A STUDY ON FINANCIAL ANALYSIS OF

NABIL BANK LIMITED

By
KARUNA MAIYA JOSHI
Shanker Dev Campus
Campus Roll No.: 103/063
T.U. Regd. No.: 7-1-247-52-99
2nd Year Symbol No.: 1878

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the degree of

Master of Business Studies (MBS)
Kathmandu, Nepal
March 2011

1
 RECOMMENDATION
This is to certify that the thesis

Submitted by:
KARUNA MAIYA JOSHI

Entitled:
A STUDY ON FINANCIAL ANALYSIS OF
NABIL BANK LIMITED
has been prepared as approved by this Department in the prescribed format of
the Faculty of Management. This thesis is forwarded for examination.

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

Prof. Snehalata Kafle Prof. Bishweshor Man Shrestha Prof. Dr. Kamal Deep Dhakal
(Thesis Supervisor) (Head, Research Department) (Campus Chief)

2
 VIVA-VOCE SHEET
We have conducted the viva –voce of the thesis presented

by:

KARUNA MAIYA JOSHI

Entitled:
A STUDY ON FINANCIAL ANALYSIS OF
NABIL BANK LIMITED
And found the thesis to be the original work of the student and written
according to the prescribed format. We recommend the thesis to be
accepted as partial fulfillment of the requirement for the degree of
Master of Business Studies (MBS)

Viva-Voce Committee

Head, Research Department …………………….………

Member (Thesis Supervisor) …………………….………

Member (External Expert) …………………….………

3
 DECLARATION

I hereby declare that the work reported in this thesis entitled “A Study on
Financial Analysis of Nabil Bank Limited” submitted to Office of the
Dean, Faculty of Management, Tribhuvan University, is my original work done
in the form of partial fulfillment of the requirement for the degree of Master of
Business Studies (MBS) under the supervision of Prof. Snehalata Kafle of
Shanker Dev Campus, T.U.

……………………………………..
Karuna Maiya Joshi
Shanker Dev Campus
Campus Roll No.: 103/063
T.U. Regd. No.: 7-1-247-52-99
2nd Year Symbol No.: 1878

4
 ACKNOWLEDGEMENT

This is an attempt to present the study on Financial Analysis of Nabil Bank

Limited. It was a great experience to complete the study to fulfill the partial
requirements of the Master's Degree. I warmly appreciate everyone who helped
me to complete my study.

First, I would like to offer my sincere gratitude to my thesis supervisor Prof.

Snehalata Kafle of Shanker Dev Campus for her invaluable guidance,
comments and suggestions during the successful completion of this thesis.

I am also grateful to the various institutions that have helped me in my study by

providing the necessary data and information for this research work.
Especially, staff members of Nabil Bank Limited, Security Board Nepal, TU
Central Library and Shanker Dev Campus Library for providing me with
related materials.

Last, I would like to extend my deepest gratitude to my family members for

their support and co-operation to complete this study. Finally, I want to thank
all my relatives and my friends for their continuous support.

Karuna Maiya Joshi

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 LIST OF TABLES

Table No. Title Page No.

1.1 List of Commercial Banks Operating in Nepal 4
4.1 Current Ratio of Nabil Bank Limited 46
4.2 Cash and Bank Balance to Total Deposit Ratio 47
4.3 NRB Balance to Current and Saving Deposit Ratio 47
4.4 Cash and Bank Balance to Current and Saving Deposits Ratio 48
4.5 Fixed Deposit to Total Deposit Ratio 49
4.6 Investment to Total Deposit Ratio 50
4.7 Loans and Advances to Total Deposits Ratios 51
4.8 Loan Advances Total Assets Ratio 51
4.9 Total Income Generating Assets to Total Assets Ratio 52
4.10 Net Worth to Total Assets Ratio 54
4.11 Net Worth to Total Deposit Ratio 54
4.12 Debt to Equity Ratio 56
4.13 Total Debt to Total Assets Ratio 56
4.14 Interest Coverage Ratio 57
4.15 Return on Total Assets Ratio 59
4.16 Return on Equity Ratio 59
4.17 Interest Earned to Total Assets Ratio 60
4.18 Total Interest Expenses to Total Interest Income Ratio 61
4.19 Return on Total Deposits Ratio 61
4.20 Earning Per Share 63
4.21 Dividend Per Share 63
4.22 Tax Per Share 64
4.23 Dividend Pay Out Ratio 65
4.24 Income Analysis of Nabil Bank Ltd. 66
4.25 Expenditure Analysis of Nabil Bank Ltd. 69
4.26 Correlation between Total Deposit and Investment 71
4.27 Correlation between Total Deposit & Loan & Advances 73
4.28 Correlation between Loan Advance and Net Profit 74
4.29 Least Square of Linear Trend of Total Deposits 76

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4.30 Least Square of Linear Trend of Loan & Advances 77
4.31 Least Square of Linear Trend of Investment 78
4.32 Least Square of Linear Trend of Net Profit 80

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 LIST OF FIGURES

Figure No. Title Page No.

4.1 Liquidity Ratio of Nabil Bank Ltd. 49
4.2 Activity Ratio of Nabil Bank Ltd. 53
4.3 Capital Adequacy Ratio of Nabil Bank Ltd. 55
4.4 Capital Structure Ratio 58
4.5 Profitability Ratio of Nabil Bank Ltd. 62
4.6 Invisibility Ratio of Nabil Bank Ltd. 65
4.7 Average Income Analysis of Nabil Bank Ltd. 68
4.8 Average Expenditure Analysis of Nabil Bank Ltd. 70
4.9 Total Deposit Trend of Nabil Bank Ltd. 77
4.10 Loan & Advances Trend of Nabil Bank Ltd. 78
4.11 Investment Trend of Nabil Bank Ltd. 80
4.12 Net Profit Trend of Nabil Bank Ltd. 81

8
 ABBREVIATIONS
A/Cs = Accounts
ATM = Automated Teller Machine
BOK = Bankof Kathmandu
BS = Bikram Sambat
CBS = Commercial Banks
DER = Debt to Equity Ratio
DPS = Dividend Per Share
EBI = Emirates Bank International Limited
EBL = Everest Bank Limited.
EPS = Earning Per Share
GDP = Gross Domestic Product
HBL = Himalayan Bank Limited.
JICA = Japan International Co-Operation Agency
JVBs = Joint Venture Banks
Ltd. = Limited
NB = Nepal Bank Limited
NBA = Non Banking Assets
NBBL = Nepal Bangladesh Bank
NPA = Non-Performing Assets
NPAT = Net Profit After Tax
NRB = Nepal Rastra Bank
NRs. = Nepalese Rupees
P.E (r) = Probable Error of Correlation
Prov. = Provision
ROA = Return on Assets
ROE = Return on Equity
SAARC = South Asian Association for Regional Co-Operation
SAPTA = SAARC Preferential Trading Arrangement
SWIFT = Society of Worldwide Inter Bank Financial Tele Communication
TPS = Tax Per Share
VOL. = Volume

9
 CHAPTER 1
INTRODUCTION

1.1 Background of the Study

Nepal is mountainous, land locked and developing country. Banking system of
Nepal has undergone significant change since liberalization of the financial sector
in the mid eighties. It has improved in quantitative as well as qualitative terms.
Though banking system in Nepal is not so multifaceted when compared to that of
developed countries, it has definitely grown to become more complex in recent
years. Financial system of Nepal is still in its primary stage of development.
Small and fast growing financial sector comprises of commercial banks and
other financial institutions like development banks, finance companies,
cooperatives etc. So far, development of financial services in the country is
uneven. In some regions of the country, fast and advanced banking services are
available while other regions are fully deprived of banking services. More than
80% Nepalese people are rely on agriculture sector. In Nepal, there has been a
decrease in productivity of agriculture and on the other hand the population of the
country is on rise. "The emergence and expansion of productive industries are
necessary for the all rounds 10% and limited portion of labor force is involved in
industry, consequently more than 80% of the total population depends on
agriculture for their livelihood." Agriculture is still not sufficient to feed the
growing population in Nepal. Therefore, the manpower from agricultural sector
must be transferred to other sectors for economic development. Industrial
sector have contributed to the national economy less that 56.1% of total GDP.
(Economic Survey 2054/55:45)

Capital accumulation and formulation play vital role in accelerating the economic
growth of a nation, which in turn is basically determined, among others, by
saving and investment propensities. But the capacity to save in the developing
countries is quite low with a relatively higher marginal propensity of
consumption.

10
Banking plays a significant role for the development of national economy. It
provides an effective payment credit system, which facilitates the channeling of
funds from the surplus spending units to the deficit spending units in the economy.
The basic task of the financial institution is to mobilize the saving to high
yielding investment projects to offer attractive and secured returns to the
different sectors of the economy according to the plan priorities of the of the
country. This process of financial institutions give rise to money and other
financial assets, which therefore have a central place in the development process
of the economy. Banking intuitions are inevitable for the resources mobilization
and all round development of the country. It is resource for economic
development; it maintains economic confidence of various segments and extends
credit to people.

Mobilization of the savings of the general public in the form of deposits and its
channelization to various productive sectors of economy is the primary function
of any commercial bank. In order to collect the scattered saving and put those
into productive channels, financial institutions like; Banks are necessity. In the
absence of such institutions, the saving will not be utilized properly within the
economy and will either divert abroad or used for unproductive consumptions or
susceptive activities.

The national savings is attracted by the commercial banks into deposits which
are then mobilized into investments into the productive sectors of the
economy. Investment in the productive sectors like agriculture, commerce,
service, industry as well as the deprived sectors of the economy helps in the
economic growth of the country. The higher the economic growth, higher will be
the national savings of the country.

Commercial banks occupies quite an important place in the framework of every

economy because it provides capital for the development of trade, industry and
business, investing the collected saving as deposits. Besides these, commercial
bank renders numerous services to their customers, shareholders and society in
view of facilitating their economic and social life. All the economic activities of

11
each and every country are greatly influenced by the commercial banking
business of that country. Commercial banks are playing active role and have
changed the economic structure of the world.

Being a developing country, Nepal is directing its effort to uplift her economy
rapidly. But still it has been an agricultural dominated economy, considering
economic and social development as the primary objectives. Nepal has adopted
the "Mixed Economy Model" with the implicit assumption that the state and
private sectors can complement each other in the development process of the
country via issuing shares and accepting deposits from them. Then the bank can
mobilize and invest such accumulated resources into field of agriculture, trade,
commerce, industry, tourism, and hydroelectricity project etc.

A sound banking system is important because of the key role it plays in the
economy intermediation, facilitating payment flows, credit allocation and
maintaining financial discipline among the borrowers. Banks can encourage thrift
and allocate savings and by enabling savings to be used outside the sector in
which key originate. In any economy whether highly developed financial markets
or less well developed financial markets, banks remains at the center of economic
and financial activity and a stand apart from other institutions as primary
providers of payment services and a fulcrum for the monetary policy
implementation.

1.1.1 General Background of Banking

Banking has come to the present advanced form through various stages. Some sort
of banking activities has been carried out since the time immemorial traditional
forms of banking were traced during the civilization of Greek, Rome and
Mesopotamia. Merchants, goldsmith and money lenders are the ancestors of
modern banking. They contributed to a large extent in the growth of banking.

The Word bank derives from the Italian word "Banco" which means a bench for
keeping, lending and exchanging of money in the market by moneylenders.
During the early periods the banking business has mostly done by the

12
individuals and business groups for the purpose of facilitating commercial
sector. "The bank of Venice" was established in 1157 AD as the pioneer bank in
the history of banking. Then 'Bank of Barcelona' was established in 1401 AD as
the second bank of the world .

1.1.2 Origin of Banking in Nepal

Like other countries landlords, moneylenders, merchants, goldsmith etc are
the ancient bankers in Nepal. In 19 th century, Prime Minister Rannodip Singh
established "Tejarath Adda" to provide loan to the government employee at a low
interest rate, but it could not accept deposits from publics. The Major part of the
country remains untouched from these limited banking activities.

The development of trade with India and other countries increase the necessity of
the institutional banker, which can act more widely to enhance the trade and
commerce and touch the remote non banking sector in the economy. Reviewing
this situation, the "Udhyog Parishad" was constituted in 1993 BS. One year after
formulation, it was formulated the 'Company Act' and 'Nepal Bank Act' in 1994
BS. Then Nepal Bank Ltd. (NBL) was established under Nepal Bank Act 1994
BS, as the first commercial bank of Nepal with the authorized capital of 10 million
Rupees.
Table 1.1
List of Commercial Banks Operating in Nepal

S. Operation Paid up
Name Head Office Capital
No. Date
1 Nepal Bank Limited 1937/11/15 Kathmandu 380.4
2 Rastriya Banijya Bank 1966/01/23 Kathmandu 9140.9
3 Agriculture Development Bank Ltd. 1968/01/02 Kathmandu 7528.0
4 Nabil Bank Ltd. 1984/07/16 Kathmandu 965.7
5 Nepal Investment Bank Ltd. 1986/02/27 Kathmandu (Rs. IN
2407.1
6 Standard Chartered Bank Nepal Ltd. 1987/01/30 Kathmandu M1398.4 )
ILLION
7 Himalayan Bank Ltd. 1993/01/18 Kathmandu 1600.0
8 Nepal SBI Bank Ltd. 1993/07/07 Kathmandu 1659.6
9 Nepal Bangladesh Bank Ltd. 1993/06/05 Kathmandu 1860.3
10 Everest Bank Ltd. 1994/10/18 Kathmandu 830.4
11 Bank of Kathmandu Ltd. 1995/03/12 Kathmandu 1182.1
12 Nepal Credit and Commerce Bank Ltd. 1996/10/14 Siddharthanag 1390.8
13 Lumbini Bank Limited 1998/07/17 ar
Narayangadh 1000.0

13
14 Nepal Industrial & Commercial Bank Ltd. 1998/07/21 Biaratnagar 1140.4
15 Machhapuchhre Bank Limited 2000/10/03 Pokhara 1314.6
16 Kumari Bank Limited 2001/04/03 Kathmandu 1185.8

17 Laxmi Bank Limited 2002/04/03 Birgunj 732.0

18 Siddhartha Bank Limited 2002/12/24 Kathmandu 1571.1
19 Global Bank Ltd. 2007/01/02 Birgunj 1500.0
20 Citizens Bank International Ltd. 2007/06/21 Kathmandu 1500.0
21 Prime Bank Ltd 2007/09/24 Kathmandu 1100.0
22 Sunrise Bank Ltd. 2007/10/12 Kathmandu 1250.0
23 Bank of Asia Nepal Ltd. 2007/10/12 Kathmandu 1661.1
24 Development Credit Bank Ltd. 2008/05/25 Kathmandu 1661.1
25 NMB Bank Ltd. 2008/06/02 Kathmandu 1429.9
26 KIST Bank Ltd. 2009/05/07 Kathmandu 2000.0

Having felt need of development of banking sector and to help the government
formulate monetary policies, Nepal Rastra Bank was established in 2013 BS, as a
central bank of Nepal under Nepal Rastra Bank Act 2012. Rastriya Banijya Bank
was established in 2022 BS under Rastriya Banijya Bank Act 2021. This act is
now revised as commercial banking Act 2031(BS). For development of sources of
a poor person, raising their living standard by participating them in any income
generating activities, Co-Operative Bank was established in 2020 BS, which
was letter on converted to Agricultural Development Bank on 2024 BS. Industrial
Development Corporation was established in Ashadh 2016 BS under Nepal
Industrial Development Corporation Act 2016. The government of Nepal observed
the necessity of rapid development of the country for which it has adopted,
"Liberalized economic Policy and encouraged foreign investment".

Consequently, the third commercial bank in Nepal, or the first foreign joint
venture bank, was set up as Nepal Arab Bank Ltd. (now called as Nabil Bank
Ltd.) in 2041 BS. Nepal Indosuez Bank Ltd. (now called as Nepal Investment
Bank) on 2042 BS, Nepal Grindlays Bank Ltd (now called as Standard Chartered
Bank Nepal Ltd.) on 2043 BS, & Himalayan Bank Ltd. in 2049 BS, Nepal SBI
Bank. On 2050 BS & Nepal Bangladesh Bank was established on 2051 BS. At
present, altogether 25 commercial banks, (Table No. 1.1) which include 8 Joint
venture banks, are in the operation besides many more finance and co-operative
companies. Nepalese banking system has now a wide geographic reach and
institutional diversification.

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1.2 Introduction to Nabil Bank Limited
Nabil Bank Limited, the first foreign joint venture bank of Nepal, started in 12 th July
1984 (29 th Ashar 2041), It was established with joint venture of Emirates
Bank international Limited (EBI), financial institution of Nepal and Nepalese
people with shares of 50%, 20% and 30% respectively. But later on shares of
Emirates Bank International Limited (EBI) were sold to National Bank Limited
of Bangladesh in 2051 BS. Nabil Bank Limited was incorporated with the
objective of extending international standard modern banking services to various
sector of society. Pursuing its objectives, Nabil Bank Limited provides a full range
of banking services.

After 11 years of active participation, Emirates Bank International Limited (EBI)

divested its' 50% shareholding to National Bank Limited (NBL) Dhaka,
Bangladesh. With increased economic cooperation under SAARC framework
particularly in the field of trade commerce and induction of SAPTA
agreement, the participation in National Bank Limited of Bangladesh in Nepal
seemed to be most timely. However the board of directors had decided to release the
technical assistance contract with National Bank Limited, Dhaka in May 2001 in a view to
that the management of the Nabil Bank Limited could be handled by the Nepalese
employees.

The annual general meeting held on 12 August 2001 decided to rename the bank as "
Nabil Bank Limited" to be effective from 1st January 2002. The bank has now 28 branches,
being the highest number of branches of any joint venture bank operating in Nepal.

Nabil Bank Limited provides a full range of commercial banking services through its
outlets spread across the nation and reputed correspondents banks across the globe.
Moreover, Nabil Bank Limited has a good name in the market for its highly personalized
services to the customers.

The bank has focused in improvement of information technology, venturing into new
areas of banking activities and also laid greater stress in improving the quality of
manpower. The bank has also emphasized to remain competitive in fast changing
environment and adopt new marketing policies. Nabil Bank Limited, the first foreign
joint venture bank of Nepal, started operations in July 1984. Nabil Bank Limited was

15
incorporated with the objective of extending international standard modern
banking services to various sectors of the society. Pursuing its objective, Nabil Bank
Limited provides a full range of commercial banking services through its 19 points of
representation across the kingdom and over 170 reputed correspondent banks across
the globe.

Nabil Bank Limited as a pioneer in introducing many innovative products and

marketing concepts in the domestic banking sector represents a milestone in the
banking history of Nepal as it started an era of modern banking with customer
satisfaction measured as a focal objective while doing business. Operations of the
bank including day-to-day operations and risk management are managed by highly
qualified and experienced management team. Bank is fully equipped with modern
technology which includes ATMs, credit cards, state-of-art, world-renowned software
from Infosys Technologies System, Bangalore, India, Internet banking system and
Tele-banking system.

Present Capital Structure of Nabil Bank Limited

Share Capital Structure NRs. (Million)
Authorized Capital 1600.00
Issued Equity Capital 965.75
Paid-up capital 965.75
(Source:- www.Nabilbank.com.np, Financial Report of Fiscal year 2065/066)

Share Holding Pattern of Nabil Bank Limited

1. National Bank Ltd. Bangladesh 50%
2. NIDC 6.15%
3. Rastriya Beema Sansthan 9.66%
4. Nepal Stock Exchange 34%
5. General Public 30%
(Source:- www.Nabilbank.com.np, Financial Report of Fiscal year 2065/066)

16
1.2.1 Operating System of Nabil Bank Limited
The operation takes place from the head office which is in Kamaladi. The bank
provides a complete range of professional, commercial and corporate banking and
related financial services through its two credit cards counters and one exchange
counter with the largest no. of branches among any other Joint Venture Bank
in Nepal. Nabil Bank Limited is handling its daily operation by using modern
banking techniques that exist in international banking circle such as computer
system, credit card, master card, visa international. Nabil Bank Limited is trying to
make its staff efficient by conducting training, seminars, conferences so that they
can perform better that the staff of other commercial banks and Nabil Bank
Limited can face the competition with the other local banks and other joint venture
banks very easily.

The bank is a major player in facilitating import and export activities with
modern and efficient trade finance and international as well as established
business group or corporation of merged firms in private sectors. Nabil Bank
Limited ranks amongst the top three financial institutions in Nepal in terms of its
market share of handling Nepal's trade. Besides Nabil Bank Limited is successful
in establish good relationship with several embassies donor institutions, Non-
government organization, AID Agencies like DANIDA, JICA, USAID and
foreign joint investment institutions established in Kathmandu. Due to this, its
business volume is increasing and performance is also become well day by day.

1.2.2 Branches of Nabil Bank Limited

Nabil Bank Ltd is a joint venture bank whose head office is located at Kamaladi,
Kathmandu. It has number of branches operating all over the country. At present,
it has 37 branches all over the nation including Head Office Nabil House,
Kamaladi,Kantipath Branch, Lalitpur Branch, Maharajgunj Branch, New
Baneshwor Branch, Tripureshwor Branch, New Road Branch, Kaushaltar Branch,
Jorpati Branch, Thamel Branch, Halchowk Branch, Chabahil Branch, Balaju
Branch, Kuleshwor Branch, Satdobato Branch, Maitidevi Branch, Pokhara
Lakeside Branch, Exchange Counter International Airport Branch, Dharan Branch,
Bhalwari Branch, Birtamod Branch, Damak Branch, Hetauda Branch,

17
Narayangadh Branch, Baglung Branch, Tulsipur Branch, Ghorahi Branch,
Dhangadhi Branch, Mahendranagar Branch, Birgunj Branch, Biratnagar Branch,
Butwal Branch, Nepalgunj Branch, Bhairahawa Branch, Power House Chowk
Branch (Birgunj), Itahari Branch, International Airport Chowk, Pokhara Branch,
the largest number of branches amongst any other joint venture bank in Nepal.

1.2.3 Performance of Nabil Bank Limited

As a commercial bank, the main objective of this bank is to earn profit by
providing loans and accepting deposits from the customer and make satisfy them
in an optimal manner through healthy competition and sound management.

Nabil Bank Limited had started its business operation from Kantipath banking
office. Within 25 years period it has been able to extend its business in different
parts of the country. The bank is providing direct services to numerous customers;
it has planned to extend its additional branch in future. Though facing a keen
competition with the contemporary banks, it has successful to hold maximum
percentage of total banking sector. It has also aided millions of rupees in the form
of revenue to the government.

Nabil Bank Limited is successful to create its own image within the kingdom of
Nepal. It is successful to create the banking relation with the most of the countries
of the world. It is capable to render its services necessary for export and import
to any business person of the world.

1.2.4 Banking Services and Products Rendering By Nabil

Bank Limited
Nabil bank is providing the full independent commercial banking services to the
clients. It is established in Nepal with the objectives of providing different
services to its clients/customers.

Accepting deposits from customer in various like: current, saving and fixed A/C
and granting loan and advances in term of Overdraft, Demand loan, Housing
loan, Educational loan, Hire Purchase Agricultural loan etc.Likewise it provides

18
opening facility of letter of credit, Remittance services & Issue Travelers Cheque.
Nabil bank also invest in treasury bills, foreign bills, discounting bills & provide
bank guarantee & trade finance also.

It also provide locker’s facility & tele banking service for customer safety &
security. In this way Nabil bank provide many more other facility to customer.

1.2.5 Adapting of Modern Technology

The bank has been providing the services with the latest technologies and
computerized equipments. The bank is determines to give quality services to its
customers. The Tele banking facility of the bank enables the clients to get the
information as well as statement of A/Cs through fax whenever required simply
by dialing the telephone no. under banking option facility of making inquiry of
interest rates, foreign exchange rate and even placing for fresh cheque book of
one's A/C is also straight forwardly available.

The bank has enrolled itself as SWIFT (Society of Worldwide Inter Bank
Financial Tele Communication) member to adopt fast communication means
among the member bank of SWIFT. Messages are transmitted through SWIFT to
the member banks of time which is widely used in remittance, Later of Credit
and many more areas of communication as well.

1.3 Statement of Problem

Emphasizing the role of commercial banks, various financial institutions have
been established to assist the process of economic development of Nepal. The
major problem in almost all underdeveloped countries and Nepal is no exception,
is that of capital formulation and proper utilization. To avoid problems and
thereby contribute to the national economy, various commercial banks have
played vital role by accepting deposits and providing various types of loan.
Loan affects overall development of the country. The development of the
country directly related to the volume of loan, which is also obtained from
commercial banks. The problem of lending has become very serious for
developing country like Nepal. This is due to lack of sound policy of commercial
banks.

19
Commercial banks are found to be making loan only in short term basis against
movable merchandise. There is hesitation to investment on long term project as
they are much more safety, they do not consider the profit potential of the project.
There is raised criticism that commercial bank have served only richer
communities and not the poor. This has directly had negative impact in
economic growth. Nowadays commercial bank does not seem to be capable to
invest their funds in more profitable sector i.e. treasury bills, development bonds
and other securities. They keep high liquidity and flow lower funds to the
productive sectors, this result in lower profitability to commercial banks and
ignorance to the national economies growth process. This is the main reason of
crisis in the commercial banks and in the whole national economy as well.

In order to help realize the goal of the poverty alleviation, access to increased flow
of credit and investment in the economic activities of direct benefit to the
maximum number of low income people through micro and medium size loan
needs serious attention in the days to come. It is also necessary to identify the
activities that ensure quick return of the investment.

The mushrooming of banking and finance companies and about a dozens of

rural banks and co-operative societies in short span of time has brewed new
comparative scenario, and has posed a challenge to the previously monopolistic
bank like Nabil which are making attractive profits. In the changed scenario
these banks need to explore their strength and weakness to improve their
performance because their successes depend upon their ability to boost their
productivity and financial performance.

Thus the present study seeks to explore the efficiency and weakness of Nabil
Bank. Attempts are also being made to explore the following questions.
 How far have Nabil Bank Limited been able to convert the mobilized
resources into investment, collected from public.
 To what extent this bank has been able to raise their profitability,
 How efficiency this bank is managing their liquidity, activity, assets, capit al

20
 structure, capital adequacy, etc.
 What is the lending pattern of loan and advances and other investment?
 What are the components which affect the operating income of Nabil?

1.4 Objective of the Study

Each and every activity should be motivated to achieve specific goals. It is desired
outcomes. It defines path and courses of action to the human being. So the primary
objective of study is to indicate the financial position of Nabil Bank Limited. And
the secondary objective is to analyze & judge the financial stability of Nabil Bank
Limited, and make suggestion to improve its financial efficiency. The specific
objectives of the study are;
 To analyze the liquidity, profitability, capital structure, capital adequacy,
leverage, ownership ratios and operation of Nabil Bank Limited.
 To evaluate the soundness of profitability and operating efficiency of Nabil
Bank Limited.
 To identify how efficiency the bank has utilized its assets in generating interest
earned.
 To analyze the relationship between Dividend per Share and Earning per
Share of Nabil Bank Limited.
 To identify the level of profitability of bank.
 To study the income and expenditure statement of Nabil Bank Limited.
 To provide recommendations and suggestions on the basis of major
findings.

1.5 Importance of the Study

Commercial banks in developing countries like Nepal have the greatest
responsibility towards the economic development of the country. The main
objective of the bank as a commercial organization is to maximize the surplus by
the efficient use of its fund and resources. Being a commercial bank, it also has a
responsibility towards the socio economic up-liftmen of the country by providing
specially considered loans and advances towards less privileged sectors.
The study has various significant.

21
 The financial agencies, stock exchange and stock traders are also interested in
the performance of the bank as well as the customers, depositors and debtors,
who can objectively identify the better bank to deal with in terms of
profitability, safety and liquidity.
 Policy makers at the macro level that is government and Nepal Rastra Bank
will also benefit regarding the formulation of further policies in regard to
economic development through banking institutions.
 The study enlightens the shareholders about the financial performance of their
respective bank. This allows them to have a comparative retrospect whether
their fund was better utilized or not.
 The study also compels the management of respective banks for self
assessment of what they have done in the past and guides them in their future
plans and programs.

1.6 Organization of the Study

This whole study has been divided into five chapters. Each is developed to some
aspects of the study financial analysis.

First Chapter contained introduction of the study. It is all about the background of
the study, statement of problem, objective of the study, significance of the study
and limitation of the study.

Second chapter deals with review of literature relating to financial performance of

Nabil Bank Limited. It contained conceptual review of study and review of related
studies.

Third chapter is research methodology. It contained the assumption of the study,

research design; source of the data for this study, which are secondary source and
the period of the study, is mentioned. The important part of this chapter is that it
highlights the methodology used for this study.

22
Fourth Chapter deals with the presentation, analysis and interpretation of data. In this
chapter, data of the study are presented and they are analyzed through the way of
designed methodology with findings in the fourth chapter.
Lastly, fifth chapter contained summary, conclusion and recommendation of study.

1.7 Limitation of the Study

This study is limited by the following factors.
Every study defines some boundaries. They have to study within this framework.
So there are some limitations due to lack of data time and information. They
are as follows:
 This research paper is prepared especially, in fulfillment of degree course for
MBS. Since the collection of data through primary sources requires on the spot
visit, consuming lots of time fund and, not affordable by a student, all the
relevant data and information are collected and consolidated from the
published financial documents like balance sheet, profit and loss account and
other related journals and websites.
 The study deals with certain financial tools such as ratio analysis and
statistical tools.
 Only secondary data is used here.
 Limited resources and time at the disposal of the researcher did not allow a
much more wide analysis of the subjective in question.
 The whole study will be limited to the past five years (From 061/62 to 065/66)
period.

23
 CHAPTER 2
REVIEW OF LITERATURE

Literature refers to the detail of anything. Review of literature is basically a stock

taking of available literature in the field of research. It supports the researcher to
explore the relevant and true facts for the reporting purpose in the field of study.
In the course of research, review of existing literature would help the researcher to
find out what studies have been conduct and what remaining to go with. In this
section relevant contents related with the topic of the study are mentioned or
arranged like, concepts of banks commercial banks.

For the purpose of the study, this chapter is categorized under two major headings,
which are discussed as below:
 Conceptual Frame Work
 Review of Related Articles & Thesis
 Issues and Gaps

2.1 Conceptual Framework

As this study is related to financial analysis of Nabil Bank Ltd. following aspects
of analysis are reviewed in sequential manner.
 Concept of commercial bank
 Concept of joint venture bank
 Concept of financial performance
 Concept of financial analysis
 Objectives of financial analysis

2.1.1 Concept of Commercial Bank

Specially, commercial bank deals with the activities of trade, commerce industry
and agriculture. The main objective of commercial bank is to mobilize ideal
resources in productive area after collecting them from scattered sources for profit
maximization.

24
Banking is an institution, which deals with money credit. It accepts deposits from
publics, makes fund available to those who need them and helps in remittance of
fund from one place to another. They perform several financial monetary and
economic activities to accelerate the economic growth of the country. With these
resources and bank's own capital, bank disburse loan or extend credit and also
invest in securities.

According to the "Ordinary Banking business consists of changing cash for bank
deposits and bank deposits for cash; transferring bank deposits from one person
or corporation to another; giving bank deposits in exchange for bill of exchange,
bonds the secured or unsecured." Sayers (1970:30)

The Commercial Bank Act 2031 defines a commercial bank as a, "Bank which
deals in exchanging currency, accepting deposits, giving loans and doing
commercial transaction."

A commercial bank is a bank which exchanges money, deposits money, accept

deposits, grants loan and performs commercial bank functions and which is not
a bank meant for cooperative agriculture, industries as per such specific functions.

A Commercial bank performs four major functions like, "Receiving and handling
deposits, handling payment for its clients, granting loan and investment and
creating money by extension credit."

According to US Law, "Any institution offering deposits subject to withdrawal on

demand and making loans of a commercial banks or business nature is a bank."

So, the importance of banking as the nerve center of economic development can't
be over emphasized and it is said that bank which are the need of and great wealth
of the country have got to be kept very scared.

25
2.1.1.1 Function of Commercial Bank
The most important function of a commercial bank is to mobilize deposits from the
public. Depending upon the nature of deposits, funds deposited with bank also earn
interest.
The second important function of a commercial bank is to grant loans and
advances. A loan is granted for a specific time period. Generally, commercial banks
grant short-term loans. An advance is a credit facility provided by the bank to its
customers. It differs from loan in the sense that loans may be granted for longer
period, but advances are normally granted for a short period of time. Banks grant
short-term financial assistance by way of cash credit,overdraft and bill discounting
or both.Besides the functions of accepting deposits and lending money,
banks perform a number of other functions .These are as follows –
A) Issuing letters of credit, travellers cheques, circular notes etc.
B) Undertaking safe custody of valuables, important documents, and securities by
providing safe deposit vaults or lockers;
C) Providing customers with facilities of foreign exchange.
D) Transferring money from one place to another; and from one branch to another
branch of the bank.
E) Standing guarantee on behalf of its customers, for making payments for
purchase of goods, machinery, vehicles etc.
F) Collecting and supplying business information;
G) Issuing demand drafts and pay orders.

2.1.2 Concept of Joint Venture Bank

A joint venture is an association of two or more persons or enterprises to make the
operation highly effective with their collective effort. Joint Venture Banks are the
commercial banks firmed by joining the two or more enterprises for the purpose of
carrying out specific operation such as investment in trade, business and industry
as well as in the form of negotiation between various groups of industries or
traders to achieve mutual exchange of goods & services.

26
"A business contract of management effort between two person, companies or
organizations involving risk and benefit sharing." (B.N Ahuja, 1994:174),

Joint Venture Banks is an innovation in finance and it is growing stage, mostly in

developing country, foreign investment plays a significant role for economic
development by flowing capital, technology, skills, managerial efficiency and
others.

When two or more than two independent firms mutually decide to participate in a
business venture, contribute to the total equity more or less capital and establish
a new organization, it is known as Joint Venture.

Joint venture banks have been contributing a lot towards the promotion and
expansion of both export and import trade. They provide both pre-shipment and
post-shipment finance to exporters. In this way, JVBs are successful to bring
healthy competition among banks, increase in foreign investment, promote and
expand import export trade, introduce new techniques and technologies.

A joint venture is an association of two or more persons or parties having

exceptional advantages in specific operation is undertaken to make the
operation highly remunerative with their collective efforts. In 1980's
government introduced "Financial Sector Reforms" which facilitated the
establishment of Joint Venture Banks (JVBs), which gave a new horizon to the
Nepalese Banking Sector. Joint Venture Bank, especially with foreign banks,
was expected to bring technology; modern management as well as foreign capital
in banking industry besides export and import trades. Since these banks being
new, urban based and run by foreign management, they started their operations
with the accumulated system which could attract the elite group of business
community due to their prompt service, modern management.

27
2.1.3 Concept of Financial Performance
Financial performance analysis means the analysis of financial activities of the
company directed towards achieving its value maximizing objective. For the better
financial activities, effectives, effective and efficient decisions are necessary and
those better financial activities contribute excellent financial performance which in
turn results to growth of the organization.

Financial performance analysis can be defined as the heart of financial decision.

The growth and development of an enterprise is fully affected by financial
performance and financial performance of an enterprise is correct when true facts
and figures are sort out. Business organizations are inspired to generate profit. The
value of profit earned is also one of the major indications of a good financial
performance of a firm.

According to the Robinson, (1951:21-22) "Profit earned by the firm is the main
financial performance indicators of business enterprises." Financial performance
analysis is an analysis of better understanding of forms positions i.e. its strength
and weakness. Thus, it involves the use of various financial statements. First, the
balance sheet which represents the firm's financial position at the moment and
then comes income statement which represents the summary of firms profitability
over a time.

Financial performance analysis as a part of financial management is the main

indicator of success and failure of the firm. Its decision plays a vital role to
increase the profitability by analyzing past performance and efficiency of the firm
from accounting data and financial statements. Profit is essential for a firm to
survive, grow in long run as well as to maintain capital adequacy through retained
earnings. However, profit can't solely predict the financial performance of the
firm.

Financial condition of the business firm should be sound from the point of view of
shareholders and stakeholders and financial institution and nation as a whole.
However, financial aspects are one of the most neglected aspects of the public

28
enterprises in Nepal. However, joint venture banks have been analyzing their
financial performance in order to take corrective actions in timely manner, but
which has also been limited within the banks themselves. In Nepalese context,
commercial banks are playing vital role in economic growth of the country and
Nabil Bank is one of the leading banks in this aspect. This bank has achieved a
great success in terms of market share and profitability compared to other joint
venture banks because of its professional and reliable services to the customers.
Therefore, it would be clear and transparent to analyze the financial performance
of this leading foreign joint venture bank of Nepal by using various measuring
financial tools to know about their earning and the utilization of the earnings to
boost up the economic expansion of the country.

Financial performance analysis can be considered as a spirit of the financial

decisions. The growth and development of any business firm is directly influenced
by the financial policies. Rational evaluation of the financial performance
management in public enterprises is too much involved in record keeping, raising
necessary funds and maintaining relationship with the bank or other financial
institutions. But a financial aspect is one of the most neglected aspects of public
enterprises in Nepal. However joint venture banks have analyzed financial
performance for their corrective action. But their analysis is limited with the bank
themselves. Financial performance as a part of financial management, there are
different institutions that affect or are affected by the decision of the firm.

Management of the firm is interested in all aspects of financial analysis to adopt

food financial management system for the internal control of the enterprise.
Similarly, trade creditors are primarily interested in the liquidity positions of the
firm. Long term creditors are more interested in the cash flow ability of the
enterprise to service debt over a long run. All the concerned groups are directly or
indirectly interested about the financial performance of the firm.

The absolute accounting figures are reported in the financial statement, balance
sheet, profit and loss account and other statements do not provide a meaningful
understanding of the performance and financial position of the firm. Thus
financial analysis is the main qualitative judgment process of identifying the

29
financial strength and weakness of the firm by properly establishing the
relationship between the items of the balance sheet and profit & Loss Account.

Joint venture bank of Nepal is profit making business institutions. So the profit
earned by a joint venture commercial bank in Nepal is the main financial
performance indicator of the bank. However, it cannot exclusively forecast the
performance of the bank by analyzing the profitability status only. Every aspects of
the financial analysis are to be considered for financial performance of the bank.

2.1.4 Concept of Financial Analysis

Financial analysis is the process of identifying the financial strength and weakness
of the concern. It is the process of critically examining in detail the accounting
information given in the financial statement to gain better understanding of the
firm's financial position and performance. It is performed to determine the
liquidity, solvency, efficiency and profitability position of the organization. It
gratifies the need of the concerned parties like potential investors, shareholders,
government, general public, short term as well as long term creditors and
management itself about their vested interest providing them with adequate
information.

"Ratio analysis is such a powerful tool of financial analysis that through its
economic and financial position of a business unit can be fully x-rayed." (C.R.
Kothari,1991:487).

"Financial Analysis is a process if identifying the financial strength and weakness

of the firm by properly establishing relationship between the items of balance
sheet and the profit and loss Account." (I.M. Pandey)

Financial Analysis of a firm consists different of kinds of indicators out of which

financial statement analysis, ratio analysis, sources and uses of funds are the major
indicators to measure the strength & weakness of a firm. But here the study is
mainly focused on the ratio analysis and some other financial indicators to analyze
the financial position & performance of bank.

30
A quantitative judgment of the financial performance and financial position of the
firm should be made from viewpoint of the firm's investment. "A ratio is defined as
the indicated quotient of two mathematical expressions and as the relationship
between two or more figure."

Financial analysis is a study of relationship among the various financial factors in

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

The analysis of financial statement is necessary, the reason is that balance sheet,
profit and loss account and fund flow statements even are successful to fulfill their
targets but they cannot meet the requirement of different interests. To obtain the
meaningful information according to own need, they should be analyzed. Ratio
Analysis is widely used.

It is defined as the systematic use of ratio to interpret the financial statements so

that the strength and weakness of a firm as well as its historical performance and
the current financial condition can be determined.

The function of financial analysis of institution can be broken down into three
major decisions a firm can make; the investment decision, the financing decision
and the dividend decision. An optimal combination of the three decisions will be
maximizing the value of the firm.
A powerful and most widely used tool of financial analysis is ratio analysis. A ratio
is a relationship between two accounting figures expressed mathematically; the
term ratio refers to the numerical or quantitative relationship between two items.
The type of relationship can be expressed as percentage, fraction and proportion to
number. Ratio helps summarize large quantities of financial data and to make
qualitative judgment about the performance.

31
2.1.4.1 Objectives of Financial Analysis
Basically there are three major objective of financial analysis.
 To select the pieces of financial information that is relevant to a particular
problem.
 To fit these into a coherent picture of the problem in relation to the firms aims
and financial resources.
 To suggest alternative solution to the problem.
As a matter of facts the objective of analysis depends upon the analyst as quality if
the data available.

2.2 Review of Related Study

Here, in this part, the reviews of related studies conducted for the preparation of the
study are presented. Various review of journals, articles and master’s degree theses
have been presented below:-

2.2.1 Review of Journals and Articles

Relevant related articles and journals relating to the different aspects of commercial
bank will help to conduct this study smoothly. So some of the articles relating to
banking sectors are given below;

The number of commercial banks increased dramatically after the democratically

elected government adopted the liberal and market oriented economic policy.
(Thapa, 2051:17)

After liberalization and globalization of the world economy the economic

transaction such as trading and commerce, industrial and banking activities have
grown up tremendously. Likewise, an international trade of the developing country
has also boosted up. But on the other hand, the increasing competitiveness has also
increased various type of risk in every business, including banking sector. To
manage with their risk, the banks in favor of their clients have adopted strategies
relating to treasury management. (Shrestha, 2055, P-20)

32
An article Joint Venture Banks in Nepal published in 1999 Vol. XI P-36. It
focused that despite the increase in numbers, the joint venture banks are
concentrated in urban centers, especially in major cities, with will all their
headquarters in Kathmandu. This trend has resulted two ways effect on the
operation of the government owned commercial banks in Nepal. First, the
comparatively attractive interest rate and service promptness of these private
banks have drawn the public deposit's to their side there by reducing financial
liabilities of the former, Second, as a result of reduction in financial liabilities
government operated commercial banks have been forced to shut down some of
their branches in remote area of the country. Nevertheless, look at the activities of
these joint venture banks provide a boost into the tremendous aid they provide to
the national economy. They have been instrumental in mobilizing capital more
efficiently and to be a larger extent especially, and they have been more helpful in
funding the private sectors.

A speech state on R. K. Tamrakar (2000), "The government has called up on

foreign investors to explore the unique business opportunities lying in the
Himalayan Country. While addressing at business meeting at Hanover, Germany
on September 9th 2000, he states that government is committed to encourage every
type of investment, which can ultimately contribute for the industrial development
of the country. Informing the gathering that various 37 investors of nations have
invested 592 projects during last ten years industrial production, tourism and
service sectors have been prime attraction of foreign investors.

Mr. Bhagat highlights on his article entitle " Issue in Banking Reforms", that the
commercial banks generally registered under the company act but operated under
the commercial bank act does not provide for the registration of the bank. Here
commercial bank act should be a made independent from the provision of the
company act. Further he mentions that banks capital adequacy guidelines
prescribed under certain basic criteria or parameter. However, there should not be
any discrimination between new and old commercial banks in meeting capital
adequacy guidelines such as a minimum paid up capital and increasing paid up
capital over the time period.

33
Another study conducted by Sunity Shrestha (2004), has analyzed the financial
performance of the commercial banks using descriptive and diagnostic approach. In
her study she has concluded the points as below;
 Per capita deposits as well as per capita credit in commercial banks have
increased tremendously. The contribution of deposits on GDP has also been
seen increasing. The assets holding of commercial banks are growing with
42.12% rate that is supposed to be higher for a developing country. It can be
concluded that the commercial banks in Nepal are performing their function
of collecting the domestic property.
 The structural ratio of commercial banks shows that banks invest on the
average 75% of their total deposits on government securities and the shares
of other financial institutions.
 The analysis of reserve position of commercial banks showed quite high
percentage of deposit as cash reserve.
 The debt equity ratio of commercial banks is more that 100% in most of the
time period under study period. It leads to conclude that the commercial banks
are highly leverage and highly risky. Joint venture banks had higher capital
adequacy ratio but has been declining every year.
 Return ratios of all banks show that most of the time foreign banks have
higher return as well as higher risk that the government owned banks.
 In case of the analysis of management achievement, foreign banks were
found to have comparatively higher risk than local banks.

According to the Banking Supervision report 2005 of NRB concludes that, the
capital of the Nepalese banking industry has depicted a favorable trend during
2004/05. There are various reasons for this improvement. The banks, during the
period, on an average have performed well and some of them have raised capital
from the market, which improved the overall capital position of the industry. All
banks, except for three private banks were able to post handsome profits. Some
banks were able to distribute cash dividends and bonus shares to its shareholders.
At the same time, some banks raised finance from the market through issue of
right shares while Lumbini Bank raised equity capital through initial public
offering during the year.

34
An Article published in 2005 concludes that, Banks are gradually starting to
realize that, in today's competitive banking environment, exemplary customer
service is one of the distinguishing characteristics that banks can exploit to
establish a competitive edge. Since most banks offer comparable products and
services, they should continually search for a competitive advantage that will
attract new customers and help them retain existing ones. Banks are therefore,
looking to develop innovative products and services to maintain superior customer
service levels while at the same time remaining profitable. With the number of
market players in the rise, the competition has been obviously growing in the
banking industry. The most obvious effect of the rising competition can be seen in
the interest rates offered by the banks. The banks, which some years ago, used to
charge rates in the range of 15 to 20 percent, have dramatically reduced their
interest rates to 8 to 12 percent, in order to remain competitive. Banks are now
gradually shifting towards IT based solutions to enhance service delivery in order
to address customer concerns. More and more banks are embracing E-banking and
provision of ATMs to reduce long queues in banking hall. In addition, some of the
banks have launched mobile phone banking services which facilitates several
account enquiry tools, including account balances, thereby, minimizing the need
for customers to visit banking halls. This drive towards IT based solutions will
continue to gather momentum in the future as banks will find it be very difficult to
survive in the ever growing competition without some form of competitive
advantage. Another trend observed in banking industry in 2004/05 is the shift
towards multiple banking relationships explored by large corporate houses. In order
to remain competitive, Banks are seen to be increasingly encouraging business
houses to transact with them. This has lead to a creation of large volume of
unutilized limits with the bank and in order to get a large piece of the pie banks are
increasingly accepting risks, which they otherwise would not have taken. The
unyielding competition has also leaded the banks to accept collaterals that are
more risky and unsecured. The volume of loans against the hypothecation of
stocks, receivables and other assets are on the rise. In the absence of statute for
registration of charges (hypothecation) in the current assets, the risk of over
financing is eminent and banks are exposed to a higher degree of risk. (Banking
Supervision Annual Report-2005:7)

35
2.2.2 Review of Thesis
In addition to financial performance analysis, there are various studies on financial
aspects, which deal with the context on Nepalese commercial joint ventures banks.
Previous studies relating to Nepalese banking sector have been the most relevant
sources and assistants for this study. The major findings of the approach used in
these important studies are reviewed briefly.

Mr.Khatiwada (2007) had conducted a research on topic Financial Performance

Analysis of Butwal Power House Company Limited. The main objective of his
research is comparative examining the overall performance like to analyze the
liquidity, capital structure, leverage , soundness of profitability and ownership
ratio of Butwal Power House Company Limited, through financial Analysis. Main
objective of this study is to provide recommendation and suggestions to Butwal
Power House Company Limited on the basis of findings. He had collected
necessary data and other information from the secondary sources of data. He had
pointed out various findings of the research were;
 Liquidity analysis indicates better liquidity position of Butwal Power House
Company Limited or it is in strong credibility position.
 Leverage/Capital Structure analysis indicated that it is not enough to access
a good profit, higher profitability in the company.
 Activity/Turnover ratio indicated increment in ration but not satisfactory.

He had following recommendations:

The company is in strong credibility position. It should enjoy capital of less cost
by borrowing fund. The company has kept very high liquidity ratio. The
investment in current assets is excessive which should be controlled. Capital
employed turnover ratio is not found good in the study period. To achieve higher
profit, the utilization and good management of capital employed is necessary.
The company does not use debt capital so leverage ratios are not calculated and
decision regarding capital structure cannot be given.
Ms.Niraula (2008) had conducted a research on topic An Evaluation of
Financial Performance of Finance Companies in Nepal. The main objective of
her research is to examining the technique of financial analysis such as liquidity,

36
activity, profitability ratios of Finance Companies in Nepal. In her research she
had pointed out various findings.
 The liquidity position of Finance Companies is below the normal standard
and also inconsistency in liquidity policy.
 The Finance Companies should utilize their risky assets and shareholders fund
to gain profit margins. Similarly they should reduce their expenses and should
try collect cheaper fund being more profitable.
 Asset Management Ratio indicates that Finance Companies are utilizing fund
properly to get fair return.

She had following recommendations:

Financial Companies need to manage their investment portfolio efficiently. It
should be managed under the dynamic implication of financial market. Finance
Companies should carefully examine safety principle as well as sources for
repayment, capital structure, requirement and credit worthwhile of a borrower for
providing credits. In other words, credit manager should evaluate credit risk by
considering well known form C’s of credit i.e. character, capacity, capital and
collateral.

There are various services provided by Finance Companies for the customer.
Among them the use of funds towards higher purchase and housing finance must
be shifted towards the business and industrial financing. These activities must be
taken by finance companies to shift their investment and credit strategy to the
productive sectors such as industrial and business sectors of the economy.

A Study performed by Mr. Koirala, 2008 on A Study on Financial Performance

of Nepal Telecom (NT) concludes that NT is maintaining the good liquidity
position. There is positive growth of operating profit maintained by NT. Capital
Employed Ratio shows that the huge amount of long debt is not efficiently
employed in generation of revenue. NT has to compete with many private sectors
such as UTL, NCELL to speed up the communication in the country.
His recommendations can be described as follows:

37
Due to political as well as the past turbulent political and security situation in the
country, NT is deliberately going slowly. NT has to start restore its damage
structure and show that it can act as a catalyst in the economic growth of the
country. NT has huge amount of receivables, this shows that reliable policy is not
adapted by receivables management boards for collection the receivables. So NT
should make appropriate decision regarding credit terms, credit standard and credit
policy. The company should be more autonomy and senior management should be
more professional.

Mr. Singh (2008) had conducted a research on a topic, Financial Performance of

Insurance Companies in Nepal. He had selected United Insurance Company
Limited (UICL), NECO Insurance Company Limited, Nepal Insurance Company
Limited and Himalayan General Insurance Company Limited (HGICL). He had
found that the current ratio of selected insurance companies is highly fluctuated.
Investment in total assets indicates that the creditors of all insurance companies
are in safe side. There is fluctuating trend of net profit of all the companies.

He had following recommendations:

The current ratio of NICL, HGICL and NIL are maintained about the standard
i.e.2:1.But UICL has above the standard. Therefore UICL is suggested to maintain the
current ratio to 2:1 standard. All insurance companies have unsatisfactory level of
cash to current liabilities ratio. Therefore, all companies are suggested to increase
their cash or to decrease current liabilities to improve short-term solvency position.
Insurance companies should emphasis on the promotional activities like advertising,
price discount, personal selling and gifts and bonuses etc. This may enhance the sale
of insurance policies.

Ms. K.C. (2008) had conducted a research on a topic Financial Performance of

Joint Venture Banks (With special reference to Standard Chartered Bank
Limited (SCBL) and Nabil Bank Limited. In her research she had pointed out
various findings; Return on total assets ratio of all the selected companies is
decreasing year by year. Both the banks under study have been able to earn positive
profit but not to the satisfactory level. Comparatively, loans and advances to total
deposit ratio, loans and advances to saving deposit ratio, loans and advances to

38
fixed ratio of Nabil Bank Limited is more efficiently utilizing the outside funds in
extending credit for profit generation. Both banks are successful to comply the
NRB directives regarding the capital adequacy ratio of commercial banks for the
study period.

She had following recommendations:

SCBL should be more serious to improve the efficiency in utilizing its deposit in
loan and advance for generating the profit. Both banks should be stabilized after
proper diagnosis to the root cause of unsatisfactory liquidity. Earnings per Share
(EPS) and Dividend per Share (DPS) attract the investors. Nabil Bank Limited pays
less EPS and DPS than SCBL. So it is suggested that Nabil Bank Limited should
increase the market price of the share so that EPS should be increased.

2.3 Issues and Gaps

The previous thesis reviewed for the preparation of the study have been based on
previous years’ data. At the time of preparation of this study, the time and scene
has changed. New data has been used for analysis; and contemporary among
commercial banks Nabil Bank Limited has been selected for analysis.

The scene in the commercial banks’ working ground has changed in many ways.
There is growing competition; on the other hand, the country’s risk has been
increasing due to recent volatility in the present political and social situations.

The study is also unique because it has tried to show the circumstances and effects
of positive and negative profits of the selected bank.

39
 CHAPTER 3
RESEARCH METHODOLOGY
3.1 Introduction
Research methodology is the technique to achieve the stated objectives of the
study. This chapter studies how research to be conducted, how the research is made
effective and what are the steps of research so that the study and goal of the
related study can be easily achieved. Especially research refer sequential step's to
be followed by researcher at the time of solving problem or studying the concerned
subject matter in detail that include following steps.
 Research design
 Sources and types of data
 Population and sample
 Data procedure
 Method of data analysis

3.2 Research Design

A research design is the framework or plan that guides the computation and
analysis of the data gathered for the study purpose. Basically, this study deals with
the financial performance analysis of Nabil Bank. Hence, analytical as well as
descriptive approach have been used to evaluate the financial performance of the
bank and obtained stated objectives.

3.3 Sources and Types of Data

To conduct this study, secondary data are taken from annual reports of related
office and their websites. So the major sources and types of data include these
published sources,
 Financial statement of Nabil Bank Limited
 Annual report of the bank
 Different previous studies
 Related bulletins, reports, periodically published by various government
bodies.

40
3.4 Population and Sample
At present, there are 26 commercial banks are operating in Nepal. They constitute
the population sample. Among of them, Nabil Bank Limited is selected for
the study of Financial Analysis. Five years data are taken to conduct the study
from 2061/62 to 2065/66.

3.5 Data Procedure

Various data obtained through different sources can't be used directly for the
analysis in their original form. So, they have been rechecked, re-evaluated,
edited and tabulated to bring them into appropriate form for the analysis purpose.
The researcher made the collected data trust worthier getting them form authorized
sources.

Moreover, different graph charts are presented according to necessity to interpret

visually. The data are tabulated according to subject matter and they are shown
in table in sequential way. Similarly, the financial ratios are also used for the
analysis and interpretation of the financial performance of selected sample.

3.6 Method of Data Analysis

In order to ascertain actual financial position of any firm, various analytical tools
can be used. It is true that suitable or appropriate tools, according to the
nature of statement and data make the analysis more effective and significant
for achieving these objective basically two sorts of tools can be used, financial
and statistical the researcher has therefore, applied these tools extensively.

3.6.1 Financial Tools

As this study is related to financial performance analysis financial tools are
more useful they help to identify the financial strength and weakness of the firm in
spite of various financial tools available the research has primarily stressed on
ration analysis assuming it the most suitable tools.

41
Lawrence J, (P-199), "A Ratio is simply a number expressed in terms of other
number and it expressed the quantitative relation between any two Variables."
Moreover, it is used as a technique to quantify the relationship between two
sets of financial data taken from either profit and loss account or balance sheet.
It provides information relation to strength and weaknesses of financial data in
relation to others. However, the researcher has employed his utmost effort to use
as many ratios as possible to reach the point of true financial position of the
banks. These ratios include the following.
Liquidity Ratios
Activity Ratios
Capital adequacy Ratios
Capital Structure Ratios
Profitability Ratios
Invisibility Ratios
Income and Expenditure Analysis

A) Liquidity Ratios
Liquidity Ratio measures the firm's ability to fulfill its short-term
commitments. These ratios focus on current assets and current liabilities and are
used to ascertain the short-term solvency. A very high degree of liquidity of
liquidity is also bad, idle cash earn nothing. So, it is necessary to a firm to
maintain optimum level of liquidity. A bank is subject to a minimum cash reserve
requirements (CRR) imposed by central bank to ensure minimum amount of total
assets to meet unexpected withdrawals. The following ratio has been applied to
find out liquidity position of the banks.
i) Current ratio
ii) Cash and bank balance to total deposit ratio.
iii) NRB balance to current and saving deposit ratio
iv) Cash and bank balance to current and saving deposits ratio
v) Fixed deposit to total deposit ratio

42
i) Current Ratio
The current ratio is the ratio of total current assets to total current liabilities and
measures the short-term solvency of a firm. It is calculated by dividing current
assets by current liabilities.

Current assets include normally those assets of a firm, which are converted into
cash within one year. These assets of a firm includes cash , bank balance,
investment in treasury bills, discounts, overdrafts, short-term advance loans,
foreign currency loan, bills for collection, customer acceptance, outstanding
expenses, divided payable, provision for taxation. Although there is no hard and
fast rule for measuring this ratio, conventionally a CR ratio of 2:1 is the considered
satisfactory.

ii) Cash and bank balance to total deposit ratio (CBBTDR)

This ratio is calculated by dividing cash bank balance by total deposits.

Total deposits consist of current deposits, saving deposit, fixed deposit money at
call and short notice and other deposits. This ratio shows the proportion of total
deposits held as compared to the most liquid assets. High ratio shows the strong
liquidity position of the bank but very high ratio is not favorable the bank
because doesn't produce appropriate profit to bear the high interest.

iii) NRB balance to current and saving deposit ratio

(NRB-CSDR)
This ratio is computed by using this formula.

43
Commercial Banks are required to hold certain proportion of current and saving
deposits in NRB's account. It is to ensure the smooth functioning and sound
liquidity position of the Bank. As per the directive of Nepal Rastra Bank, the
required ratio of 8 percent must be kept as NRB balance. This means the ratio
measures whether the bank is following the direction of NRB or not.

iv) Cash and Bank Balance to Current and Saving

Deposits Ratio (CBBCSDR)
This ratio is calculated by dividing cash and bank balance by current and
saving deposits.

Cash and bank balance includes cash in hand, foreign cash in hand, other cash
items, balance with domestic bank and balance held in foreign banks. On the
other hand current and saving deposits consist of all types of deposits excluding
fixed deposits.
This ratio measures the ability of bank to meet its immediate obligation. High ratio
normally indicates sound liquidity position of the bank but too high ratio is not
good as it reveals the under utilization of fund.

v) Fixed deposit to Total Deposit Ratio (FDTDR)

This ratio determined by dividing fixed deposits by total deposits.

It indicates the percentage between total deposits. High ratio shows better
opportunity available to the bank to invest in sufficient profit generating long-term
loans but low ratio indicates vice versa.

B) Activity Ratios
Activity ratios are also known as assets management ratios. These ratios look at
the amount of various types of assets and attempt to determine if they are too high

44
or too low with regard to current operating levels. Mostly, activity ratio is used
to evaluate managerial efficiency and proper utilization of assets.
i) Investment to total deposit ratio
ii) Loans and advances to total deposit ratio.
iii) Loan advances total assets ratio
iv) Total income generating assets to total assets ratio

i) Investment to Total Deposit Ratio (ITDR)

This ratio is computed by dividing investment by total deposits. This can be stated
as:

The numerator includes government's treasury bills, development bonds,

company shares and other investments. This ratio presents how efficiently the
resources the banks have been utilized. High ratio shows managerial efficiency
regarding the utilization of deposits and vice-versa.

ii) Loans and Advances to Total Deposits Ratios (LATDR)

This ratio is calculated by using following formula.

Loans and advances consists of loans, advances cash credit overdrafts local and
foreign bills purchased and discount. It indicates the proportion of total deposits
invested in loan and advances. High ratio indicates greater use of deposits in
loans and advances but low ratio may be the cause of ideal cash or use of fund in
less productive sector. Very high ratio shows the poor liquidity position.

iii) Loans and Advances to Total Assets Ratio (LATAR)

This ratio is obtained by dividing loans and advances by total assets.

45
Total Assets include total assets of balance sheet items.
This ratio indicates what proportion of total assets has been used in loans
and advances. Higher ratio means effective of total assets in loans and advances.

iv) Total Income Generating Assets to Total Assets Ratio

(IGATAR)
This ratio is calculated by dividing Total income generating assets by total
assets.

Income generating assets are those assets, which are invested for generally
income. This includes loans, advances; bills purchased and discounted investment
and money at call or short notice. This ratio shows what percentage of the total
assets has been invested for income generation. High ratio indicates sound
profitability position and greater utilization of assets.

C) Capital Adequacy Ratios

The ratio is important to every business firm. Similarly commercial banks must
evaluate this ratio. Capital is important for an organization to maintain every
facility. Holding excess capital that required may have higher holding cost and
low return from investment, similarly holding too little capital may have
inefficiency in paying liabilities of a firm.

So a firm should maintain an optimum level of cash. For maintaining optimum

cash by the CBS NRB directs the commercial banks to increase or decrease or fix a
certain percentage of capital funds out of total deposits.
i) Total Net Worth to Total Assets Ratio
ii) Net Worth to Total Deposit Ratio

i) Net Worth to Total Assets Ratio (NWTAR)

This ratio is computed by dividing net worth by total assets.

46
This ratio measures the percentage of shareholder fund in relation total assets
owned by banks. High ratio shows greater contribution of investors' fund and
strong capital position.

ii) Net Worth to Total Deposit Ratio (NWTDR)

This ratio is calculated by using the following formula.

It indicates the percentage of net worth in relations to the total deposits collected
in the bank. The direction of the central bank has maintained or not by the bank, is
the yardstick to measure the position.

D) Capital Structure Ratios

Capital structure ratios also known as leverage ratios are the measures of long-
term solvency of a bank. Capital structure generally refers to the composition of
debt and equity component of overall capital of a firm. These ratios are calculated
to measure the long-term financial position of the bank.
Specially, structure ratio and coverage ratio have been calculated and
interpreted under capital structure ratio. The first ratio deals with the composition
of debt and equity capital where as to second show the relationship between
shareholders' fund and total assets of the banks. These two categories of ratio,
particularly, include the following.
i) Debt to Equity Ratio
ii) Total Debt to Total Assets Ratio
iii) Interest Coverage Ratio.

i) Debt to Equity Ratio (DER)

This ratio can be calculated in this way.

This ratio shows the relationship between debt capital and equity capital. High
debt equity ratio indicates greater financing by debt holders than those of equity

47
holders. From the creditor's view-point, high debt-equity ratio of the banks is
more risky to them. It means the bank may fail to satisfy creditors.

ii)Total Debt to Total Assets Ratio (TDTAR)

This ratio can be calculated in this way.

This ratio can be denotes the relationship between total debt and total assets of
the banks. The higher ratio indicates the greater portion of the outsiders' and
investment in term of the bank's assets.

iii) Interest Coverage Ratio (ICR)

This ratio is computed by dividing earnings before income and tax by interest.
This ratio evaluates the debt serving capacity of the banks.

The higher ratio shows that the bank can pay the interest easily.

E) Profitability Ratios
Profitability ratio is one of the main indicators to analyzing the financial
performance of a firm. It calculates to measure the earning performance and
operational efficiency of the bank. A bank should be able to produce adequate
profit on each rupee of investment, if investments do not generate sufficient
profits, it would be very difficult for the bank to cover operating expenses and
interest charges. The profitability of the bank should also be evaluated in term of
its investment in assets and in term of capital contributed by creditors. If the
bank is unable to earn satisfactory return of investment, its survival is
threatened.
Under this category the researcher has calculated the following ratios to obtain
the stated objectives of the study.
i) Return on Total Assets Ratio
ii) Return On Equity Ratio
iii) Interest Earned to Total Assets Ratio
iv) Total Interest Expenses to Total Interest Income Ratio
v) Return on Total Deposits Ratio

48
i) Return on Total Assets Ratio (ROTA)
This ratio is related to net profit after tax (NPAT) and total assets. How efficiently
is the assets of a firm able to generate more profit are measured by this ratio
is calculated by dividing NPAT by Total Assets. This ratio provides the
foundation necessary for a company to deliver a good return on equity.

The increasing Ratio shows favorable situation for the banks. The higher ratio is
also shows that the bank could manage their overall operations, but the lower ratio
shows vice-versa.

ii) Return on Equity Ratio (ROE)

This ratio measures, how much profit is earned by utilizing funds of total equity
by the firm. As the commercial bank, the objectives of joint venture bank are to
earn profit so as to provide a reasonable return to the owners. Total shareholders'
equity consists of preference share capital, ordinary share capital, share premium
and reserve and surplus less accumulated losses. This ratio can be computed as Net
profit after tax (NPAT) divided by average total shareholders' equity.

iii) Interest Earned to Total Assets Ratio (IETAR)

The ratio indicates how much interest mobilizing the assets in the bank has
generated. Interest is the main source of income of banks' interest received from
generally loan and advances overdraft and investment in securities. This ratio can
be computed as interest earned divided by total assets.

Higher ratio indicates higher efficiency in the mobilization of resources and ability
of interest earning and vice-versa.

49
iv) Total Interest Expenses to Total Interest Income
Ratio (TIETIIR)
This ratio can be computed by using the following formula.

The numerators consist of total interest paid on deposits liabilities, loan and
advances and other deposits. The denominator comprises total interest earned or
retained from loan and advances, cash credit and overdraft, government
securities, interbank and other investment. This ratio indicates how much interest
expenses have been made in relation to interest income received. The higher ratio
shows unfavorable profitability situation of the bank.

v) Return on Total Deposits Ratio (RTDR)

This ratio measures the level of NPAT by using total deposits. It measures the
relationship between NPAT and total deposits with an ability of a firm to utilize
maximum of deposits to earn much profit. This ratio is computed by dividing
NPAT by Total Deposits.

F) Invisibility Ratios
An analysis of invisibility ratio helps the investors to know about the performance
of the banks. Therefore, following ratio have been calculated to test earning
capacity of the banks to last earning capacity of the bank.
i) Earnings Per Share (EPS)
ii) Dividend Per Share (DPS)
iii) Tax Per Share (TPS)
iv) Dividend Pay Out Ratio (DPR)

50
i) Earnings per Share (EPS)
This ratio is calculated by dividing earning available to common stockholders by
number of outstanding share of common stock.

High ratio shows the sound profitability position of the bank. It is favorable for
the investor too.

ii) Dividend per Share (DPS)

This ratio can be obtained by using following formula.

This ratio shows per rupee earning actually distributed to common stock holders
per share held by them. High ratio is favorable for the shareholders.

iii) Tax per Share (TPS)

Tax per Share is obtained by dividing tax paid to government by number of
common share outstanding.

This ratio shows the contribution of shareholders for the economic

development. Higher TPS indicates the better profitability position of the bank.

v) Dividend Pay Out Ratio (DPR)

It measures the relationship between the earning belonging to the ordinary
shareholders and the dividend paid to them. This ratio can be calculated by
dividing the total dividend paid to the owners by the total profit/earning available
to them.

51
G) Income and Expenditure Analysis
There are so many items in debit and credit side in income and expenditure or
profit and loss account. This tool has been used to separate the income and
expenditure in to main sub headings. So this helps to compare nature of income
and expenditure. Different proportions of the income and expenses have been
separated according to their homogenous nature. Under the income analysis there
will four headings, interest incomes, commission & discount, foreign exchange
income & other income. In expenses analysis it is divided into major four sub-
headings, i.e. interest expenses, staff expenses, office operation expenses and
bonus facilities.

3.6.2 Statistical Tools

Although various statistical tools are available to analyze the obtained data, the
researcher has selected the most suitable and commonly usable tools to extract
trustworthy financial decision.
A) Arithmetic mean
B) Least square linear trend
C) Karl Pearson's co-efficient of correlation
D) Probable error

A) Arithmetic Mean
Arithmetic mean of a given set of observation is their sum divided by the number
of observation. Average is the typical values around which other items of
distribution congregate. In general, if , , , ……., are the given
number of observation, their arithmetic mean can be obtained by:

f(x) =

Where, f(x) denotes arithmetic mean, n denotes the no. of periods and , and
are the individual observations.

52
B) Least Square Linear Trend
The straight line trend implies that irrespective of the seasonal and cyclical
swings and irregular functions, the values increases or decreases by absolute
amount per unit of time. The linear trend values from a series in arithmetic
progression.
It combines by following
notations.
=a+b
Where,
= the value of dependent variable
a= intercept of trend line
b=slope of trend line
= value of the independent variable i.e. time where they
are put in normal equation, these equations can be developed

Since =0,

a= and b=
The constant a is simply equal to the mean of y value and constant b given the
rate of change.

This is s mathematical method, which is widely used in practice. It is applied

for finding out a trend line for those series, which change periodically in
absolute amount.

C)Karl Pearson's Correlation Coefficient.

Out of several mathematical method of measuring correlation, the Karl Pearson's
coefficient of Correlation is most widely used in practice to measure the degree of
relationship between two variables. So, is measured by following formula using
two variables or series and .

53
 Where, r = Correlation Coefficient
= sum of product of observations in two series, and
= sum of observation in series
= sum of observation in series
=sum of square of observations in series
=sum of square of observations in series

The value of this coefficient (r) can never be more than 1 or less than -1. Thus +1
and -1 are limits of the coefficient. Here, r= +1 implies that there is perfect
positive correlation between the two variables. But r= -1 implies that there is
perfect negative correlation between the variables. If it has a Zero Value (r =
0), it denotes no correlation between the variables. If the obtained value lies
outside the limit ±1, this implies that there is some mistake in calculation.

D) Probable Error of Correlation

Probable error of correlation is an old testing the reliably of an observed value of
correlation coefficient. It is calculated to find the extent to which correlation
coefficient is dependable as it depends upon the condition of random sampling
probable error of correlation coefficient denoted by P.E (r) is obtained as

Where, r = Correlation Coefficient

n= no. of pairs of observation

Standard error reason for taking 0.6745 is that in a normal distribution Vn

5 % of observation lie in range ju± 10.675 <x Where juanda denotes the
population mean and standard deviation.
P.E. (r) is used to test it an observed value of sample correlation coefficient
is significant of any correlation in population.

54
If r is less than its P.E (r < P.E) it is not all significant
correlation. If r is more than its P.E (r <6 P.E) there is
correlation.
If r is more than 6 times its P.E and greater than ±0.5, than it is
considered correlation.

55
 CHAPTER 4
DATA ANALYSIS AND PRESENTATION

In this chapter, the data have been analyzed and interpreted using financial and
statistical tools following the research methodology dealt in the third chapter. In the
part of analysis, various tables have been used to present the data collected from
various sources have been inserted in the required tables according to their
homogenous nature. The outcomes of the analysis have been compared with
conventional standard with respect to ratio analysis, directives of NRB and other
factors. Furthermore, many suitable graphs, and diagrams have also been used to
clarify the actual position and performance of the bank.

4.1. Financial Tools

Ratio analysis involves the methods of calculating and interpreting financial ratios
in order to assess the firm's performance and status. The basic input to ratio
analysis is the firm's income and expenditure statement and balance sheet for the
periods to be examined. The study consists of the following ratios to analyze the
financial performance of the Nabil Bank Limited.

4.1.1. Liquidity Ratios

Liquidity Ratio measures the firm's ability to fulfill its short-term
commitments. These ratios focus on current assets and current liabilities and are
used to ascertain the short-term solvency. The following ratio has been applied
to find out liquidity position of the banks.
 Current ratio
 Cash and bank balance to total deposit ratio.
 NRB balance to current and saving deposit ratio
 Cash and bank balance to current and saving deposits ratio
 Fixed deposit to total deposit ratio

56
4.1.1.1. Current Ratio
The current ratio is the ratio of total current assets to total current liabilities and
measures the short-term solvency of a firm. It is calculated by dividing current
assets by current liabilities.
Table 4.1
Current Ratio of Nabil Bank Limited
(Rs. In Thousands)

Current Assets Current Liabilities Current Ratio (in

Year
(Rs.) (Rs.) terms of times)
2061/62 16,825,095 15,511,629 1.08
2062/63 22,010,088 20,281,774 1.09
2063/64 26,966,497 24,313,770 1.10
2064/65 36,534,720 33,095,560 1.10
2065/66 43,206,408 38,755,852 1.11
Average 29,108,562 26,391,717 1.10
(Source: - Appendix i )

Analysis of table 4.1 shows that the current assets of Nabil Bank Ltd. have always
exceeded the current liabilities for the study period of five Years from 061/62 to
065/66. The bank has the highest current ratio of 1.11 in 2065/66 and the lowest
current of 1.08 in 061/62 with an average current ratio of 1.10 during the study
period. In general terms, the bank has been able to meet its short-term
obligations. The above analysis indicates that the bank is in sound liquidity
position.

4.1.1.2. Cash and Bank Balance to Total Deposit Ratio

(CBBTDR)
This ratio is calculated by dividing cash bank balance by total deposits.

57
 Table 4.2
Cash and Bank Balance to Total Deposit Ratio
(Rs. In Thousands)
Cash and Bank Balance Total Deposits
Year Ratio %
(Rs.) (Rs.)
2061/62 559,381 14,586,609 3.83
2062/63 630,238 19,347,399 3.26
2063/64 1,399,825 23,345,285 6.00
2064/65 2,671,141 31,915,047 8.37
2065/66 3,372,512 37,348,225 9.03
Average 1,726,619 25,308,513 6.82
(Source: - Appendix i)

The analysis of table 4.2 shows that cash reserve ratio of the Nabil differs from
maximum of 9.03% in the year 2065/66 to the minimum of 3.26% in the year
2062/63 with an average of 6.82% during the study period. The analysis specifies
that the bank is volatile to maintain cash reserve ratio as per NRB directives.

4.1.1.3. NRB Balance to Current and Saving Deposit Ratio

(NRB-BCSDR)
This ratio is computed by using this formula.
Table 4.3
NRB Balance to Current and Saving Deposit Ratio
(Rs. In Thousands)
Current and
Nepal Rastra Bank Saving
Year Ratio %
Balance (Rs.) Deposits(Rs.)
2061/62 389,705 9,825,519 3.97
2062/63 318,358 11,681,349 2.73
2063/64 1,113,415 13,582,593 8.20
2064/65 1,829,470 17,444,334 10.48
2065/66 2,648,596 20,100,941 13.18
Average 1,259,909 14,526,947 8.67
(Source: - Appendix i)

58
Table 4.3 exposed that the ratios of Nabil were 3.97%, 2.73%, 8.20%, 10.48%
and 13.18% with mean ratio of 8.67%. Commercial Banks are required to hold
certain proportion of current and saving deposits in NRB's account. It is to ensure
the smooth functioning and sound liquidity position of the Bank. Nabil Bank is
failed to maintain minimum deposit liabilities of 8% as cash reserve with Nepal
Rastra Bank except in the fiscal year 2063/64, 2064/65 and 065/66.

4.1.1.4. Cash and Bank Balance to Current and Saving

Deposit Ratio (CBBCSDR)
This ratio is calculated by dividing cash and bank balance by current and
saving deposits.
Table 4.4
Cash and Bank Balance to Current and Saving Deposits Ratio
(Rs. In Thousands)

Current and
Cash and Bank Balance
Year Saving Ratio %
(Rs.)
Deposits(Rs.)
2061/62 559,381 9,825,519 5.69
2062/63 630,238 11,681,349 5.40
2063/64 1,399,825 13,582,593 10.31
2064/65 2,671,141 17,444,334 15.31
2065/66 3,372,512 20,100,941 16.78
Average 1,726,619 14,526,947 11.89
(Source:- Appendix i)

The above calculated table shows that the Cash and Bank Balance to current &
saving deposits of Nabil Bank Ltd. have always is in good condition except in the
fiscal year 061/62 with ratio of 5.69 and in the fiscal year 2062/63 with ratio of
5.4 percentages. The bank has the highest ratio of 16.78 in 2065/66 and the
lowest ratio of 5.40 percentages in the fiscal year 062/63 with an average ratio of
11.89% during the study period. In general terms, the bank has been able to meet
its short-term obligations. The above analysis indicates that the bank is in sound
liquidity position. High ratio normally indicates sound liquidity position of the
bank but too high ratio is not good as it reveals the under utilization of fund.

59
4.1.1.5. Fixed Deposit to Total Deposit Ratio (FDTDR)
This ratio determined by dividing fixed deposits by total deposits.
Table 4.5
Fixed Deposit to Total Deposit Ratio
(Rs. In Thousands)

Total Deposits
Year Fixed Deposits (Rs.) Ratio %
(Rs.)
2061/62 2,078,535 14,586,609 14.25
2062/63 3,449,189 19,.347,399 17.83
2063/64 5,435,189 23,345,285 23.28
2064/65 8,464,086 31,915,045 26.52
2065/66 8,310,708 37,348,256 22.25
Average 5,547,522 25,308,513 21.92
(Source:- Appendix i)
The above calculation done in table 4.5 shows that fixed deposit is the high
interest bearing deposit which can be withdrawn only after its maturity. The
above table shows that the fixed deposit to total deposit ratio of the Nabil Bank
differ from maximum of 26.52 %in the year 2064/65 to the minimum of 14.25% in
the year 2061/62 with an average of 21.92% during the study period of five years.
The analysis indicates that the portion of fixed deposit in the total deposit is
fluctuating.
Figure 4.1
Liquidity Ratio of Nabil Bank Ltd.

Liquidity Ratio of Nabil Bank Ltd.

30

25

20
Ratio in times

15

10

0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

Current Ratio CBBTDBR NRB-BCSDR CBBCSDR FDTDR

60
4.1.2 Activity Ratios
Activity ratio has been used to evaluate managerial efficiency and proper
utilization of assets. This includes investment to total deposit ratio, loans and
advances to total deposit ratio, loans and advances to saving deposit ratio and total
income generating assets to total deposit ratio.

4.1.2.1 Investment to total deposit ratio (ITDR)

This ratio is computed by dividing investment by total deposits. This can be stated
as:
Table 4.6
Investment to Total Deposit Ratio
(Rs. In Thousands)

Year Investment (Rs.) Total Deposits(Rs.) Ratio %

2061/62 4,267,233 14,586,609 29.25
2062/63 6,178,533 19,347,399 31.93
2063/64 8,945,310 23,345,285 38.32
2064/65 9,939,771 31,915,047 31.14
2065/66 10,826,379 37,348,255 28.99
Average 8,031,445 25,308,513 31.73
(Source:- Appendix ii)

Table 4.6 shows that investment to total deposit ratios of Nabil Bank Limited
remained 29.25%, 31.93%, 38.32%, 31.14% and 28.99% in the respective years
with the average of 31.73% in the study period. The higher average shows that
Nabil Bank Limited is successful in managerial efficiency regarding the
utilization of deposits.

4.1.2.2 Loans and Advances to Total Deposits Ratios (LATDR)

This ratio is calculated by using following formula.

61
 Table 4.7
Loans and Advances to Total Deposits Ratios
(Rs. In Thousands)

Total
Year Loan & Advances(Rs.) Ratio %
Deposits(Rs.)
2061/62 10,586,170 14,586,609 72.57
2062/63 12,922,543 19,347,399 66.79
2063/64 15,545,778 23,345,285 66.59
2064/65 21,365,053 31,915,047 66.94
2065/66 27,589,933 37,348,255 73.87
Average 17,601,895 25,308,513 69.55
(Source: - Appendix ii)

The above calculated shows that loans and advances to total deposits of the Nabil
Bank Limited fluctuates from maximum of 73.87 percent in the fiscal year
2065/66 to the minimum of 66.59 percentage in the year 2063/64 with an average
of 69.55 percent. The analysis shows that the bank is mobilizing its total deposits
in loan and advances adequately and it has efficiently utilized its total deposits
for loan and advances. Higher ratio reveals that it is efficient to utilize the
financial resources in productive sectors.

4.1.2.3 Loan and Advances toTotal Assets Ratio (LATAR)

Table 4.8
Loan Advances Total Assets Ratio
(Rs. In Thousands)

Year Loan & Advances(Rs.) Total Assets(Rs.) Ratio %

2061/62 10,586,170 17,186,331 61.60
2062/63 12,922,543 22,329,971 57.87
2063/64 15,545,778 27,253,393 57.04
2064/65 21,365,053 37,132,759 57.54
2065/66 27,589,933 43,867,397 62.89
Average 17,601,895 29,553,970 59.56
(Source:- Appendix ii)

62
Table 4.8 shows that the ratios of Nabil bank Limited were 61.60%, 57.87%,
57.04%, 57.54%, and 62.89% with an average of 59.56% in the respective years
of study period. The higher average ratio indicates that Nabil Bank Limited is
efficient in utilization of total assets in profitable sector. It can be determined that
ratios of Nabil Bank Limited fluctuate to a greater extent in the study period.

4.1.2.4 Total Income Generating Assets to Total Assets Ratio

(TIGATAR)
Table 4.9
Total Income Generating Assets to Total Assets Ratio
(Rs. In Thousands)
Total Income Generating
Year Total Assets (Rs.) Ratio %
Assets (Rs.)
2061/62 15,721,813 17,186,331 91.48
2062/63 20,835,798 22,329,971 93.31
2063/64 25,054,621 27,253,393 91.93
2064/65 33,257,185 37,132,759 89.56
2065/66 39,969,200 43,867,397 88.83
Average 26,767,759 29,553,970 90.57
(Source:- Appendix ii)

Table 4.9 depicts that the ratios of Nabil bank Limited were 91.48%, 93.31%,
91.93%, 89.56% and 88.83%, in the respective years of study period with the
mean of 90.57%. This higher ratio shows that Nabil Bank Limited has sound
profitability position and greater utilization of its assets.

63
 Figure 4.2
Activity Ratio of Nabil Bank Ltd.

Activity Ratio of Nabil Bank Ltd.

100
90
80
Ratio in Percentage

70
60
50
40
30
20
10
0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

ITDR LATDR LATAR TIGATAR

The ratio is important to every business firm. Similarly commercial banks must
evaluate this ratio. Capital is important for an organization to maintain every
facility. Holding excess capital that required may have higher holding cost and
low return from investment, similarly holding too little capital may have
inefficiency in paying liabilities of a firm.

4.1.3 Capital Adequacy Ratios

Capital Adequacy Ratio is calculated to know whether an organization is utilizing
its capital in correct order or not.

4.1.3.1 Net Worth to Total Assets Ratio (NWTAR)

This ratio is computed by dividing net worth by total assets.

64
 Table 4.10
Net Worth to Total Assets Ratio
(Rs. In Thousands)
Year Net worth (Rs.) Total Assets (Rs.) Ratio (Percentage)
2061/62 1,657,638 17,186,331 9.65
2062/63 1,874,994 22,329,971 8.40
2063/64 2,057,049 27,253,393 7.55
2064/65 2,437,198 37,132,759 6.56
2065/66 3,130,240 43,867,394 7.13
Average 2,231,434 29,553,970 7.55
(Source:- Appendix iii)

The table 4.10 displays that the ratios of Nabil Bank Limited remained 9.65%,
8.40%, 7.55%, 6.56%, and 7.13% in the respective years of study period with the
average of 7.55%. The greater ratio indicates that Nabil Bank Limited has greater
contribution to investors fund and strong capital adequacy position. This ratio
measures the percentage of shareholder fund in relation total assets owned by
banks.

4.1.3.2 Net Worth to Total Deposit Ratio (NWTDR)

This ratio is calculated by using the following formula.
Table 4.11
Net Worth to Total Deposit Ratio
(Rs. In Thousands)

Ratio
Year Net worth (Rs.) Total Deposits (Rs.)
(Percentage)
2061/62 1,657,638 14,586,609 11.36
2062/63 1,874,994 19,347,399 9.69
2063/64 2,057,049 23,345,285 8.81
2064/65 2,437,198 31,915,047 7.64
2065/66 3,130,240 37,348,255 8.38
Average 2,231,434 25,308,513 8.82
(Source:- Appendix iii)

65
The above calculated shows that Net Worth to Total Deposits ratio Nabil Bank
Limited fluctuating from maximum of 11.36 percentage in the fiscal year
2061/62 to the minimum of 7.64 percentage in the year 2064/65 with an average
of 8.82 percentage. According to the NRB directives to the capital adequacy ratio
11 percent Nabil Bank Limitrd fails to be maintained the ratio as prescribed by the
Central Bank except in the fiscal year 2060/61.

Figure 4.3
Capital Adequacy Ratio of Nabil Bank Ltd.

Capital Adequacy Ratio of Nabil Bank Ltd.

12

10
Ratio in Percentage

0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

NWTAR NWTDR

4.1.4 Capital Structure Ratios

Capital structure ratio also known as leverage ratios are the measures of long-
term solvency of a bank. Capital structure generally refers to the composition of
debt and equity component of overall capital of a firm.

66
4.1.4.1 Debt to Equity Ratio (DER)
Table 4.12
Debt to Equity Ratio
(Rs. In Thousands)
Year Total Debt Shareholders' Equity (Rs.) Ratio (Times)
(Rs.)

2061/62 15,528,692 1,657,638 9.37

2062/63 20,454,976 1,874,994 10.91
2063/64 25,196,343 2,057,049 12.25
2064/65 34,695,561 2,437,198 14.23
2065/66 40,737,157 3,130,240 13.01
Average 27,322,546 2,231,424 12.24
(Source:- Appendix iv )

The above calculated table shows that debt to equity ratio of the Nabil Bank
Limited differ 14.23 times in the year 2064/65 to the minimum of 9.37 times in
the year 2061/62 with an average of 12.24 times during the study period. The
analysis indicates that the bank has the high debt ratio, which indicates that the
creditors have invested more in the bank than the owners.

4.1.4.2 Total Debt to Total Assets Ratio (TDTAR)

Table 4.13
Total Debt to Total Assets Ratio
(Rs. In Thousands)
Year Total Debt (Rs.) Total Assets (Rs.) Ratio (Percentage)
2061/62 15,528,692 17,186,331 90.35
2062/63 20,454,976 22,329,971 91.60
2063/64 25,196,343 27,253,393 92.45
2064/65 34,695,561 37,132,759 93.43
2065/66 40,737,157 43,867,397 92.86
Average 27,322,546 29,553,970 92.45
(Source:- Appendix iv )

67
The above calculated table shows that Debt to Total Assets of the Nabil Bank
Limited differs from maximum of 93.43% in the year 2064/65 to the minimum of
90.35% in the year 2061/62 with an average of 92.45% during the study period.
This analysis indicates that the bank has the high debt equity ratio, which means
creditors have invested more in the bank than the owners. So this shows role of
creditors in the bank is high than the owners in investing sector of Bank.

4.1.4.3 Interest Coverage Ratio (ICR)

This ratio is computed by dividing earnings before income and tax by interest.
This ratio evaluates the debt serving capacity of the banks.

Table 4.14
Interest Coverage Ratio
(Rs. In Thousands)
Year EBIT (Rs.) Interest Expenses Ratio (times)
(Rs.)
2061/62 1,001,330 243,545 4.11
2062/63 1,255,165 357,161 3.51
2063/64 1,544,196 555,710 2.78
2064/65 1,874,430 758,436 2.44
2065/66 2,631,950 1,153,280 2.28
Average 1,656,014 613,636 2.70
(Source:- Appendix iv )
The above calculated table shows that the ratios of Nabil Bank Limited remained
4.11, 3.51, 2.78, 2.44 and 2.28 times respectively during the study period. The
ratio differs from maximum of 4.11 times in the year 2061/62 to the minimum of
2.28 times in the year 2065/66 with an average of 3.23 times during the study
period. This analysis indicates that the bank has sufficient operation of debt and
can pay interest easily.

68
 Figure 4.4
Capital Structure Ratio

Capital Structure Ratio

100
90
80
70
60
Ratio

50
40
30
20
10
0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

DER TDTAR ICR

4.1.5 Profitability Ratios

Profitability ratio is one of the main indicators to analyzing the financial
performance of a firm. It calculates to measure the earning performance and
operational efficiency of the bank. A bank should be able to produce adequate
profit on each rupee of investment, if investments do not generate sufficient
profits, it would be very difficult for the bank to cover operating expenses and
interest charges. The profitability of the bank should also be evaluated in term of
its investment in assets and in term of capital contributed by creditors. If the
bank is unable to earn satisfactory return of investment, its survival is
threatened.

4.1.5.1 Return on Total Assets Ratio (ROTA)

This ratio is related to net profit after tax (NPAT) and total assets. How efficiently
is the assets of a firm able to generate more profit are measured by this ratio
is calculated by dividing NPAT by Total Assets. This ratio provides the
foundation necessary for a company to deliver a good return on equity. Return
on total assets ratio of Nabil Bank Ltd. for the period of 2059/60 to 2063/64 is
presented in the Table-4.15 below.

69
 Table 4.15
Return on Total Assets Ratio
(Rs. In Thousands)
Year Net Profit Total Assets Ratio (Percentage)
2061/62 518,636 17,186,331 3.02
2062/63 635,262 22,329,971 2.84
2063/64 673,960 27,253,393 2.47
2064/65 746,468 37,132,759 2.01
2065/66 1,031,053 43,867,397 2.35
Average 721,076 29,553,970 2.44
(Source:- Appendix v )

The above table shows that the Return on Total Assets of the Nabil Bank differ
from maximum of 3.02% in the year 2061/62 to the minimum of 2.01% in the year
2064/65 with an average of 2.44% during the study period of five years from
2061/62 to 2065/66. This analysis indicates that the net profit earned in comparison
to the total assets is in fluctuating trend which means the ratio is decreasing and
increasing trend during the study period.

4.1.5.2 Return on Equity Ratio (ROE)

Total shareholders' equity consists of preference share capital, ordinary share
capital, share premium and reserve and surplus less accumulated losses. This ratio
can be computed as Net profit after tax (NPAT) divided by average total
shareholders' equity.
Table 4.16
Return on Equity Ratio
(Rs. In Thousands)
Year Net Profit Total Equity Ratio (Percentage)
2061/62 518,636 1,657,638 31.29
2062/63 635,262 1,874,994 33.88
2063/64 673,960 2,057,049 32.76
2064/65 746,468 2,437,198 30.63
2065/66 1,031,053 3,130,240 32.94
Average 721,076 2,231,434 32.31
(Source:- Appendix v )

70
The above table shows that the Return on Total Equity of the Nabil Bank differ
from maximum of 33.88% in the year 2062/63 to the minimum of 30.63% in the
year 2064/65 with an average of 32.31% during the study period of five years
from 2061/62 to 2065/66. This analysis indicates that the net profit earned in
comparison to the total Equity is in fluctuating trend which means the ratio is
decreasing and increasing trend during the study period. Nabil Bank is earning
reasonable profit by utilizing its funds of total equity.

4.1.5.3 Interest Earned to Total Assets Ratio (IETAR)

This ratio is calculated by using following formula.
Table 4.17
Interest Earned to Total Assets Ratio
(Rs. In Thousands)
Year Interest Earned Total Assets Ratio (Percentage)
2061/62 1,068,747 17,186,331 6.22
2062/63 1,309,999 22,329,971 5.87
2063/64 1,587,759 27,253,393 5.83
2064/65 1,978,697 37,132,759 5.33
2065/66 2,798,468 43,867,397 6.38
Average 1,748,738 29,553,970 5.92
(Source:- Appendix v )

The above table shows that interest earned to Total Assets of the bank varies from
maximum of 6.38% in the year 2065/66 to the minimum of 5.33% in the year
2064/65 with an average of 5.92% during the study period of five years. The
analysis indicates that the interest earned in comparison to total assets is
fluctuating during the study period.

4.1.5.4 Total Interest Expenses to Total Interest Income

Ratio (TIETIIR)
This ratio can be computed by using the following formula.

71
 Table 4.18
Total Interest Expenses to Total Interest Income Ratio
(Rs. In Thousands)
Year Interest Expenses Interest Earned Ratio (Percentage)
2061/62 243,545 1,068,747 22.79
2062/63 357,161 1,309,999 27.26
2063/64 555,710 1,587,759 35.00
2064/65 758,436 1,978,697 38.33
2065/66 1,153,280 2,798,486 41.21
Average 613,626 1,748,738 35.09
(Source:- Appendix v )

The above table shows that interest expenses to interest expenses ratio of the
Nabil Bank varies from maximum 38.33% in the fiscal year 2064/65 to the
minimum of 22.79% in the year 2061/62 with an average of 35.09% during the
study period. The analysis indicates that the interest expense in comparison to
interest income is fluctuating during the study period. The higher ratio shows
unfavorable profitability situation of the bank.

4.1.5.5 Return on Total Deposits Ratio (RTDR)

This ratio is computed by dividing NPAT by Total Deposits.

Table 4.19
Return on Total Deposits Ratio
(Rs. In Thousands)
Year Net Profit After Tax Total Deposits Ratio (Percentage)
2061/62 518,636 14,586,609 3.56
2062/63 635,262 19,347,399 3.28
2063/64 673,960 23,345,285 2.89
2064/65 746,468 31,915,047 2.34
2065/66 1,031,053 37,348,255 2.76
Average 721,076 25,308,513 2.85
(Source:- Appendix v )

72
The above table shows that the return on total deposits of the Nabil Bank varies
from maximum of 3.56% in the year 2061/62 to the minimum of 2.89% in the
fiscal year 2063/64 with an average of 3.18% during the study period. The
analysis indicates that the net profit earned in comparison with the total
deposits are in increasing trend during the fiscal year 2061/62 but are in
decreasing trend after fiscal year 2061/62. In general, the average return ratio
shows that Nabil bank is successful to earn constant profit over the study period.
Figure 4.5

Profitable Ratio of Nabil Bank Ltd.

45
40
35
30
Ratio

25
20
15
10
5
0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

ROTO ROE IETAR TIETIIR RTDR

4.1.6 Invisibility Ratio

An analysis of ratio helps the investors to know about the performance of the
banks. Therefore, following ratio have been calculated to test earning capacity of
the banks to last earning capacity of the bank.

4.1.6.1 Earnings per Share (EPS)

This ratio is calculated by dividing earning available to common stockholders by
number of outstanding share of common stock.

73
 Table 4.20
Earnings per Share
(Rs. In Thousands)
Year EAC No. of Common Stock Ratio (Rs)
2061/62 518,636 4,917 105.48
2062/63 635,262 4,917 129.20
2063/64 673,960 4,917 137.07
2064/65 746,468 6,892 108.31
2065/66 1,031,053 9,657 106.77
Average 721,076 6,260 117.37
(Source:- Appendix vi)

The above table shows that the earning available to the common shareholders is in
increasing trend during the study period of five fiscal years. Earning per Share of
the Nabil Bank Limited varies from maximum of Rs.137.07 per share in the year
2063/64 from Rs.105.48 per share in the year 2061/62 with an average of
Rs.117.37 per share. The above analysis indicates that the EPS of Nabil Bank Ltd.
is good in overall years. EPS decreases from fiscal year 2064/65 due to increase in
common stock.

4.1.6.2 Dividend Per Share (DPS)

This ratio can be obtained by dividing earning paid to shareholders by number of
common stock outstanding.

Table 4.21
Dividend per Share
(Rs. In Thousands)
Earning Paid to
Year No. of Common Stock Ratio (Rs)
Shareholders
2061/62 344,158 4,917 70.00
2062/63 417,906 4,917 85.00
2063/64 491,654 4,917 100.00
2064/65 413,530 6,892 60.00
2065/66 338,011 9,657 35.00
Average 401,052 6,260 70.00
(Source:- Appendix vi)

74
The above table shows that the Dividend paid to the common shareholders is in
increasing trend during the study period of five fiscal years. Dividend per Share of
the Nabil Bank Limited varies from maximum of Rs. 100 per share in the year
2063/64 from Rs.35 per share in the year 2065/66 with an average of Rs.64.07
per share. The above analysis indicates that the DPS of Nabil Bank Ltd. is good
in overall years.

4.1.6.3 Tax Per Share (TPS)

Tax per Share is obtained by dividing tax paid to government by number of
common share outstanding.
Table 4.22
Tax per Share
(Rs. In Thousands)
Year Tax Paid to Government No. of Common Stock Ratio (Rs)
2061/62 239,149 4,917 48.64
2062/63 262,562 4,917 53.40
2063/64 321,086 4,917 65.30
2064/65 342,468 6,892 49.70
2065/66 447,615 9,657 46.35
Average 322,576 6,260 51.53
(Source:- Appendix vi)

The above table shows that the Tax per share paid to the government by common
shareholders is in fluctuating trend during the study period of five fiscal years.
Tax per Share of the Nabil Bank varies from maximum of Rs.65.30 Per share in
the year 2063/64 from Rs.46.35 per share in the year 2065/66 with an average
of Rs.51.53 per share. The above analysis indicates that the TPS of Nabil Bank
Ltd. is good in overall years.

4.1.6.4 Dividend Payout Ratio (DPR)

It measures the relationship between the earning belonging to the ordinary
shareholders and the dividend paid to them. This ratio can be calculated by
dividing the total dividend paid to the owners by the total profit/earning available
to them.

75
 Table 4.23
Dividend Payout Ratio
(Rs. In Thousands)
Year DPS EPS Ratio (Percentage)
2061/62 70.00 105.48 66.36
2062/63 85.00 129.20 65.79
2063/64 100.00 137.07 72.96
2064/65 60.00 108.31 55.40
2065/66 35.00 106.77 32.78
Average 70.00 117.37 59.64
(Source:- Appendix vi)

The above calculated table shows that dividend payout ratio of the Nabil Bank
Ltd. varies from maximum of 72.96% in the year 2063/64 to the minimum of
32.78 in the year 2065/66 with an average of 59.64 during the study period. From
above analysis Nabil Bank Limited was successfully and consistently providing
higher percentage of dividend to investors except in the fiscal year 2065/66.

Figure 4.6
Invisibility Ratio of Nabil Bank

Invisibility Ratio of Nabil Bank Ltd.

160
140
120
100
Ratio

80
60
40
20
0
2061/62 2062/63 2063/64 2064/65 2065/66 Total
Fiscal Year

EPS DPS TPS DPR

76
4.1.7 Income and Expenditure Analysis
Income and expenses analysis shows the trend of income and expenditure. So this
analysis has been evaluated investment and their return and different expenditure
of sample bank. This analysis includes;
 Income Analysis
 Expenditure Analysis

4.1.7.1 Income Analysis

Especially, the main work of the commercial banks is the transaction of money.
They provide interest and dividend to the debtors and depositors in term of
their cash deposits and investment. Therefore, the banks generate income through
investment in returnable sectors as well as loan and advances. Among various
sources of income, the main heading have been divided as,
 Interest Income
 Commission & Discount
 Foreign Exchange Income
 Other Income
Different incomes of Nabil Bank Ltd. for different sampled years have been
presented in the table 4.24.
Table 4.24
Income Analysis of Nabil Bank Ltd.
(Rs. In Thousands)
Commission & Exchange
Interest Income Other Income
Year Discount Income
Rs. % Rs. % Rs. % Rs. %
2061/62 1,068,747 74.32 128,377 8.93 184,879 12.86 55,934 3.89
2062/63 1,309,999 76.31 138,294 8.06 185,484 10.80 82,898 4.83
2063/64 1,587,759 77.99 150,609 7.40 209,926 10.31 87,575 4.30
2064/65 1,978,486 81.36 159,319 6.55 196,487 8.08 97,445 4.01
2065/66 2,798,486 82.94 179,693 5.32 251,920 7.47 144,164 4.27
Average 1,748,739 75.58 151,258 7.25 205,739 9.90 93,603 4.26

77
 Interest Income
Commercial bank generates income through their investment i.e. loans and
advances, government securities, debenture etc. Interest is the main source of the
income for the commercial banks by which the bank operates their operation
regularly.

Table 4.24 shows that the interest incomes in Nabil bank Limited were 74.32%,
76.31%, 77.99%, 81.36% and 82.94% in the respective years of the review period
with an average of 78.56%. As compared to the previous year's interest income
values and percentage Nabil Bank Limited was succeeded in increasing its
interest income throughout the study period of five years.

 Commission & Discount

Commission and discount is also one of the major sources of income for the
commercial banks. The above calculated table shows that the income from
commission and discount of the Nabil Bank Ltd varies from maximum of 8.93%
in the year 2061/62 to the minimum of 5.32% the year 2064/65 with an average
of 7.25% during the study period. From above analysis, it is cleared that income
from commission and discount Nabil Bank Limited is in decreasing trend
throughout the study period.

 Foreign Exchange Income

Generally, commercial banks purchase and sell foreign currency from the
customers under laws, rules and regulations of NRB because of its fluctuation of
exchange rate. This kind of income has been included in this heading.

Table 4.24 exposes that the foreign exchange income Nabil Bank Ltd varies from
maximum of 12.86% in the year 2061/62 to the minimum of 7.47% the year
2065/66 with an average of 10.89% during the study period. From above analysis,
it is cleared that income from Foreign Exchange Income of Nabil Bank is in
decreasing trend throughout the study period

78
 Other Income
Besides above incomes, non-operating i.e. sale of investment and assets,
subsidies from NRB etc. have been included in this heading. Commission and
discount is also one of the major sources of income for the commercial banks.

The above calculated table shows that the income from commission and discount
of the Nabil Bank Ltd varies from maximum of 4.83% in the year 2062/63 to the
minimum of 4.01% the year 2064/65 with an average of 4.26% during the study
period. From above analysis, it is cleared that income from commission and
discount Nabil Bank is in decreasing trend throughout the study period.
Figure 4.7

Average Income Analysis of Nabil Bank Ltd.

4%
10%

7%

79%

Interest Income Commission & Discount Foreign Exchange Income Other Income

4.1.7.2 Expenditure Analysis

Basically, commercial banks extend money in daily office operation, salary and
other facilities. They also pay interest and dividend to depositors and investors.
Among these various sources of expenses, following headings have been
analyzed for this study purposes;
 Interest Expenses
 Staff Expenses
 Office Operation Expenses
 Bonus Expenses

79
Expenditure analysis of Nabil Bank for different sampled years has been
presented in table 4.25.

Table 4.25
Expenditure Analysis of Nabil Bank Ltd.
(Rs. In Thousands)

Interest Office
Staff Expenses Bonus Facility
Year Expenses Operating Exp.
Rs. % Rs. % Rs. % Rs. %
2061/62 243,545 33.95 199,516 27.80 190,299 26.52 84,198 11.73
2062/63 357,161 42.05 219,781 25.87 182,696 21.51 89,800 10.57
2063/64 555,710 51.29 240,161 22.16 188,183 17.37 99,505 9.18
2064/65 758,436 56.14 262,908 19.46 220,751 16.34 108,899 8.06
2065/66 1,153,280 60.50 339,898 17.83 265,158 13.91 147,867 7.76
Average 613,626 48.79 252,453 22.62 209,417 19.30 106,054 9.46

 Interest Expenses
An interest expense is one of the main expenses among various expenses made
by the commercial banks. Especially, commercial bank pays interest in various
deposits and loan advances. These all have been included in this expense. Table
no. 4.25 reveals that the interest expense ratios of Nabil bank were 33.95,
42.05, 51.29, 56.14 and 60.50 percentage in the respective years of study
period with the mean ratio of 42.0 percent.

 Staff Expenses
Banks need sufficient personnel to continue office and other operation. They
pay salaries and other different forms of allowance to their staff in terms of
services. Moreover, the banks expend uniform, libraries and other various
related field. These all have been included in staff expenses.

80
Table 4.25 exposes that the staff expenses of Nabil Bank Ltd varies from
maximum of 27.80% in the year 2061/62 to the minimum of 17.83% the year
2065/66 with an average of 22.62% during the study period. From above
analysis, it is cleared that income from Foreign Exchange Income of Nabil
Bank is in decreasing trend throughout the study period

 Office Operating Expenses

These are various expenses made by commercial banks in terms of office
operation. These expenses consist of rent, electricity and telephone charges,
administrative expenses promotion expense etc. Table 4.25 exposes that the
office operating expenses of Nabil Bank Ltd varies from maximum of 26.52% in
the year 2061/62 to the minimum of 13.91% the year 2065/66 with an average of
19.13% during the study period.

 Bonus Facility
When banks are capable to earn appropriate profit, they provide dividend to the
shareholders and pay extra bonus to their staffs to motivate them. Those all
expense have been included in under this heading. Table 4.25 exposes that the
bonus facility expenses of Nabil Bank Ltd varies from maximum of 11.73% in the
year 2061/62 to the minimum of 8.63% the year 2059/60 with an average of 10.1%
during the study period.

Figure 4.8

81
4.2 Statistical Tools
In this part of data analysis, the statistical tools such as coefficient of correlation
analysis between various variables, Trend analysis of different variables have been
used. They are as follows:

4.2.1 Coefficient of Correlation

Karl Pearson's coefficient of correlation is most widely used in practice to
measure the degree of relationship between two variables of the banks. So, it is
measured by understanding the following formula.

Where,
r = the coefficient of correlation
n = no. of observations
Sum of the product of observations in two series
Sum of observation in the series x
Sum of observation in the series y
Sum of squared observation in x-series
Sum of squared observation in y-series
The relationship between these two categories of variables has been developed
for study purpose.
 Total Deposit ( ) and Investment ( )
 Total Deposit ( ) and Loan and Advance ( )
 Total Deposit ( ) and Net Profit ( )

4.2.1.1 Correlation between Total Deposit and Investment

Total deposit and investment variables of Nabil Bank for different sampled
years have been presented below.

82
 Table 4.26
Correlation between Total Deposit and Investment
(Rs. In Millions)
Year Total Deposit ( ) Investment ( )
2061/62 14,587 4,267 62,242,729 212,780,569 18,207,289
2062/63 19,347 6,179 119,545,113 374,306,409 31,108,041
2063/64 23,345 8,945 208,821,025 544,989,025 80,013,025
2064/65 31,915 9,940 317,235,100 1,018,567,225 98,803,600
2065/66 37,348 10,826 404,329,448 1,394,873,104 117,202,276
Sum( ) 126,542 40,157 1,112,173,415 3,545,516,332 352,406,231
Calculation of coefficient of correlation (r)
We have,

= 0.946865043
0.9469
We have,

P.E. = 0.6745

= 0.6745
= 0.0312
Significant of r = 6
= 0.1872
Correlation Coefficient came higher than six times than the probable error 0.95
6 0.0312. It shows high degree of positive correlation. According to the above
calculation, it is cleared that there is a significant correlation between Deposit and
Investment in Nabil Bank Limited. Nabil Bank Limited is successful to raise the
volume of investment with rise in the volume of total deposit.

83
4.2.1.2 Correlation between Total Deposit & Loan &
Advances
Total Deposit and loan and advances for different sampled years have been
presented below.

Table 4.27
Correlation between Total Deposit & Loan & Advances
(Rs. In Millions)

Total Loan and

Year
Deposit ( ) Advances ( )

2061/62 14,587 10,586 154,417,982 212,780,569 112,063,396

2062/63 19,347 12,923 250,021,281 374,306,409 167,003,929
2063/64 23,345 15,546 362,921,370 544,989,025 241,678,116

2064/65 31,915 21,365 681,863,975 1,018,567,225 456,463,225

2065/66 37,348 27,590 1,030,431,320 1,394,873,104 761,208,100

Sum( ) 126,542 88,010 2,479,655,928 3,545,516,332 1,738,416,766

Calculation of coefficient of correlation (r)

We have,

= 0.99017
0.9902
We have,

P.E. = 0.6745

= 0.6745

84
 = 0.0059
Significant of r = 6
= 0.0354
Since Correlation Coefficient is much higher than six times than the probable error
6 0.0354. It shows high degree of positive correlation. According to the above
calculation, it is cleared that there is a significant correlation between total deposit
and loan and advances in Nabil Bank Limited. Therefore we can say that the
change in Total Deposit highly affects Loan and Advances policy of Nabil Bank
Limited.

4.2.1.3 Correlation between Loan & Advances & Net Profit

Table 4.28
Correlation between Loan & Advances and Net Profit
(Rs. in millions)

Loan and Net

Year
Advances ( ) Profit( )
2061/62 10,586 519 5,494,134 112,063,396 269,361
2062/63 12,923 635 8,206,105 167,003,929 403,225
2063/64 15,546 674 10,478,004 241,678,116 454,276
2064/65 21,365 746 15,938,290 456,463,225 556,516
2065/66 27,590 1,031 28,445,290 761,208,100 1,062,961

Sum( ) 88,010 3,605 68,561,823 1,738,416,766 2,746,339

Calculation of coefficient of correlation (r)

We have,

85
 = 0.9677018
0.9677
We have,

P.E. = 0.6745
= 0.6745
= 0.0192
Significant of r = 6
= 0.1152
Since Correlation Coefficient is much higher than six times than the probable error
6 0.0354. It shows high degree of positive correlation. According to the above
calculation, it is cleared that there is a significant correlation between Loan and
Advances and Net Profit in Nabil Bank Limited. Therefore we can say that the
change in Loan and Advances highly affects Net Profit earned by Nabil Bank
Limited.

4.2.2 Least Square Linear Trend Analysis

Trend analysis has been a very useful and commonly applied statistical tool to
forecast the future events in quantitative items. On the basis of tendencies in
the dependent variables in the past periods, the future trend is predicted. This
analysis takes the historical data as the basis of forecasting. This method of
forecasting the future trend is based on the assumptions that the past tendencies of
the variables are repeated in the future or past events the future events
significantly.
The future trend is forecasted by using the following formula,

Where,
= the dependent Variable
a = the origin i.e. arithmetic mean
b = the slope coefficient i.e. rate of change

86
 = value of the independent variable i.e. time
Hence, future value of coming years have been analyzed and forecasted with the
help of trend analysis. They are;
 Total Deposits
 Loan & Advances
 Investment
 Net Profit

4.2.2.1 Least Square of Linear Trend of Total Deposits

Table 4.29
Least Square of Linear Trend of Total Deposits
(Rs. In Thousands)

Fiscal Year
(X) Total Deposits = X-2061

2061 14,586,609 -2 4 29,173,218

2062 19,347,399 -1 1 19,347,399
2063 23,345,285 0 0 0
2064 31,915,047 1 1 31,915,047
2065 37,348,255 2 4 74,696,450

Sum( ) 126,542,595 0 10 58,090,880

Since,
0

=
= Rs.25, 308,519

=
= Rs.5, 809,088

87
Substituting these values in the following
formula,

= 25, 308,519+ 5, 809,088

= Rs. 42,735,783
Hence, estimated Total Deposit of Nabil Bank Limited for the year 2066 would
be Rs. 42,735,783 thousand.

Figure 4.9
Total Deposit Trend of Nabil Bank Ltd.

Total Deposit Trend of Nabil Bank Ltd.

40000000
35000000
30000000
Rs. in Thousand

25000000
20000000
15000000
10000000
5000000
0
2061/62 2062/63 2063/64 2064/65 2065/66
Fiscal Year

Total Deposits

4.2.2.2 Least Square of Linear Trend of Loan & Advances

Table 4.30
Least Square of Linear Trend of Loan & Advances
(Rs. In Thousands)
Fiscal Year (X) Loan & Advances (y) 2
= X-2063
2061 10,586,170 -2 4 -21,172,340
2062 12,922,543 -1 1 -12,922,543
2063 15,545,778 0 0 0

88
 2064 21,365,053 1 1 21,365,053
2065 27,589,933 2 4 55,179,866

Sum 27,589,933 0 10 42,450,036

Since,

= 0,

= Rs. 17,601,895.4

= Rs. 4,245,003.6
Substituting these values in the following formula,

= 17,601,895.4 + 4,245,003.6 3
= Rs. 30,336,906.2

Hence, estimated Total Deposit of Nabil Bank Limited for the year 2066
would be Rs. 30,336,906.2 thousand.

89
 Figure 4.10
Loan & Advances Trend of Nabil Bank Ltd.

Loan & Advances Trend of Nabil Bank Ltd.

30000000

25000000
Rs. in Thousand

20000000

15000000

10000000

5000000

0
2061/62 2062/63 2063/64 2064/65 2065/66
Fiscal Year

Loan & Advances

90
4.2.2.3 Least Square of Linear Trend of Investment
Table 4.31
Least Square of Linear Trend of Investment
(Rs. In Thousands)
Fiscal Year (X) Investment (y) 2
X= -2063
2061 4,267,233 -2 4 -8,534,466
2062 6,178,533 -1 1 -6,178,533
2063 8,945,310 0 0 0
2064 9,939,771 1 1 9,939,771
2065 10,826,379 2 4 21,652,758

Sum 40,157,226 0 10 16,879,530

Since,

x = 0,

= Rs. 8,031,445.2

= Rs. 1,687,953
Substituting these values in the following formula,

= 8,031,445.2 + 1,687,953 x 3
= Rs. 13,095,304.2

Hence, estimated Investment of Nabil Bank Limited for the year 2066 would be Rs.
13,095,304.2 thousand.

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 Figure 4.11
Investment Trend of Nabil Bank Ltd.

Investment Trend of Nabil Bank Ltd.

12000000

10000000
Rs. in Thousand

8000000

6000000

4000000

2000000

0
2061/62 2062/63 2063/64 2064/65 2065/66
Fiscal Year

Investment

4.2.2.4 Least Square of Linear Trend of Net Profit

Table 4.32
Least Square of Linear Trend of Net Profit
(Rs. In Thousands)
Fiscal Year (X) Investment (y) 2
= X-2063
2061 518,636 -2 4 -1,037,272
2062 635,262 -1 1 -635,262
2063 673,960 0 0 0
2064 746,468 1 1 746,468
2065 1,031,053 2 4 2,062,106

Sum 3,605,379 0 10 1,136,046

Since,

92
 = 0,

= Rs. 721,075.8

= Rs. 113,604
Substituting these values in the following formula,

= 721,075.8 + 113,604 x 3
= Rs. 1,061,887.8
Hence, estimated Investment of Nabil Bank Limited for the year 2066 would be Rs.
1,061,887.8 thousand.

Figure 4.12
Net Profit Trend of Nabil Bank Ltd.

Net Profit Trend of Nabil Bank Ltd.

1200000

1000000

800000
Rs.

600000

400000

200000

0
2061/62 2062/63 2063/64 2064/65 2065/66
Fiscal Year

Net Profit

93
4.3 Findings of the Study
The following findings have been derived from the analysis and interpretation of
the data, during the study period.

4.3.1 Liquidity Ratio

The liquidity ratios of Nabil Bank have been calculated over the period of 2061/62
to 2065/66 B.S. The following are the findings from the liquidity ratio.
 Nabil Bank Ltd. has highest current ratio current ratio of 1.11 in 2065/66
and the lowest current of 1.08 in 061/62 with an average current ratio of 1.10
during the study period. The current ratio analysis of the bank over the five
year period indicates that the bank has been able to meet its short-term
obligations and is in sound liquidity position.
 The cash and bank balance to total deposit ratio of Nabil Bank Ltd. differs
from maximum of 9.03% in the year 2065/66 to the minimum of 3.26% in the
year 2062/63 with an average of 6.82% during the study period. The analysis
specifies that the bank is volatile to maintain cash reserve ratio as per NRB
directives. The analysis indicates the decreasing trend of the ratios.
 NRB balance to current and saving deposit ratios of Nabil were 3.97%,
2.73%, 8.20%, 10.48%, and 13.18% with mean ratio of 8.67%. Commercial
Banks are required to hold certain proportion of current and saving deposits in
NRB's account. It is to ensure the smooth functioning and sound liquidity
position of the Bank. But in an average, Nabil Bank is failed to maintain
minimum deposit liabilities of 8% as cash reserve with Nepal Rastra Bank.
 The bank has the highest ratio of 16.78 in 2065/66 and the lowest ratio of 5.40
percentages in the fiscal year 062/63 with an average ratio of 11.89 during the
study period. In general terms, the bank has been able to meet its short-term
obligations. The above analysis indicates that the bank is in sound liquidity
position. High ratio of Nabil Bank Limited indicates sound liquidity position
of the bank but too high ratio is not good as it reveals the under utilization of
fund.
 Fixed deposit is the high interest bearing deposit which can be withdrawn only
after its maturity. The above table shows that the fixed deposit to total deposit
ratio of the Nabil Bank differ from maximum of 26.52 %in the year 2064/65

94
 to the minimum of 14.25% in the year 2061/62 with an average of 21.92%
during the study period of five years. The analysis indicates that the portion of
fixed deposit in the total deposit is in fluctuating trend.

4.3.2 Activity Ratio

The findings from Activity Ratio are as follows:
 Investment to total deposit ratios of Nabil Bank Ltd. remained 29.25%,
31.93%, 38.32%, 31.14% and 28.99% in the respective years with the
average of 31.73% in the study period. Nabil Bank Limited seems successful
to utilize the depositor's fund in investment. The higher average shows that
Nabil Bank is successful in managerial efficiency regarding the utilization of
deposits.
 Loan and advances to total deposit ratio measures the extent to which the bank
is successful to utilize the outsiders fund (Total Deposit). Loans and advances
to total deposits of the Nabil Bank fluctuates from maximum of 73.87
percentage in the fiscal year 2065/66 to the minimum of 66.59 percentage in
the year 2063/64 with an average of 69.55 percentage. The analysis shows that
the bank is mobilizing its total deposits in loan and advances adequately and it
has efficiently utilized its total deposits for loan and advances. Higher ratio
reveals that it is efficient to utilize the financial resources in pr oductive
sectors.
 The ratios of Nabil Bank were 61.60%, 57.87%, 57.04%, 57.54%, and
62.89% with an average of 59.56% in the respective years of study period.
The higher average ratio indicates that Nabil Bank is efficient in utilization
of total assets in profitable sector. It can be determined that ratios of Nabil
Bank fluctuate to a greater extent in the study period.
 Total income generating assets to total assets ratio was higher in Nabil
Bank which indicates the sound profitability position i.e. the uti lization of
assets returnable sector. Ratios of Nabil bank were 91.49%, 93.31%,
91.93%, 89.56% and 88.83%, in the respective years of study period with the
mean of 90.57%.
 Net worth or Shareholders Equity Ratios refers to the owner's claim on the
assets of the bank. Net worth to total assets ratio of Nabil Bank remained

95
 9.65%, 8.40%, 7.55%, 6.56%, and 7.13% in the respective years of study
period with the average of 7.55%. The greater ratio indicates that Nabil
Bank has greater contribution to investors fund and strong capital adequacy
position. This ratio measures the percentage of shareholder fund in relation
total assets owned by banks. High ratio shows greater contribution of
investors' fund and strong capital position.
 Net Worth to Total Deposits ratio Nabil Bank limited fluctuating from
maximum of 11.36 percentage in the fiscal year 2061/62 to the minimum of
7.64 percentage in the year 2064/65 with an average of 8.82 percentage.
According to the NRB directives to the capital adequacy ratio 11 percent
Nabil Bank fails to be maintained the ratio as prescribed by the Central Bank
except in the fiscal year 2060/61.

4.3.3 Capital Structure Ratio

The Capital Structure Ratios calculated in the study have the following findings:
 Debt to equity ratio indicates the relationship between the long-term funds
provided by creditors and those provided by the firm's owners. Debt to equity
ratio of Nabil Bank differs from maximum of 14.23 times in the year 2064/65
to the minimum of 9.37 times in the year 2061/62 with an average of 12.24
times during the study period. The analysis indicates that the bank has the high
debt ratio, which indicates that the creditors have invested more in the bank
than the owners.
 Total debt to Total Assets ratio exhibits the relationship between cre ditor's
funds and owners' capital. This ratio shows the proportion of outsider's fund
used in financing total assets. The Debt to Total Assets of the Nabil Bank
differs from maximum of 93.43% in the year 2064/65 to the minimum of
90.35% in the year 2061/62 with an average of 92.45% during the study
period. This analysis indicates that the bank has the high debt equity ratio,
which means creditors have invested more in the bank than the owners. So this
shows role of creditors in the bank is higher than the o wners in investing
sector of Bank.
 The interest coverage ratios of Nabil Bank remained 4.11, 3.51, 2.78, 2.44
and 2.28 respectively during the study period. The ratio differs from maximum

96
 of 4.11 times in the year 2061/62 to the minimum of 2.28 times in the year
2065/65 with an average of 2.70 times during the study period. This analysis
indicates that the bank has sufficient operation of debt and can pay interest
easily.

4.3.4 Profitability Ratios

The Profitability Ratios calculated in the study have the following findings:
 The Return on Total Assets or Net profit to Total Assets ratio is a useful
measurement of the profitability of all financial resources invested in the
assets. The analysis reveals the Return on Total Assets of the Nabil Bank
differ from maximum of 3.02% in the year 2061/62 to the minimum of
2.01% in the year 2064/65 with an average of 2.44% during the study period
of five years from 2061/62 to 2065/66. This analysis indicates that the net
profit earned in comparison to the total assets is in fluctuating trend which
means the ratio is decreasing and increasing trend during the study period.
 The Net profit to Net Worth or the Return on Equity (ROE) measures the
income on the owner's investment. This ratio indicates how well the bank has
used the resources of the owners. The return on equity of the Bank varies
from maximum of 33.88% in the year 2062/63 to the minimum of 30.63%
in the year 2064/65 with an average of 32.31% during the study period of
five years from 2061/62 to 2065/66. This analysis indicates that the net profit
earned in comparison to the total Equity is in fluctuating trend which means
the ratio is decreasing and increasing trend during the study period. Nabil
Bank is earning reasonable profit by utilizing its funds of total equity.
 Interest earning is the major source of income of a commercial bank.
Interest earned to total assets ratio reflects the proportion of interest earned by
the bank from total deposit. The interest earned to Total Assets of the bank
varies from maximum of 6.38% in the year 2065/66 to the minimum of
5.33% in the year 2064/65 with an average of 5.92% during the study period
of five years. The analysis indicates that the interest earned in comparison to
total assets is in fluctuating trend during the study period.
 The interest expenses to interest expenses ratio of the Nabil bank varies from
maximum 41.21% in the fiscal year 2065/66 to the minimum of 22.79% in

97
 the year 2061/62 with an average of 35.09% during the study period. The
analysis indicates that the interest expense in comparison to interest
income is fluctuating during the study period. The higher ratio shows
unfavorable profitability situation of the bank.
 Net profit to total deposits ratio indicates the percentage of profit earned by
using the total deposit. The net profit to total deposit of the Nabil Bank
Limited varies from maximum of 3.56% in the year 2061/62 to the minimum
of 2.34% in the fiscal year 2064/65 with an average of 2.85% during the
study period. The analysis indicates that the net profit earned in comparison
with the total deposits are in increasing trend during the fiscal year
2061/62 but are in decreasing trend after fiscal year 2061/62. In general, the
average return ratio shows that Nabil Bank Limited is successful to earn
constant profit over the study period.

4.3.5 Invisibility Ratios

The findings from invisibility ratios are as below:
 The EPS represents the amount earned on behalf of each outstanding share of
common stock. The EPS of the Nabil Bank Limited varies from maximum of
137.07 per share in the year 2063/64 from 105.48 per share in the year 2061/62
with an average of 115.19 per share. The above analysis indicates that the
EPS of Nabil Bank Ltd. is good in overall years.
 Dividend per share is calculated to know proportion of the earnings distributed
to the shareholder per share. The DPS of the Nabil Bank varies from
maximum of Rs. 100 per share in the year 2063/64 from Rs. 35 per share in the
year 2065/66 with an average of Rs. 64.07 per share. The above analysis
indicates that the DPS of Nabil Bank Ltd. is good in overall years.
 The analysis shows the Tax per share paid to the government by common
shareholders is in fluctuating trend during the study period of five fiscal years.
Tax per Share of the Nabil Bank varies from maximum of Rs. 65.30 per
share in the year 2063/64 from Rs. 48.64 per share in the year 2061/62 with
an average of Rs. 51.53 per share. The average TPS in Nabil appeared sharply
high which shows that it succeeded to contribute more in the government
revenue.

98
4.3.6 Income & Expenditure Analysis
In the study, the findings from Income and Expenditure analysis are:
 Income and expenditure are the main indicators of the financial
performance of the business firm. The income and expenditure statement
provides a financial summary of the firm's operating result during the period
specified. The interest earning is the main source of income of the bank. The
average of 78.58 % of the total operating income is covered by the interest
earned. The high rate of income from the interest received indicates the better
operation efficiency of the bank. The second main income source is from
foreign exchange income earnings. The average of 9.9% of the total
operating income comes from the exchange earnings. The incomes from
commission earnings represent the third highest income source of the bank.
The average earnings from commission and discount are 7.25% of the total
operating income. The income from other sources constitutes an average of
4.26 % of the total operating income of the bank. This concludes that bank is
providing efficient and effective services to its clients.

 The expenditure head of the bank are interest expenses, personnel expense and
other expenses. The interest expense is the main major source of expense of
the bank. The interest expense is 48.79 % of the total operating expenditure on
an average. The high rate of expenditure in interest indicates that the bank has
collected more deposits. The second main expenditure heading of the bank is
staff expenses. The office personnel expense constitutes 22.62% of the total
Operating Expenses. The third important heading of the operating expenditure
is office operating expenses. The office operating expenses remains 19.13%
in an average during the study period. Bonus facility remains 9.46 % in an
average during the study period.

4.3.7 Findings from Correlation Analysis

 Correlation coefficient came higher than six times than the probable error
0.95 > 6 X 0.097. It shows high degree of positive correlation. According to
the above calculation, it is cleared that there is a significant correlation
between deposit and investment in Nabil Bank Limited. It is successful to

99
 raise the volume of investment with rise in the volume of total deposit.
 The value of r (0.9902) shows the high degree of positive correlation between
total deposit and loan and advances. Therefore we can say that the change in
total deposit highly effects loan and advances policy of Nabil Bank Ltd.
 On the basis of calculation of correlation coefficient of loan and advances, the
value of r (0.9677) shows the high degree of positive correlation between
Loan and Advances and Net Profit. Therefore we can say that the change in
Loan Advances highly affects Net Profit Earned by Nabil Bank Ltd.
 Trend analysis of Total Deposits, Loan & Advances, Investment and Net
Profit gives the conclusion that total deposit, loan and advances and net profit
were in increasing trend but trend of investment is in fluctuating trend.

100
 CHAPTER 5
Summary, Conclusion and Recommendation

In this chapter, the summary has been presented along with conclusions and
actionable recommendations. This is brief introduction to all the chapters of the study
as well as the overall summary from the analysis of the relevant data. Since a study
would not be complete without any suggestive findings, the study has also tried to
point out errors in the financial activities of Nabil Bank Limited as well as the
corrective suggestions for the elimination of the same, with the hope of giving
directions for further growth and improvement in the bank's operation.

5.1 Summary of the Study

The present study is a conclusion oriented study of financial analysis of Nabil
Bank Ltd. The study had been undertaken to examine and evaluate the
performance of Nabil Bank Ltd. The researcher had used the financial tools to
make this study more effective and informative. This study has covered five
years data from 2061/62 to 2065/66 of Nabil Bank Ltd. In this section, the
researcher has tried to summarize the financial analysis of Nabil Bank Limited.

The bank has been able to maintain its position in the country as one of the
leading joint venture commercial banks in the country. Moreover, competition in
the financial sector is getting tougher day by day. Our own domestic unrest and
threats have also suffered a set a setback due to these and many other reasons.
However, in line with the current market trend, the bank is making all possible
efforts to consolidate its business portfolio and cut down the cost in all
operating areas to the extent possible, to maintain the profitability.

The principal activities of the bank in the past seven years continued to be
consumer and corporate banking, trade and finance, credit card services and
foreign exchange counters. The bank has successfully installed Automated
Teller Machines (ATM). The number of different cards issued by the bank and
the bank now has the critical mass in its account base. The bank continues to
strive in order to maintain its position in the country as the market leader in the

101
credit card arena. There are ongoing efforts and commitments in enhancing its
products and services both, the issuance and acquiring business.

A very high debt to net worth ratio is unfavorable because debts are considered to
be more risky than equity funds in the sense that the bank has a compulsory
legal obligation to pay interest to the debt holders irrespective of the profit made or
losses incurred. Therefore appropriate mix of debt and owners' fund is desired by
the bank.

5.2 Conclusion
From the analysis of various available secondary data using many financial and
statistical tools, the study has come up with the following conclusions:
 While comparing current assets with current liabilities, it revels those
current assets are sufficient to cover the current liabilities. The practice of
holding large size of current assets is an expensive affair. On the other hand,
too little liquidity may lead to serve cash problems, which can result in
inability to pay short term obligations in time. The highest and the lowest ratio
were observed to be 1.11 times and 1.08 times in the fiscal year 2065/66
and 2061/62 respectively. The average ratio was observed to be 1.10 times
during the study period.
 Similarly, cash and bank balance to total deposit ratio has also fluctuating
trend. At the beginning of the fiscal year 2061/62, the ratio is 3.38 % where at
the end of fiscal year 2065/66, the ratio is 5.2 %, the ratio decrease with 2.51
%. The highest ratio among five fiscal years is 9.03 percent in 2065/66. The
average ratio of cash and bank balance to total deposit is 6.82 percent. Cash
and bank balance has not been maintained according to total deposit.
 Fixed deposit to total deposit ratio is not favorable for the liquidity position of
Nabil Bank Limited. The lowest ratio is 14.25 percentage in 2061/62 and
highest ratio 26.52 percentage in 2064/65 with an average of 21.92 percent
within the study period.
 Investment to total deposit range from 38.32 to 28.99 percentages. The
lowest ratio is in the fiscal year 2065/66 and highest ratio is in the fiscal year
2063/64. The average ratio has been observed 31.75 during the study period.

102
 Investment to total deposit ratio is in fluctuating trend.
 Loan and advances to total deposit ratio is in increasing trend. The average
ratio f loan and advances to total deposit is 66.92 percent. It has increase a lot
in fiscal year 2065/66 (73.87 percent) compare with 2063/64 (66.5 percent)
which means it can diversified all the funds in different sector as loan and
advances.
 Loan and advance to total assets range from 57.043 to 62.89 percent. The
lowest ratio ranges in the fiscal year 2063/64 and the highest ratio is in the
fiscal year 2065/66. The average ratio was observed to be 59.56 percent. Loan
and advances to total assets is in increasing trend. More than 50 percent of a
total asset has been lend to customers as loan and advances.
 Total liabilities to equity ratio are in fluctuating trend, which is not
satisfactory. The average ratio is observed to be 12.24 percent which is below
than fiscal year 2063/64, 2064/65 and 2065/66 (12.25, 14.23 and 13.01).
 Every fiscal year, Nabil Bank Limited has increased the debt, which is not
good sign for the bank. Because higher debt ratio indicates higher financial
risk as well as increasing claims of outsiders in total assets and vice versa.
The average of the ratio is 92.45 percent. The highest and lowest range is
93.43 and 90.35 percent in 2064/65 and 2061/62 respectively.
 Interest charge is properly covered which means it's according to margin or
more than margin. Interest coverage ratio is in fluctuating trend every year.
The ratio covers 2.28 percent in 2065/66 and 4.11 in 2061/62. The average of
interest coverage ratio is 2.70 percent.
 The return on total assets of Nabil Bank Limited Bank shows good trend.
The average ratio of ROE is 2.44 percent. The highest ratio occurred in
2061/62 with 3.02 percent and lowest fall in 2064/65 with 2.70 percent.
 The earning per share ratio of Nabil Bank Limited is satisfactory. It is in
increasing trend with good percent every year. The low ratio is Rs.
105.46 percent in 2061/62 and high is Rs. 137.07 in 2063/64. Due to the high
difference between the lowest and highest ratios of the period, the table shows
an average of Rs. 115.19 EPS. So it can be concluded that on the basis of
EPS ratio the profitability of the bank has been increasing.

103
In conclusion, financial condition of Nabil Bank Limited is good enough which
means it has good command in the market. Overall, the financial position of Nabil
Bank Limited is able to provide the general public and firm their amounts that
have deposited their amount for security with full confidence of receiving back on
demand.

5.3 Recommendation
Based on its analysis and findings, the study tries to put forward the following
suggestions to the bank under study for betterment in the field of its financial
performance.

In period of operation of 25 years, it has been successful to form a network of 34

branches up to fiscal year 2065/66 the bank is further planning to expand its
network in the current fiscal year too. Effective and comparative banking
activities have not been reached to different corners of country. In such a situation
the banks network expansion plan is worth appreciation. This JVB has already
established itself as a leading private bank in the country and the financial
indicators shows that banks performance in the past is more than satisfactory and
the future of Nabil Bank Limited is positive and financially secured. The
following further recommendations are made from the study made about the bank
in this chapter.
 The fluctuation of ratio must be stabilized after proper diagnosis of the quality.
Nabil Bank Limited should focus in investing short-term marketable
securities which
yield more return than merely maintaining cash and bank balance.
 The decreasing ratio of investment to total deposit indicates that Nabil Bank
Limited has not been able to mobilize its available funds properly
therefore, it is suggested to mobilize the funds properly in productive and
profitable sectors.
 The bank should keep up the act of wealth maximization of the shareholders
as they are true owners of the bank. The bank should always abide the
directives given by NRB.
 The bank is advised to introduce new product lines and services to furt her

104
 attract the customers. It should keep in mind that it is competing with 25 other
banks and more than 60 finance companies and other competitors, so the
management should be alert to either comprehend customer philosophy or to
manipulate them through introduction of new, efficient and convenient
services.
 The bank should never forget that customer is a king of the market so its
objectives should be to conduct more training, seminars, workshops and
managerial development schemes to help the local bank compete with the
foreign bank.
 Being the part of the society, it has a great responsibility in the social
development, therefore it is recommended to Nabil Bank Limited to
participate in social events such as in education, health program, environment
protection etc, so that more customers are attracted towards it.
 All imperfect practices inherent from the past mistakes should be avoided to
re-orient the bank to new discuss of change and other further improvement.

105
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Weston, J.F., Besley, S. & Brigham, E.F. (2003). Essentials of Managerial Finance.
New York: The Dryden Press.

Articles:
NABIL Bank Limited (2059/60 to 2063/64). Annual Report of Various Years.
Kathmandu.
NRB (2005). Banking Supervision Annual Report-2005.
Shrestha, R.L. (2055). NRB Samachar. 4th Baisakh 2055.
Thapa G.B. (2051). Issue in Financial Sector Reform. NRB Samachar, Kathmandu,
39th Anniversary.

Unpublished Thesis:
Awasthi, G.P (2003). A Comparative Study on Financial Performance Between
Himalayan Bank Ltd. & Bank of Kathmandu Ltd. Kathmandu: An Unpublished
Master Degree Thesis, Submitted to Central Department of Management, T.U.
Bista, K. (2002). A Study on Financial Performance of NABIL Bank Ltd. Kathmandu:
An Unpublished Master Degree Thesis, Submitted to Shanker Dev Campus,
T.U.

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Ghimire, G. (2005). Non Performing Assets of Commercial Banks: Cause and Effect.
Kathmandu: An Unpublished Master Degree Thesis, Submitted to Nepal
Commerce Campus, T.U.
Gupta, B.P. (2004). Financial Performance Analysis of Everest Bank Ltd.
Kathmandu: An Unpublished Master Degree Thesis, Submitted to Shanker Dev
Campus, T.U.
Maharjan, M. (2006). A study on Financial Performance of NABIL Bank Ltd.
Kathmandu: An Unpublished Master Degree Thesis, Submitted to Shanker Dev
Campus, T.U.
Shrestha, B. (2003). A Comparative Analysis of Financial Performance of the Joint
Venture Banks. Kathmandu: An Unpublished Master Degree Thesis, Submitted
to Shanker Dev Campus, T.U.
Shrestha, Reena (2006). A Study on Financial Performance Analysis of NABIL Bank
Ltd. Kathmandu: An Unpublished Master Degree Thesis, Submitted to Shanker
Dev Campus, T.U.
Shrestha, S. (2003). Portfolio Behaviour of Commercial Banks in Nepal. Kathmandu:
An Unpublished Master Degree Thesis, Submitted to Shanker Dev Campus,
T.U.
Singh, N. (2004). Analysis of Financial Performance of NABIL Bank & Himalayan
Bank Ltd. Kathmandu: An Unpublished Master Degree Thesis, Submitted to
Shanker Dev Campus, T.U.
Thapa, S. (2004). Financial Performance of Commercial Banks in Nepal:
Comparative Study on Nepal Bank Ltd. & NABIL Bank Ltd. Kathmandu: An
Unpublished Master Degree Thesis, Submitted to Shanker Dev Campus, T.U.

Websites:
www.nabil.com
www.nepalstock.com
www.nrb.org.

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