which is above
NRB directive. Moreover, Average SLR stood 22.2 percent during the study period, the
standard ratio 12 percent as directed by NRB, which is 10.20 percent above the statutory

18
level with standard deviation of 3.85 percent. Finally, ICR stood 65.71 percent, that is,
interest covered from its EBIT was 65.71 percent with standard deviation of 6.52 percent
with the observations of ten samples.

Table 2.9: PCBL’s Correlation Matrix

ROA CR LR LDR CRR SLR ICR
Pearson Correlation ROA 1.000 .365 .376 -.658 .508 -.057 -.771
CR - 1.000 .999 -.857 .624 .454 .053
LR - - 1.000 -.861 .631 .462 .046
LDR - - - 1.000 -.649 -.242 .366
CRR - - - - 1.000 -.056 -.412
SLR - - - - - 1.000 .368
ICR - - - - - - 1.000
N 10 10 10 10 10 10 10
(Source: SPSS)

The correlation between dependent variable ROA and independent variables CR, LR, LDR,
CRR, SLR and ICR were 0.365, that is, low degree of positive correlation between ROA and
CR, 0.376 between ROA and LR, -0.658 between ROA and LDR, that is, moderate
negatively correlated. Similarly, moderate positive correlation between CRR and ROA, very
weak negative correlation between SLR and ROA, and -0.771 correlations between ROA and
ICR i.e. moderately negative correlation between these variables. Further, CR and LR have
very strong positive correlation with each other. Strong negative correlation between LDR
and CR i.e. -0.857, moderately positively correlated with CRR and CR, SLR and CR but very
weak positive correlation coefficient between ICR and CR. Moreover, LR and LDR has
strong negative correlation, that is, -0.861, moderate positive connection with CRR and LR,
moderate positive correlation between SLR and LR, but, ICR and LR has weak positive
correlation with each other. Further, LDR and CRR has moderately negative i.e. -0.649, weak
negative correlation among LDR and SLR i.e. -0.242 and 0.366 between LDR and ICR. SLR
and CRR has very weak negative correlation with each other and moderately negative
correlation among ICR and CRR i.e. -0.412. Finally, ICR and SLR have moderate positive
correlation with each other, that is, 0.368.

19
 Table 2.10: PCBL’s Model Summary
Std. Error of the Change Statistics
2 2 2
Model R R Adjusted R Estimate R Change F Change df1 df2 Sig. F Change
a
1 .771 .594 .544 .0037806 .594 11.723 1 8 .009
a. Predictors: (Constant), Interest Coverage Ratio

(Source: SPSS)

Table 2.8 represent PCBL‟s model summary, R is a multiple correlation among ROA, and
independent variables with correlation coefficient of 0.771, which indicates that there is a
strong positive association among variables. Moreover, R2 denotes coefficient of
determination, which helps determine explained variations, that is, R 2 is 0.594 taken a set,
independents CR, LR, LDR, CRR, SLR and ICR interprets for 59.40 percent variance for
dependent variable; ROA. For the reliability, implication of F has a value of 0.009 compared
to 0.05. Standard error of the estimate is simply a square root of mean square error of
(0.00001) as shown in ANOVA. This is a measurement of unexplained variation. Higher the
amount of standard error higher will be the unexplained variation.

2.2 ANOVA
Table 2.11: PCBL’s ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression .000 1 .00000 11.723 .009b
Residual .000 8 .00001
Total .000 9
a. Dependent Variable: Return on Assets
b. Predictors: (Constant), Interest Coverage Ratio

PCBL‟s ANOVA table 2.9 has Fcal =11.723, the value of significance is 0.009 which is less
than 0.05. This indicates that value of Fcal is statistically significant. This means that null
hypothesis is rejected and alternative hypothesis is accepted.

2.3 Hypothesis Testing

The hypothesis is a method, and exercise of hypothesis testing by matching it with the null
hypothesis. The null hypothesis is rejected if its possibility falls below
a scheduled significance level, in which case the hypothesis being tested is said to have that
level of significance. The Null Hypothesis is set as:

20
H0: that is, current ratio does not impact negatively on profitability of PCBL.
H0: that is, CRR does not impact negatively on profitability of PCBL.
H0: that is, loan deposit ratio does not impact positively on profitability of PCBL.
H0: that is, liquidity ratio does not impact negatively on profitability of PCBL.
H0: that is, interest coverage ratio does not impact negatively on profitability of PCBL.
H0: that is, statutory liquidity ratio does not impact negatively on profitability of PCBL.

And the alternative hypothesis:

H1: that is, current ratio impacts negatively on profitability of PCBL.
H2: that is, CRR negatively impacts on profitability of PCBL.
H3: that is, loan deposit ratio impacts positively on profitability of PCBL.
H4: that is, liquidity ratio impacts negatively on profitability of PCBL.
H5: that is, interest coverage ratio impacts positively on profitability of PCBL.
H6: that is, statutory liquidity ratio impacts negatively on profitability of PCBL.

With the given regression equation;

ROA = b0 + b1CR + b2LR + b3LDR + b4CRR + b5SLR+ b6ICR

Table 2.12: PCBL’s Coefficientsa

Unstd. CoefficientsStd. Coefficients 95.0% Confidence Interval for B
Model β Std. Error β t Sig. Lower Bound Upper Bound
1 Constant) .064 .013 5.038 .001 .035 .094
nterest Coverage Ratio -.066 .019 -.771 -3.424 .009 -.111 -.022
a. Dependent Variable: Return on Assets

Under the test statistics;

The significance value 0.009 compare to α0.05 which is less than alpha = 0.05 thus, the beta
coefficient for ICR is significant. Thus, following results have been found that CR does not
impact on profitability, CRR does not impact on profitability of PCBL, LDR does not
impacts on profitability, LR does not impact on profitability, SLR does not impact on
profitability of PCBL, however, ICR impacts negatively on profitability of PCBL with beta
coefficient of -0.066 and β0 with 0.064 as multiple regression equation ROA = 0.064 –
0.066(ICR).

21
2.4 Findings and Discussions
Based on data result and analysis of the data following findings have been represented.

2.4.1 Findings
The project report work was performed to analyze liquidity of PCBL as sample commercial
banks. From the study following findings are portrayed as;
I. First two years in the beginning the CR and LR are satisfactory, rather, the
ratios werebelow 1.0 time there onward which were not satisfactory.

II. This ratio analyzes the amount of cash outflows and cash inflows and 80 to 90
percent is considered as the appropriate ratio. Except in 2012/13, 2017/18 to
2021/22 ratios were above 90 percent and within 80 to 90 percent in FY 2013/14
to 1016/17.

III. As NRB guidelines commercial banks to maintain CRR at 3 percent, PCBL has
been able to maintain the CRR level except in FY 2017/18 i.e. 2 percent.

IV. SLR for commercial bank has to be maintained 12 percent; these ratios for
PCBL were beyond the statutory level i.e. up to 29 percent.

V. ICR is the amount of interest payment made by PCBL from its earnings, that is,
EBIT. The ratios during the study period were 52.85 percent to 75.40 percent of
EBIT.

VI. ROAs for PCBL were 1.71 percent to 3.23 percent during the study period.
Highest ROA was in FY 2015/16 and the lowest being in FY 2020/21. Average
ROA during the FY was 2.08 percent for PCBL, Average CR 0.587 time,
average LR was 0.569 times which are below standard and was not satisfactory.
LDR stood 88.30 percent which falls within 80 to 90 percent and is satisfactory.
CRR was 9.30 percent which is above 3 percent of its total deposit amount.
Thus, CRR is satisfactory the bank. Further, SLR is to be maintained 12 percent
as prescribed by NRB, PCBL maintained 22.2 percent as average SLR during
the study period and is satisfactory. Average ICR was 65.71 percent, that is,
PCBL has paid 65.71 percentage of interest to its deposit holders from its EBIT.

22
 VII. 0.365, that is, low degree of positive correlation between ROA and CR, 0.376
between ROA and LR, -0.658 between ROA and LDR, that is, moderate
negatively correlated. Similarly, moderate positive correlation between CRR and
ROA, very weak negative correlation between SLR and ROA, and -0.771
correlations between ROA and ICR i.e. moderately negative correlation between
these variables. Further, CR and LR have very strong positive correlation with
each other. Strong negative correlation between LDR and CR i.e. -0.857,
moderately positively correlated with CRR and CR, SLR and CR but very
weak positive correlation coefficient between ICR and CR. Moreover, LR and
LDR has strong negative correlation, that is, -0.861, moderate positive
connection with CRR and LR, moderate positive correlation between SLR and
LR, but, ICR and LR has weak positive correlation with each other. Further,
LDR and CRR has moderately negative i.e. -0.649, weak negative correlation
among LDR and SLR i.e. -0.242 and0.366 between LDR and ICR. SLR and CRR
has very weak negative correlation with each other and moderately negative correlation
among ICR and CRR i.e. -0.412. Finally, ICR and SLR have moderate positive
correlation with each other, that is, 0.368.

VIII. R is a multiple correlation among ROA, and independent variables with

correlation coefficient of 0.771, which indicates that there is a strong positive
association among variables. Further, R2 denotes coefficient of determination,
which helps determine explained variations, that is, R2 is 0.594 taken a set,
independents CR, LR, LDR, CRR, SLR and ICR interprets for 59.40 percent
variance for dependent variable; ROA.

IX. CR, CRR, LDR, LR, SLR does not impact on profitability of PCBL,
nevertheless, ICR impacts negatively on profitability of PCBL.

2.4.2 Discussions
This project report was performed to figure out regression analysis up which it was found that
CR has no statistically significant impact on profitability of PCBL. Sthapit and Maharjan
(2012) and Salim & Mahamed (2016) found the liquidity ratio has no significant effect on
ROA for both banks i.e. NABIL and SCBN agreed the statement. Further, this study revealed

23
that LR has no significant impact on profitability of PCBL. Lalon and Nadia (2020) found
and agreed the above statement that LR does not have an impact on ROA based on the
research made on an empirical analysis on liquidity management of commercial banks in
Bangladesh. However, Edem (2017) contradicts the studying stating LR has positive impact
on profitability of commercial bank in Nigeria.

This study revealed that CRR has no statistically significant impact on profitability for PCBL.
Rather, Edem (2017) and Sah & Lertjanyakit (2019) argues that CRR has statistically positive
impact on profitability of commercial bank in Nigeria and negative impact on profitability of
Nepalese commercial banks.

Edem (2017) LDR has statistically positive impact on profitability of commercial bank in
Nigeria Salim (2016) disagrees with statement and found that bank‟s loans –customer
deposits have no significant impact on financial performance of the Omani Banks as this
study also revealed that LDR has no significant impact on profitability for PCBL.

This study found that SLR has no significant impact on profitability for PCBL as Ibe (2013)
agreed with statement bank balances has no influence on bank profitability. In other words,
the bank balance did not perform well in UBA.

This study revealed that ICR impacts negatively on profitability of PCBL. Ashraf, Nabeel
and Hussain (2017) contradicts with this that ICR has significant and positive relationship
with banks profitability.
~~~

24
 CHAPTER THREE
SUMMARY AND CONCLUSION

This part compacts with summary, conclusion for this project report work and the researcher
specified impact of liquidity on profitability of PCBL. This chapter entails of summary and
conclusion and to the concerned individuals regarding liquidity analysis of PCBL.

3.1 Summary
Impact of liquidity analysis is crucial for stakeholders in order to comprehend its impact on
profitability of PCBL. Profitability is the outcome of maintenance of liquidity with bank such
as CRR, SLR, and ICR etc. Lower the interest coverage ratio higher will be the profitability
for PCBL. Higher the amount of interest coverage the lower will be the amount of
profitability for the bank. Thus, it is initial objective for this project report is to current
liquidity ratios, connection of liquidity ratios with the profitability of the bank, and impact of
liquidity on profitability. However, it is not an easy task what amount of liquidity to be
maintained to get how much amount of profit for the bank. Besides, it is also obligatory for
bank to maintain certain level of CRR, LDR and SLR as regulation made by NRB.
Consequently, lots of determinations are to be made to figure out profitability for the bank
considering the amount of liquidity that positive or adversely impact on profitability. This
project work efforts key elements for the profitability such as SLR, ICR, LDR etc. that
impact on overall profitability of the bank the positively or negatively impact.

Correlation coefficient tells us about the movement of variables to which direction it moves.
Positive correlation shows two variables move same direction, that is, if one variable fall
same will be the result for another variable, whereas it the one variable climbs up then same
will be the result for another. Likewise, negative correlation shows the opposite direction
movement, that is, if one variable declines another tends to increase and vice versa. However,
some variables have weak, some have moderate and some have strongly correlated. Multiple
correlations shows the relationship among the dependent and independent variables all
together, showed moderately positive correlation. Further, coefficient of determination
denotes the explained variation between the variables showed 59.40 percent variance. Finally,
this study only found that ICR has statistically negative significant impact on profitability of
the bank.

25
3.2 Conclusion
In order to conclude the project report for PCBL‟s profitability along with the factors that
impact profitability no other variables have any significant impact on profitability for PCBL
while ICR negative impacts on profitability for bank. From the liquidity analysis along with
its profitability researcher has drawn the following conclusions;
I. It is concluded that based on the current and liquid ratios both ratios in its initial
two year the ratios were satisfactory, while all other years ratios were not
satisfactory which fall below 1.0 time for each fiscal year. This is due to
increase in CL with high amount while CA does not increase as CL increase, in
turn, the ratios fall below 1.0 time.

II. It is also concluded that LDR should be maintained or is optimal when the ratio
lies between 80 to 90 percent, however, PCBL has maintained the ratios during
FY 2013/14 to 2016/17, but PCBL lacks to maintain the ratios in other FY.

III. CRR is mandatory reserve that is a cash to be deposited in central bank of Nepal
i.e. NRB, which regulates commercial bank to maintain 3 percent of its total
deposit to be kept in NRB. However, the bank has high above the mandatory
level reaching up to 16 percent, while it lacks to maintain the mandatory level
in FY 2017/18 which amount to 2 percent which short fall by 1 percent.

IV. SLR is the amount of cash and its equivalent (gold and silver) to be
maintained within or other financial institutions and NRB as cash ready to meet
its short term obligation in no time which is to be maintained 12 percent of its
deposits. Thus, it is concluded that SLR is satisfactory due to maintenance of
SLR ratio by PCBL.

V. ICR is the ratio between amount to be paid to interest of deposit holders of

PCBL and EBIT, which ranges between 63.24 to 75.40 percent.

VI. It is concluded that ROA of PCBL has minimum of 1.71 percent and maximum
of 3.23 percent during the study period, with average ROA 2.08 percent during
the study period.

VII. Finally, it is concluded that ICR has statistically negative significant impact on

26
profitability for PCBL, while other independent variables such as LR, CR, LDR,
SLR, CRR have no significant impact on profitability at 5 percent level of
significance.
~~~

27
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Prabhu Bank Limited. (Unpublished Bachelor‟s Thesis), Dillibazar Kanya Multiple

Campus, Faculty of Management, Tribhuvan University. Kathmandu, Nepal.

Ashraf, M., Nabeel, M. and Hussain, S. M. (2017). Liquidity Management and Its Impact on

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Bankakademie (2000). Liquidity Management: A Toolkit for Microfinance Institutions.

Eschborn: Deutsche Gesellschaft Fur.

Chorafas, D. N. (2002). Liabilities, Liquidity, and Cash Management: Balancing Financial

Risks. MA: John Wiley & Sons, Inc.

Edem, D. B. (2017). Liquidity Management and Performance of Deposit Money Banks in

Nigeria (1986-2011): An Investigation. International Journal of Economics, Finance

and Management Sciences, 5 (1), 146-161.

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 APPENDICES
Appendix 1: Calculation of Current Assets (CA), Current Liabilities (CL) and Liquid
Assets (LA)
Years CA CL LA CR LR
2012/13 6,485,661,938.00 5,424,981,172.00 6,405,220,803.00 1.20 1.18
2013/14 8,302,408,023.00 6,807,771,292.00 8,001,356,159.00 1.22 1.18
2014/15 7,341,777,622.00 8,201,719,530.00 6,959,881,980.00 0.90 0.85
2015/16 8,686,354,427.00 22,320,293,759.00 8,612,979,401.00 0.39 0.39
2016/17 13,265,725,968.00 30,705,158,366.00 13,022,756,105.00 0.43 0.42
2017/18 16,429,243,703.00 52,143,473,940.00 16,177,303,674.00 0.32 0.31
2018/19 16,454,492,428.00 47,827,224,329.00 16,158,313,368.00 0.34 0.34
2019/20 22,786,901,748.00 62,135,640,219.00 22,486,854,084.00 0.37 0.36
2020/21 24,945,931,796.00 71,006,475,395.00 23,924,088,070.00 0.35 0.34
2021/22 23,012,508,265.00 66,244,669,361.00 21,511,087,014.00 0.35 0.32
(PCBL’s Annual Reports 2012/13-2021/22)

Appendix 2: Calculation of Total Deposit (TD), Total Loan & Advances (TL), Cash
Reserve (CR) and Statutory Liquidity (SL)
Years TD TL CR LDR CRR SLR
2012/13 28,798,028,030.00 21,226,687,733.00 3,055,234,138.00 0.74 0.11 0.26
2013/14 34,045,262,660.00 27,104,417,443.00 5,540,193,864.00 0.80 0.16 0.27
2014/15 41,005,754,566.00 32,616,506,541.00 4,276,504,804.00 0.80 0.10 0.20
2015/16 48,342,121,058.00 40,272,093,722.00 5,156,340,560.00 0.83 0.11 0.19
2016/17 65,855,880,385.00 57,711,391,949.00 8,300,375,217.00 0.88 0.13 0.21
2017/18 72,635,987,983.00 69,966,856,437.00 1,269,890,141.00 0.96 0.02 0.29
2018/19 77,040,074,374.00 75,560,209,907.00 7,807,981,176.00 0.98 0.10 0.19
2019/20 119,441,613,623.00 114,552,112,807.00 8,716,147,441.00 0.96 0.07 0.23
2020/21 154,139,514,074.00 141,481,549,312.00 10,497,986,812.00 0.92 0.07 0.20
2021/22 160,203,350,799.00 153,726,662,172.00 8,860,332,435.00 0.96 0.06 0.18
SL
2012/13 5,441,943,928.00
2013/14 7,268,359,201.00
2014/15 6,622,873,369.00
2015/16 7,824,990,840.00
2016/17 12,392,423,375.00
2017/18 20,313,111,421.00
2018/19 14,510,554,101.00
2019/20 26,189,136,125.00
2020/21 28,100,754,009.00
2021/22 27,580,641,925.00
(PCBL’s Annual Reports 2012/13-2021/22)

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 Appendix 3: Calculation of Interest Amount (I) and Earnings before Interest and Taxes
(EBIT), Net Profit after Taxes (NPAT) and Total Assets (TA)
Years I EBIT NPAT TA ICR ROA
2012/13 1,744,271,203.00 2,495,137,847.00 750,768,801.00 32,409,183,518.00 0.6991 0.0232
2013/14 1,811,203,220.00 2,680,913,371.00 869,710,151.00 38,030,964,159.00 0.6756 0.0229
2014/15 1,854,852,163.00 3,083,090,189.00 1,172,357,090.00 45,800,892,475.00 0.6016 0.0256
2015/16 1,968,174,155.00 3,724,375,734.00 1,756,201,579.00 54,398,972,985.00 0.5285 0.0323
2016/17 3,304,386,188.00 5,419,695,854.00 1,479,231,598.00 77,786,847,979.00 0.6097 0.0190
2017/18 5,893,775,409.00 8,341,199,806.00 1,726,246,109.00 95,043,979,017.00 0.7066 0.0182
2018/19 6,237,763,535.00 9,387,279,244.00 2,198,792,243.00 102,255,829,620.00 0.6645 0.0215
2019/20 7,592,636,706.00 10,861,179,675.00 2,251,478,300.00 152,182,993,975.00 0.6991 0.0148
2020/21 8,060,765,419.00 12,746,099,261.00 3,268,400,687.00 190,896,964,060.00 0.6324 0.0171
2021/22 12,114,390,803.00 16,065,824,824.00 2,787,336,347.00 210,361,895,395.00 0.7540 0.0133
(PCBL’s Annual Reports 2012/13-2021/22)

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