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Friday, July 31, 2015

Ratio Analysis of Nepal Bank Limited

CHAPTER-1
INTRODUCTION

1.1 Industry information

Origin of the word bank

The word bank was borrowed in Middle English from Middle French banque, from Old Italian
banca, from Old High German bank, bank "bench, counter". Benches were used as desks or
exchange counters during the Renaissance by Florentine bankers, who used to make their
transactions atop desks covered by green tablecloths.

One of the oldest items found showing money-changing activity is a silver Greek drachm coin
from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, and c. 350–325 BC,
presented in the British Museum in London. The coin shows a banker's table laden with coins, a
pun on the name of the city. In fact, even today in Modern Greek the word Trapeza means both a
table and a bank (in everyday speech). [The everyday word used for "table" is trapezi, a modern
form of the archaic trapeza.

History of banking in the world

In the modern era, the story of "the elite" commences with the development of the modern
banking system in Middle Ages Europe. At that time, disposable wealth was usually held in the
form of gold or silver bullion. For safety, such assets were kept in the safe of the local goldsmith,
he usually being the only individual who had a vault on his premises. The goldsmith would issue
a receipt for the deposit and, to undertake financial transactions, the buyer would withdraw his
gold and give it to the seller, who would then deposit it again, frequently with the same
goldsmith. As this was a time-consuming process, it became common practice for people to
simply exchange smiths' receipts when conducting financial transactions.
As time passed, the goldsmiths began to issue receipts for specific values of gold, making buying
and selling easier still. The smiths' receipts thus became the first banknotes. The goldsmiths, now
fledgling bankers, noticed that at any one time only a small proportion of the gold held with them
was being withdrawn. So they hit upon the idea of issuing more of the receipt notes themselves,
notes that did not refer to any actual deposited wealth. By giving these receipts to people seeking
capital, in the form of loans, the goldsmiths could use the money deposited with them by others
to make money for themselves. It was found that, for every unit of gold held by the goldsmith,
ten times the sum could be safely issued as notes without anyone usually becoming any the
wiser. If a goldsmith held, say, 100 pounds of other people's gold in his vaults, he could issue
banknotes to the value of 1000 pounds. As long as no more than 10 percent of the holders of
those notes wanted their gold at any one time, no one would realize the fraud being perpetrated.
This practice, known as "fractional reserve lending," continues to this day and is actually the
backbone of the modern banking industry. Banks typically loan ten times their actual financial
holdings, meaning 90% of the money they lend does not now, never has, and never will exist.

Loans issued by the goldsmiths had to be paid back to them with interest, meaning non-existent
money slowly became converted to tangible assets in the form of goods and labour. Should the
loan be defaulted upon, the banker had the right to seize the defaulter's property. As time passed,
therefore, the goldsmiths became wealthier and wealthier. They had devised a scheme to create
money out of thin air and then convert this money into real goods, labour, or property. A loan of
money at 12% interest recouped not merely 12% for the banker, but 112%, as it does to this day.

As the industrial era began, so the potential for furthering this scheme increased exponentially.
The goldsmiths were now fully-fledged bankers, and their ability to create money out of thin air
and then convert it into tangible assets enabled them to begin to control whole industries to the
point where the worlds of banking and industry became, to all intents and purposes, seamless
entities. Extended family banking structures, such as the Rothschilds, acquired so much power in
this manner that the various monarchies and fledgling governments of the time soon began to
seem quite feeble by comparison.

To increase their power and influence still further, these elite banking families would subtly buy
influence within governments or monarchies and utilise this influence to strategically stir up
unrest between nations. When the inevitable disputes broke out, they would then lend vast sums
of money, usually to both sides, so that war could be waged. Any armaments purchased would
be those manufactured by the industrial wing of the banking-industrial cartel, and by regulating
the loan of money and the timing of the delivery of weapons, the outcome of any conflict could
effectively be controlled. If deemed necessary, monarchies and governments could further be
destabilized by generating poverty through regulating the money supply, and by using agent-
provocateur tactics to fuel any latent desire for revolution. With such power it was easy to
control the fledgling governments of Europe and ensure that only those politicians who would do
the will of the banking families came to power.

As the technological revolution progressed, so the buying up of TV stations and newspapers

allowed the creation and control of the mass media. This served to ensure that only a portrayal of
events that suited the interests of the elite banking families would get to public attention -
invariably one that all but denied their very existence.

Banking in Nepal

The initiation of formal banking system in Nepal commenced with the establishment in 1937 of
Nepal Bank Limited (NBL), the first Nepalese commercial bank, the country's central bank,
Nepal Rastra Bank (NRB) was established in 1956 by Act of 1955, after nearly two decades of
NBL having been in existence. A decade after the establishment of NRB, Rastriya Banijya Bank
(RBB), a commercial bank under the ownership of His Majesty’s Government of Nepal
(HMG/N) was established. Thereafter, HMG/N adopted open and liberalized policies in the mid
1980s reflected by the structural adjustment process, which included privatization, tariff
adjustments, liberalization of industrial licensing, easing of terms of foreign investment and more
liberal trade and foreign exchange regime was initiated. With the adoption of liberalization
policy, there has been rapid development of the domestic financial system both in terms of
number of financial institutions and as ratio of financial assets to the GDP. As of July 2005, the
number of commercial banks has reached 17 and their branches numbered 375. A total of 60
finance companies and other Development Banks and numerous credit cooperatives have also
been established. Total financial assets in 2004/2005 reached around 54.09 percent of GDP and
the M2/GDP ratio, which shows the financial sector development or financial deepening
increased from in 12.4 percent in 1975 to 50.9 percent in 2000.
 In the context of banking development, the 1980s saw a major structural change in financial
sector policies, regulations and institutional developments. HMG/N emphasized the role of the
private sector for the investment in the financial sector. The financial sector liberalization, started
already in the early eighties with the liberalization of the interest rates, encompassed further
deregulation of interest rates, relaxation of entry barriers for domestic and foreign banks,
restructuring of public sector commercial banks and withdrawal of central bank control over
their portfolio management (Acharya et al, 2003). These policies opened the doors for foreigners
to enter into banking sector under joint venture. 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 1984

Range of activities performed by Bank

Activities undertaken by large banks include investment banking, corporate banking, private
banking, insurance, consumer finance, foreign exchange trading, commodity trading, trading in
equities, futures and options trading and money market trading.

Types of Banking

1. Retail banking: dealing directly with individuals and small businesses;

2. Business banking: providing services to mid-market business;
3. Corporate banking: directed at large business entities;
4. Private banking: providing wealth management services to high net worth individuals and
families;
5. Investment banking: relating to activities on the financial markets.
In Context of Nepal

1. (Class: A) Commercial Bank

2. (Class: B) Development Bank
3. (Class: C) Finance Companies
4. (Class: D) Micro Credit Developments Banks
Most banks are profit-making, private enterprises. However, some are owned by government, or
are non-profit organizations.

Challenges of Banking
 As the financial markets continue to evolve, financial institutions are working to grow and
maintain profits while adjusting to ever-changing regulations and the downturn’s effects on
profitability and performance. Successful institutions will need to reassess their operating models
and address the effects of regulatory reform, competitive dynamics, evolving markets and
increased expectations from stakeholders. The main challenges banking institutions face
nowadays can be categorised as follows:

 Industry strategic challenges:

Banks have to face significant strategic challenges. Private banking industry professionals need
to reinvent themselves in order to reinforce as a leading pole in private banking services. Retail
bankers also have to face a growing competition from abroad as well as from non-traditional
institutions. Asset management and investor services institutions need to prepare themselves for
significant changes in infrastructures, regulatory frameworks and their competitive landscape.
Institutions will have to improve their understanding of their clients and re-examine the value
and promotion of their products to ensure they remain competitive in this new environment.

 Industry regulatory challenges:

The constant evolution of local and international regulations is a major driving force in the
banking and securities industry. The likely introduction of Basel III standards, as an example,
will have a major impact on the way institutions run their business. There is likely to be an
increased focus on capital efficiency. The introduction of new oversight rules and bodies may
also have far reaching implications for the industry. Implementing all these rules can be an issue,
yet the real challenge is more about optimising your regulatory investments than merely
complying.

 Industry operational efficiency challenges:

To appropriately address strategic and regulatory challenges, impeccable execution is a must.
Constantly improving operational efficiency has to be high on the agenda of bankers. Now more
than ever, institutions have to optimise their processes, control their cost structure, and explore
new operating models using all the tools now at their disposal. Analysing the opportunity to
mutualise operations or IT systems across entities or geographies, outsourcing non core
activities, improving risk management frameworks and tools are some of the areas where
financial institutions can find the levers to reach excellence.
 Some of other risks faced by banks include:

 Credit risk: risk of loss [citation needed] arising from a borrower who does not make payments as
promised.
 Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to
prevent a loss (or make the required profit).
 Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio,
will decrease due to the change in value of the market risk factors.
 Operational risk: risk arising from execution of a company's business functions.
 Reputational risk: a type of risk related to the trustworthiness of business.
 Macroeconomic risk: risks related to the aggregate economy the bank is operating in.
The capital requirement is a bank regulation, which sets a framework within which a bank or
depository institution must manage its balance sheet. The categorization of assets and capital is
highly standardized so that it can be risk weighted.

1.2 Organization Information

History of Banking in Nepal

His Majesty King Tribhuvan inaugurated Nepal Bank Limited on Kartik 30, 1994 Bikram
Sambat. This marked the beginning of an era of formal banking in Nepal. Until then all monetary
tractions were carried out by private dealers and trading centre.
Then Prime Minister Maharaja Juddha Shumsher J.B.R. speaking on the occasion with the kind
permission of His Majesty the King stated this work which is being done in the larger interest of
the nation is a great moment for me. Until today a bank could not be opened in Nepal. Therefore
this bank, which is being established under the name of Nepal Bank Limited to fill that, need and
to be inaugurated by His Majesty the King, is a moment of great joy and happiness.
The Bank's objectives to render service to the people whether rich or poor and to contribute to
the nation's development will also need the support and best wishes of all, which I am confident,
will be forthcoming.
In that era, very few understood or had confidence in this new concept of formal banking. Rising
equity shares were not easy and mobilization of deposits even more difficult. This was evident
when the bank floated equity shares worth NRs. 2,500,000, but was successful only in raising
NRs. 842,000.
"In the absence of any bank in Nepal the economic progress of the country was being hampered
and causing inconvenience to the people and therefore with the objective of fulfilling that need
by providing service to the people and for the betterment of the country, this law in hereby
promulgated for the establishment of the Bank and its operation"
The total deposits for the first year was NRs. 17,02,025 where current deposits was about NRs.
12,98,898 fixed was about NRs. 3,88,964 and saving was NRs. 14,163. Loan disbursed and
outstanding at the end of the first year was NRs. 1,985,000.
From the very conception and its creation, Nepal Bank Ltd, was as joint venture between the
government and the private sector. Out of 2500 equity shares of NRs. 100 face value, 40% was
subscribed by the government and the balanced i.e. 60% was offered for the sale to private
sector. There were only 10 shareholders when the bank first started.

Company Profile

History of NBL

On November 15, 1927 (Kartik 30, 1994), the then King Tribhuvan inaugurated Nepal Bank
Limited. This marked the beginning of an era of formal banking in Nepal. Until then all
monetary transactions were carried out by private dealers and trading canter.

In that era, very few understood or had confidence in this new concept of formal banking. Rising
equity shares were not easy and mobilization of deposits even more difficult. This was evident
when the bank floated equity shares worth NPR 2,500,000, but was successful only in raising
NPR 842,000.The total deposits for the first year was NPR 17,02,025 where current deposits was
about NPR 12,98,898 fixed was about NPR 3,88,964 and saving was NPR 14,163. Loan
disbursed and outstanding at the end of the first year was NPR 1,985,000. In 2007, Nepal Bank
Limited appointed Mr Rohit Ghambole as chief banker. He proceeded to invest in Tesco
doughnut supplies from Yateley. This is widely blamed to be the reason of the 2007 financial
market crash.

From the very conception and its creation, NBL was as joint venture between the government
and the private sector. Out of 2500 equity shares of NPR 100 face value, 40% was subscribed by
the government and the balanced 60% was offered for the sale to private sector. There were only
10 shareholders when the bank first started.
Introduction to NBL

Nepal Bank Limited is the first commercial bank of Nepal. It was established in 1937 which
marked the beginning of an era of formal banking in Nepal. It was formed under the principle of
Joint venture (Joint venture between govt. & general public). NBL's authorized capital was Rs.
10 million & issued capital Rs. 2.5 million of which paid-up capital was Rs. 842 thousand with
10 shareholders. The bank has been providing banking through its branch offices in the different
geographical locations of the country.

Services

Nepal Bank Limited is providing services to its customers from its 118 branches. It provides
deposit facility, various loan facilities, advanced ABBS services from 110 branches, Internet
Banking along with the ATM facilities all over the country.

Corporate Vision:

"Pioneer Bank with complete banking solution"

Mission Statement:

To be the leading Nepali bank, delivering world class service through the blending of the start-
of-the-art of technology and visionary management in partnership with competent and
committed staff, to achieve sound financial health with sustainable value addition to all our
stakeholders. We are committed to do this mission while ensuring the highest levels of ethical
standards, professional integrity, corporate governance and regulatory compliance.

Other Services
Safe Deposit Vaults
"The Best Protection For your most Important Valuables"
Your valuables are safely stored in another location other than your home or business...the
SAFEST PROTECTION from fire and theft. Nepal Bank Limited offer you safe deposit vault
to store items that would cause you to say "if I lose this, I'm in deep trouble." This means
important papers like insurance policies, family records such as birth certificates, deeds, titles,
mortgages, leases, contracts, bonds, certificates of deposit.
Other items include jewels, medals, rare stamps and negatives for important photos in case of
fire or theft.

SMS Banking Services

Nepal Bank Limited presents SMS (Short Message Service) Banking service to it's valuable
Customers.

Any Branch Banking Services (ABBS)

Nepal bank is proud to announce that all together 114 branches are enabled for ABB service.
This service is free of charge to our valuable customer. In this banking service, our customer
having account with NBL can access their account from any online NBL's branch. However the
service is provided in two ways: Normal ABB service and Special ABB service.
Normal ABB service allows our customer to deposit, withdraw and remit money from the
branches which are online. Whereas Special ABB service allows withdrawal facility. For deposit
in such accounts requires processing through remit.

E-Banking of NBL
General Information
Now NBL is just a click away. Wherever you go, you can access your account in Nepal Bank
Limited on your desktop. We are very happy to announce NBL Internet Banking with wide
coverage of services in order to facilitate our valuable customers. Balance check, cheque stop,
cheque issue, statement print etc our some of the facilities under this service.

Table No. 1
Shareholding Composition
S.N Ownership Percent

1 Government of 38.60
Nepal

2 General Public 61.40

 Total 100

Table No. 2

NBL Network Overview

Region Wise No of Branches

Branches

Kathmandu 28
Region

Biratnagar 28
Region

Birgunj 19
Region

Pokhara 21
Region

Nepalgunj 16
Region

Total No of 118
Branches

No. of Staff: 2728 (As of Nov 15, 2013)

No. of computerized branches: 118

Branches under single computer network: 118

Composition of Board of Directors

The bank is under the control of Central Bank of Nepal, Nepal Rastra Bank (NRB). NRB has
appointed a five members management committee. This management committee performs as the
board of director of the bank.
 Management Team

The bank is running under the leadership of Nepal Rastra Bank (NRB) appointed three
management team under the leadership of NRB director, Mr. Maheshwor Lal Shrestha.

Company’s Product and Services

 Debit & credit cards

 Consumer banking
 Corporate banking
 Financial services
 Investment banking
 Mortgage loans
 Private banking

Competitors

As everyone’s motto is to capture the market, they try their best to gain it. There are almost fifty-
one Commercial Banks in Nepal everyone design their strategies in such a way that they will
sure achieve the goals. Hence competitors are all around the Nepal located in different places.

SWOT ANALYSIS

Strength:

 Organization’s mission and vision

 Raised Customer trust (oldest bank in the country)
 Government Support (40% shares owned by government)
 Provides variety of products and services
Weakness:

 Nonperforming assets or bad loans

 Under staffing and weak human resource policies
 Weak organizational mandate
 Gaps in coordination and M&E
 Lack of systematic operations in the organization
 Weak management
 Opportunity:

 Political will and encouragement

 Increased remittance service through exchange partnership internationally
 Good community response for secure loan borrowing by public for home constructions
 Support from media and advocacy organizations
Threats:

 Government restrictions and unstable policies

 Excessive liquidity in current banking environment
 Detrimental external policies
 Lack of interest and attitudinal problems at the community level

CHAPTER-2
PROJECT DESIGN & STUDY

2.1 Introduction of the study

Nepal is one of the least developed land-locked countries. It is largely a mountainous country.
About 83 % of the total land area of 1, 47, 181 square kilometres is covered y rugged hills and
mountains. More than 90% of total population is still in rural areas and most of them are still
deprived of physical facilities that are necessary for every human being. More than 80% of the
total population depends upon agriculture sector. Economic growth is the major force for the
development of the country. Industrialization is one of the most important factors for the
economic development of any country. Financial system is one of the most important
infrastructures for economic growth.

For smooth running of the financial system, there should be the appropriate market for such
system known as financial market. Financial market consists of capital market and money
market. Capital market concerned with long term investment, borrowing and lending of long
term funds. Components of capital market are stock exchange, investment institution, bank
insurance companies etc. money market is mainly concerned with purchase and sale of monetary
instrument. It mainly deals with the financial paper like treasury bills, certificate of deposit,
commercial papers etc.
The Bank's objectives to render service to the people whether rich or poor and to contribute to
the nation's development will also need the support and best wishes of all, which I am confident,
will be forthcoming.

In that era, very few understood or had confidence in this new concept of formal banking.
Rising equity shares were not easy and mobilization of deposits even more difficult. This was
evident when the bank floated equity shares worth NRs. 2,500,000, but was successful only in
raising NRs. 842,000.

"In the absence of any bank in Nepal the economic progress of the country was being hampered
and causing inconvenience to the people and therefore with the objective of fulfilling that need
by providing service to the people and for the betterment of the country, this law in hereby
promulgated for the establishment of the Bank and its operation" .

And to know the present condition of the organization study of the ratio analysis is measure to
analyze. At first to understand the concept and meaning, types, their formulas and only we can
be clear.

Concept and meaning of Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as
its historical performance and current financial condition can be determined. The term ratio
refers to the numerical or quantitative relationship between two variables.

Ratio analysis is a method of analyzing data to determine the overall financial strength of a
business. Financial analysts take the information off the balance sheets and income statements of
a business and calculate ratios that can then be used to make assessments of the operating ability
and future prospects of that business. These ratios are useful only when compared to other ratios,
such as the comparable ratios of similar businesses or the historical trend of a single business
over several business cycles. There are various ratios that measure a company's efficiency, short-
term strength, profitability, and solvency.

Importance of ratio analysis:

It helps in evaluating the firm’s performance:

 With the help of ratio analysis conclusion can be drawn regarding several aspects such as
financial health, profitability and operational efficiency of the undertaking.
 Ratio points out the operating efficiency of the firm i.e. whether the management has utilized the
firm's assets correctly, to increase the investor's wealth.
 It ensures a fair return to its owners and secures optimum utilization of firm’s assets.
 The information given in the basic financial statements serves no useful Purpose unless it s
interrupted and analyzed in some comparable terms.
 The ratio analysis is one of the tools in the hands of those who want to know something more
from the financial statements in the simplified manner.
Types of Ratio Analysis

Liquidity Ratio

Liquidity ratios aid decision makers in evaluating creditworthiness. Lenders want to ensure that
their borrowers are able to pay back their loans and agreed interest. Liquidity ratios compare a
company's assets against their obligations. For example, the current ratio, calculated current
assets over current liabilities, tests how many times liquid assets will cover regular bills. Some
other liquidity ratios are the quick ratio and the cash ratio.

These ratios provide an idea about well a company is situated to meet its current liabilities.
Investors get this information by comparing a company's current assets with its current liabilities.
If the company has an adequate level of assets to pay its liabilities, that is a positive sign.
Analysts consider a liquidity ratio of two to be healthy since it indicates that the company has
enough assets on hand to meet its current liabilities. If the company does not have adequate
assets to meet its upcoming liabilities, investors should investigate further.

Leverage Ratio

Leverage is another word for debt. Companies use bank financing to help expand business, but
too much debt can lead to problems and it can be a sign of a struggling company. Leverage ratios
help managers determine if a company is using too much debt. The debt ratio, determined by
dividing total liabilities by total assets, will tell you if a company can cover its debts if it
liquidates. Other debt ratios include debt to equity, interest coverage ratio and capitalization
ratio.
These ratios give an idea about how much debt a company has on its books. If the company uses
its debt to generate better earnings for shareholders, analysts view use of debt positively. One
common leverage ratio, the debt-to-equity ratio, looks at a company's debt levels and compares
that to the company's equity. Another way of looking at leverage is to get an idea about how
much money a company has available to meet its interest payment obligations. It is a healthy
sign if a company has enough money on hand to meet its interest payment commitments. On the
other hand, it is a bad sign if a company is not generating adequate earnings to cover its debt
servicing.

Profitability Ratio

When evaluating a number of profitable companies and looking to find which one is more
profitable, you must utilize profitability ratios. Profitability ratios test a company's ability to
generate income. Net profit margin, which is net income divided by net sales, will tell you how
much of the sales is left over after paying all expenses. Several other profitability ratios include
return on investment, return on assets and return on equity.

The purpose for a company's existence is to make a profit for its shareholders. It is important to
see how well the company is doing in this respect. The ratios that provide this input are grouped
together as profitability ratios. The gross profit margin measures what sort of profit a company is
generating from its sales after deducting the cost of the goods sold. It is a basic ratio that does not
take into account other costs that companies incur. Return on equity is another profitability ratio
that measures how much of a return the company is getting on the equity it has invested. This
ratio is generated by dividing a company's earnings by the total shareholder's equity invested in
the business. This gives investors an idea about how profitable a company is too. It is not easy to
standardize profitability ratios since profits vary from one industry to another.

Efficiency Ratio

No two companies operate the same way. Using efficiency ratios helps identify companies that
manage finances efficiently. The purpose of any company is to convert assets into sales. The
asset turnover ratio (net sales divided by average total assets), will indicate how much of a
company's assets have been sold. Other efficiency ratios include accounts receivable turnover,
cash turnover and days payable outstanding.
 No two companies operate the same way. Using efficiency ratios helps identify companies that
manage finances efficiently. The purpose of any company is to convert assets into sales. The
asset turnover ratio (net sales divided by average total assets), will indicate how much of a
company's assets have been sold. Other efficiency ratios include accounts receivable turnover,
cash turnover and days payable outstanding

2.2Statement of the Problem

Adaptation of the new technology may not be possible for everyone to adapt because many
people are concerned towards manual way of doing the activities.

Despite of prevailing economic recession, JVBs operating in Nepal to perform well in terms of
their work efficiency and profitability. However, they are also facing problems in generating an
adequate return on their investment and role of banking sector has been further increased for the
upliftment of the country’s economy from the present condition. They must attempt to find the
potential areas of profitable investments in order to get themselves and the nation away from the
economic turmoil. Several commercial banks have been established in Nepal within a short
period of time.

Following are the major problems areas that have been identified for the purpose of this research:

 What is the present condition in terms of liquidity, profitability?

 What more new changes could arise which will be beneficial to NBL?
2.3 Objective of the Study

The main objective of this study is aimed to evaluate the performance of the company by using
ratios as a yardstick to measure the efficiency of the company. It is also aimed to understand the
liquidity, profitability and efficiency positions of the company during the study period. This
study also objectives to evaluate and analyze various facts of the financial performance of the
company, and to make comparisons between these ratios during different periods. The basic
objectives of this study are as follows:

 To study the financial data’s of last 3 years of Kumari Bank ltd.

 To determine profitability ratio and liquidity ratio.
 To evaluate the financial performance of Kumari Bank Ltd.
 To analyze the capital structure of the company with the help of leverage ratio.
 To offer appropriate suggestions for the better performance of the organization.
Significance of the study

Regarding the economic structure of the company, the banks do not have sufficient investment
opportunity rapidly increasing financial intuition is creating threats of bank. This study attempts
to find out cause of failure and success of bank using the various statistical tools. This will create
awareness about utilization of the scare resource and help them the productivity of their fund and
market value of their investment. This study will be useful to the following stakeholders:

 to the investor i.e. Shareholders

 to the management of banks (Management Committee)
 to the policy maker (while formulating the policy regarding commercial banks)
This study is also significant to the researcher:

 To get the depth knowledge of banks

 To get valuable findings of research
2.4Research Methodology

Data Collection

The base of the study is primary and secondary data of Nepal Bank Limited. The measure
sources of data are the internal records collected from the office records. The primary data were
obtained from the different departments like MSD, CSD, Cash, and etc. Likewise the secondary
data have been obtained from different books, journals and with the help of Internet.

Research Design

This study has followed descriptive and exploratory research methodology and to fulfil the
objective of the study.

Sampling Design

Nowadays, a number of commercial banks are emerging rapidly. Some have established and
others are in the process of establishment. Here, all the commercial banks consist of study
population and Nepal Bank Limited have been randomly selected as the sample for the present
study. And only latest three years financial statements are analyzed.

Statistical Technique Used

 To evaluate the present condition and performance of a company, the financial analyst needs
certain Standard. The standard frequently used is a ratio or index relating two pieces of financial
data to each other. Analysis and interpretation of various ratios should give experienced and
skilled analyst a better understanding of the present condition and performance of the firm, than
they will obtain from analysis of the financial data alone.

Out of the various techniques, selection of a technique or combination of the techniques depends
on the purpose of analysis. Different techniques reveal different facts associated with the
business, so some or all the following major techniques can be used for the analysis depending
on the purpose and availability of the materials demanded by the techniques. Techniques used
such as profitability ratio and liquidity ratio.

2.5Limitations of the Study

 Estimation based on work order based on available data.

 The collected data was not 100% accurate.
 Lack of Time
 Due to reason of privacy of the organization, this study could not obtain some valuable
information
 This study has covered only the latest four fiscal year from 20067/68 to 2069/70
 The study was carried out at Biratnagar branch only as the ratio analysis has been done
considering all the branches of Nepal Bank Limited existing in Nepal including Head office by
using secondary source of data available in internet.

CHAPTER-3
DATA ANALYSIS AND PRESENTATION

3.1Analysis of Data

The basic objective of analyzing the financial performance & return to investor and
interpretation is to highlight the strength and weakness of the business. Therefore, this chapter
includes the analysis and result of gathered data with a view to assessing financial performance
of the bank for the period of three years. Consequently, this analysis help the management to
take benefits of strategic management technique by providing the information regarding the
 strength and weaknesses of the commercial banks, to exploit the opportunities lying in the
environment and management threat posed by the environment.

3.2 Presentation of Data

In this chapter, the data are presented, calculated and analyzed. The secondary data is used for
the purpose and the data represents the duration of three years (2068/69 to 2069/70). The details
of calculation are shown in the respective appendix.

The important and needed ratios, which are to be calculated for the purpose of this study as
mention in objective, are mentioned below:

 Liquidity Ratio
 Leverage Ratio
 Profitability Ratio
Presentation of Data

1. Liquidity Ratios:-
Liquidity ratios measure the firm's ability to fulfil its short term commitments out of current or
liquid assets. These ratios focus on current assets and liabilities and are used to ascertain the
short term slovenly position of a firm. The two primary tests of liquidity are current ratios and
quick ratio.

a. Current ratio:-

A current ratio is the quantitative relationship between assets and current liabilities. Here,
current assets are those, which can normally be converted into cash within an accountancy cycle.
These include cash, stock, debtor, and bank balance, prepaid expenses, merchantable securities,
etc. On the other hand, current liabilities refer to those obligations, which must be paid within an
accounting cycle. These include creditors, bank overdraft, bills payable, outstanding expenses,
etc. It is calculated as follows:-

Current Ratio=Current Assets÷ Current Liabilities

Current ratio is the quantitative test of a firm's liquidity. It does not consider the quality of
current assets. Therefore, the ratios equal to or greater than 2:1 may not be doing good due to
slow-paying debtor of less convertible inventory. But a poor ratio less than 2:1 may be
performing well if it has highly liquid stock and quality debtors.
Calculation of current ratio for NBL

Table no. 3

Year Current Current liabilities Current Ratio

Assets (CA) (CL) (CA/CL)

2068/69 11991877 10526301 1.1392

2069/70 14184211 14038055 1.0104

The current ratio in year 2068/69 is 1.1392:1 which has decreased to 1.0104:1 in year 2069/70.

b) Quick Ratio

Especially this ratio is useful to lenders. The ratio indicates how much cash is available to meet
current liabilities quickly. Short term marketable securities or trade investment of treasury bills
are considered as equivalent of cash. So they may be included in computation of quick ratio. It is
calculated as follows:
Quick Ratio = Cash + Treasury bill
Current liabilities

Calculation of cash/ Super Quick Ratio for NBL

Table No.4
Years Cash balance+ treasury Current liabilities Ratio
bills

2068/69 11991877 24137101 0.4968

2069/70 14184211 19307607 0.7346

Source: Annexure 1 and 2

The above result of ratio does not satisfy the standard ratio of 1:1 the current liabilities of NBL
has seen more than amount of current assets and Treasury Bills in every year. Theoretically the
result shows that the super fast assets are not enough to meet the obligation of current liabilities
in NBL.
 2.Profitability Ratio

Profitability is a measurement of efficiency and search for it provides an incentive to achieve

efficiency. It also indicates public acceptance of the product and shows that the firm can produce
completely. In this study mainly investment related profitability ratios are used to analyze
because of financial intuitions study i.e. KBL. The following major ratios have been computed
and analyzed:

I. Return on Assets (ROA)

II. Return on capital employed (ROCE)
III. Return on Shareholders capital (ROSE)
IV. Interest earned to total assets ratio (IETA)
V. Net Profit to total deposit ratio (NPTD)
VI. Earnings Per Share (EPS)
Calculation of return on assets:

I. Return on assets (ROA):-

ROA measures the profitability of the total investment of a firm. This ratio is calculated by the
following formula;
ROA = Net profit after tax (NPAT) × 100
Total assets
Calculation of return on total assets ratio
Table No. 5
Years Net Profit (NP) Total assets (TA) Ratio (NP/TA)%

2068/69 406727 57678943 0.7051

2069/70 791505 73782296 1.0727

Source: Annexure 1 and 2

Return on assets shows the percentage of profit earned in the assets employed by the business.
The ROA in year 2069/70 has increased as compared in the year 2068/69 i.e. 1.0727 which
means that the assets are significantly used.

i) Calculation of return on capital employed (ROCE):

ROCE indicates the firm's ability of generating profit per rupee of capital employed. In other
words it indicates how well the management has used the supplied by the creditors and owners.
Thus ratios are calculated by using the following formula:

ROCE = Net Profit after tax + interest × 100

Capital employed - intangible assets

Calculation of ROCE

Table No. 6

Years NPAT + Interest (a) Capital employed (b) ROCE (a/b)

2068/69 595956 24137101 0.0246

2069/70 1222518 19307607 0.0633

Source: Annexure 1 and 2

In the year 2068/69 was 0.0246 and it increased to 0.0633 in year 2069/70. The increment is the
result of greater efficiency is the utilization of fund.

c) Return on shareholders’ equity (ROSE):-

This ratio shows the profitability of the owner's investment. Thus is the most commonly used
ratio for measuring the return on owner's investment. In other words it reveals how profitability
the owner's fund have been utilized by the firm. It is calculated by the following formula:

ROSE = Net Profit after tax

Total shareholder equity

Calculation of ROSE for NBL

Table No. 6

Years Net profit after tax (a) Total shareholder equity (b) ROSE (a/b)

2068/69 406727 1772828 0.2294

2069/70 4716229 3716443 0.0639

In the year 2068/69 ROSE was 0.2294and it decreased to 0.2129 in year 20649/70. The
investment is the result of decrease in net profit and also decreased shareholder's equity.

d) Interest earned to total assets ratio:-

The main earning of a bank is the interest to its investment. So this test the relationship between
interests earned and total assets. The ratio is calculated as under:

Interest earned to total asset ratio = Interest earned

Total assets
Calculation of interest earned to total assets ratio

Table No. 8

Years Interest earned (a) Total assets (b) IETA (a/b)

2068/68 4050973 57678943 0.7023

2069/70 4716229 73782296 0.0639

In the year 2068/69 IETA was 0.7023 and it was decreased to 0.0639 in the year 2069/70.

b).Net Profit to total deposit ratio:-

This ratio shows the relationship between net profit and total deposit. It is calculated by using the
following formula:

Net Profit total deposit ratio = NPAT

Total deposit
Calculation of net profit to total deposit ratio:
Table No. 9
Years Net Profit (a) Total Deposit (b) Ratio(a/b)

2068/69 406727 2153794 0.18884

2069/70 791505 6298852 0.1256

Source: Annexure 1 and 2

f) Earnings per share (EPS)

EPS ratio measures the profit available to equity holders on a per share basis. It is calculated as
follows:

EPS = Net Profit available to equity shareholders

No. of ordinary shares outstanding
3.2. Leverage Ratio:-
Proprietary Ratio

The proprietary ratio, also known as net worth ratio or equity ratio, is used to evaluate the
soundness of the capital structure of a company. The proprietary ratio shows the contribution of
stockholders in total capital of the company. A high proprietary ratio, therefore, indicates a
strong financial position of the company and greater security for the creditors.

The proprietary ratio can given as,

Proprietary Ratio = stockholder’s Fund / Total Assets

Where,

Shareholder’s Equity = fixed Assets+ Current Assets - Long-term Debt- Current Liabilities.

Table No. 10

Years Stockholders’ Total Assets Proprietary Ratio

Equity

2068/69 1772828 11301166 0.1568

2069/70 3716443 4001333 .9288

Source: Annexure 1 and 2

This PR indicates the extent to which the assets of the company can be lost without affecting the
interest of the company. In the table, we can notice the increasing trend of proprietary ratio of
NBL.

CHAPTER-4
FINDINGS AND CONCLUSIONS
 Generally it is difficult to determine the actual position of liquidity and profitability of Nepal
Bank limited depending only on the result achieved by the ratio analysis. Ratio analysis does not
consider the quantitative factor of the statement. It is only the analysis tool of comparing the
numerical factors. Although all of these weakness of this technique, it has taken as a strong and
powerful tool.

1. The current ratio in year 2068/69 is 1.1392:1 which has decreased to 1.0104:1 in year 2069/70.
2. The above result of ratio does not satisfy the standard ratio of 1:1 the current liabilities of NBL
has seen more than amount of current assets and Treasury Bills in every year. Theoretically the
result shows that the super fast assets are not enough to meet the obligation of current liabilities
in NBL.
3. Return on assets shows the percentage of profit earned in the assets employed by the business.
The ROA in year 2069/70 has increased as compared in the year 2068/69 i.e. 1.0727 which
means that the assets are significantly used.
4. In the year 2068/69 was 0.0246 and it increased to 0.0633 in year 2069/70. The increment is the
result of greater efficiency is the utilization of fund.
5. In the year 2068/69 ROSE was 0.2294and it decreased to 0.2129 in year 20649/70. The
investment is the result of decrease in net profit and also decreased shareholder's equity.
6. In the year 2068/69 IETA was 0.7023 and it was decreased to 0.0639 in the year 2069/70.
7. This PR indicates the extent to which the assets of the company can be lost without affecting the
interest of the company. In the table, we can notice the increasing trend of proprietary ratio of
NBL.

CHAPTER-5
SUGGESTION AND CONCLUSION

Summary

This report attempts to examine and evaluate the financial performance of NBL. This project
work report is prepared in the format as required by the faculty of management entitle “RATIO
ANALYSIS OF NBL” .The financial statement of year ended 2067/68 and 2069/70 has been
taken into consideration for the purpose of this study which has been analyzed periodically.
 This report has been divided into five chapter – Introduction; Project Design and Study, Data
Analysis and Presentation, Findings & lastly Summary & Conclusion.

The first chapter contains the introductory part of the study. As already mentioned, this chapter
describes the major issues to be investigated along with the general background and objective of
the study.

The second chapter describes the research methodology employed in the study. It includes
research design, nature and sources of data, method of analysis, statistical and financial tools
used.

The third chapter presents the collected will be tabulated and analyzed by using various financial
tools, mathematical and statistical tools under data presentation and analysis

The fourth chapter describes about the data which were analyzed and interpreted in the chapter
three.

The fifth chapters present the brief summary of Whole research report and conclusions. It also
provides some useful suggestion and recommendation to concerned parties.

Conclusions

ROE in year 2068/69 is greater than 2069/70 so the condition of NBL. The bank's financial
performance according to financial data obtained seems to be pretty sound and successful. From
the current scenario, the role of bank in maintaining financial status is satisfactory.

SUGGESTIONS

Based on the financial analysis and the observation of study, following recommendation is
suggested to overcome the weakness and inefficiency and to improve the present financial
performance of NBL.

ROE has been decreased in the current year in comparison to the previous year. In order to
increase ROE, net profit should be increased. Net profit can be increased by:

 Increasing the service charge such as remittance charge, processing charge, bank charge &
interest on loan
 Minimize the expenses.
 Minimize the idle fund.
 LC facility should be given.
 Investment should be increased.
Likewise, PLR has been increased in the current year in comparison to the previous year. In
order to make it favourable there should be:

 Investment in effective portfolio.

 Proper utilization of fund.

at July 31, 2015

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