CHAPTER - V

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of the findings analysis

The primary objective of the study is to analyze the ratio analysis of Nabil bank and
Nepal Investment Bank Limited and compare it which will be useful for the management,
shareholders, creditors, investors, depositors etc. The major findings of the study are
carried out by analyzing the financial data of the bank taken out from the personal
websites of the bank.

Financial analysis is the process of identifying the financial strengths and weakness of the
firm by properly establishing relationship between the items of balance sheet and the
profit and loss account. Ratio analysis is one of the tools used by financial analysis for
making decisions regarding ratios. The major findings are analyzed using data from
2007/08 till 2015/16.

The major findings of study on ratio analysis of Nabil and NIBL where capital, assets,
liabilities, stock prices, management, earnings, equity of the banks are being observed are
as follows:

1. When compared head to head, Nabil bank has higher market value of share and also has
higher earnings per share. From 2007/8 to 2015/16 Nabil bank declined to 16.21 and then
recovered to 59.27. Likewise, the P/E ratio of Investment bank dropped down to 10.54
from 42.33 and then rise to 35.49 in 2015/2016. The main reason for this effect is due to
the decreased share price for both the banks.

2. The PEG ratio seems to be ok for Nabil until 2011 and for Investment bank until 2010.
From then both the banks suffered the negative PEG ratio. From 2007 to 2015 PEG ratio
dropped down from 7.93 to -2.13 for Nabil bank and from 2.99 to -0.63 for Nepal
Investment Bank. This is because of the downfall of share prices for both of the banks.
3. Nabil bank started its price to sales ratio with 1.7 for consecutive 3 years till 2009/10.
The ratio dropped to 0.66 in 2011/12 which slowly rose to 1.41 in 2013/14 which was
about consistent till 2015/16 to 1.4. The loan to deposit ratio of NIBL started with 1.09
in 2007/08. There was a continuous drop in the ratio till 2010/11 because of falling stock
prices from 2450 to 515 in 2010/11. The ratio again took the pace and increased the ratio
up to 0.88 in 2015/16 as a result of improving stock price yet there was a drop in
2014/15.

4. The ratio of Nabil bank moves sharply from 49.95 to 168.13 in 2008/09 and then drops
drastically to -29.11 in 2009/10 which later settles down to -29.62 in 2015/16. The reason
behind the sharp increase in the ratio was caused because of sharp increase in the interest
income i.e. about 3 times more than in 2007/08 and also decrease in the current asset of
the bank and one of the main reason is the that the number of share of the bank was
doubled which decreased the cash flow per share. The ratio of NIBL is also quite
fluctuating for 9 years. The ratio started from 22.45 in 2007/08 and dropped down to -
58.52 in 2015/16. The ratio dropped 22.45 in 2007/08 to -15.41 because of negative cash
flow and increase in the number of share.

5. The value of Nabil bank was 14.91 in 2007/08 which decreased till 5.45 which is less
than 50% from that of 2007/08 data. The value increased from 2012/13 and finally
reached 10.96 in 2015/16 with average of around 8 for 4 years. The price to book value
of NIBL was 10.97 in 2007/08. From then onwards, the value was kept very consistent
with average value of 4.

6. Debt to equity ratio has been decreasing in both banks except in NIBL where the ratio
increases in 2013 and 2014 and again it drops. Nabil Banks ratio has been quite
consistent in decreasing the ratio where it drops from 0.13 to 0.03 from 2007.08 to
2015/16. One of the main reason behind higher debt to equity ratio of NIBL is its higher
long term debt investment.
7. The ROE of both the banks have been quite inconsistent over the years. The ROE of
Nabil bank has dropped down from 30.62 t0 20.59 from 2007/08 to 2015/16. Likewise,
the ROE of NIBL has also dropped down from 28.58 to 25.09 with 9 years of period. The
lowest ROE of Nabil bank is in 2015/16 and for NIBL is on 2011/12. The significant
reason for such a low ROE of Nabil bank in 2015/16 is the significant increase in
Shareholder’s Equity and fall in Net Income. The net income was low because of low
operating income and increase in staff bonus.

8. ROE for Nabil bank has improved till 2012/13 but dropped down significantly until
2015/16. The sudden drop in 2015/16 is caused because of decrease in Net Income which
was triggered by increase in staff bonus and drop down in operating income of the bank.
Likewise, the ROA for NIBL is very interesting with many ups and downs within few
years. There was a sharp increment on ROA in 2012/13. The reasons behind were
increment in net interest income and increase in loss provision written back. These were
the main reason for increasing the net income.

9. The profit margin of both the bank seems to be inconsistent for 9 years. The Profit
margin of Nabil bank started from 4.76% in 2007/08 and ended up in 3.12% in 2015/16
which in about 34% drop from where it started. Likewise NIBL started its profit margin
from 3.98% and ended in 3.8 which is somehow close to each other. The average profit
margin of Nabil bank is 4.48% and that of NIBL is 3.56%.

10. The dividend payout ratio has been almost consistent for the Nabil Bank until 2013/14
whereas in 2014/15 the dividend payout ratio drops more than 50%. The latest payout
ratio of Nabil bank is 0.25 in 2015/16. The dividend payout ratio of NIBL is fluctuating
over 9 years. It starts with 0.12 where it increases to 0.53 next year. Again in 2011, the
dividend ratio drops sharply from 0.51 to 0.18 which seems to be just opposite in Nabil
Bank.

11. The dividend yield of Nabil bank seems to be tentatively around 1 till 2009/10. The yield
increased to average of 2.5 for following next 3 years till 2012/13. The yield dropped
 down to less than 1 from 2014/15 to 2015/16. The main reason behind this is the increase
in dividend per share. The dividend yield of NIBL starts with 0.3 in 2007/08 which rises
up to 4.85 which is about more than 15 times from the beginning. The yield again drops
more than 70% and rises to 3.18. 2015/15 is again seen with the drop in yield mainly
because of drop in share price. The latest dividend yield of the bank is 2.01.

12. . The loan to deposit ratio of Nabil bank has been maintained between 0.62 and 0.87
fluctuating over 9 years of period. The average loan to deposit ratio of Nabil Bank is 0.72
for 9 years. Likewise the trend of NIBL is almost the same. It has maintained its loan to
deposit ratio between 0.7 and 0.81. The average ratio of NIBL bank is 0.76 between
2007/08 and 2015/16.

13. Loan has negative relation with EPS whereas No. of share has positive relation with EPS
in Nabil bank which goes same with the NIBL as well.
14. Price of share and Price Earnings Growth both has positive relation with EPS in Nabil
bank whereas in NIBL price of share has positive relation and PEG has negative relation
with Earnings per Share.

5.2 Recommendations

1. As Nabil bank has Higher P/E ratio it is very strong point for the bank, but it should also
try to stabilize its earnings growth as it has direct effect in the stock prices.

2. Both the banks should focus on stabilizing its share prices in order to improve its PEG
ratio as well as the loan to deposit ratio.

3. NIBL bank should try to improve its cash flow especially from its operating activities
which is considered to be the very important in the bank. Operating activities should be
able to produce positive cash flows as much as possible.
4. The stock price of NIBL is detected as undervalued as compared to Nabil banks stock
prices, so the bank should try to improve its stock price compared to its book value.

5. Nabil bank is trying to grow and it is very good step towards improvement but should
also try to satisfy their stockholders through proper dividend payout ratio and NIBL
should also focus on growing rather than only satisfying the needs of stock holders.

6. NIBL should also improve its profit margin by improving its revenue.

7. Both the bank should improve its loan to deposit ratio. The ratio should be between 80-
90% which is considered very good for the banks.