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INTRODUCTION
1. Introduction
1.1 Background of the study
Bank is a financial institution which is engaged in monetary transaction. It accepts deposit
and grant loan to needy person against securities. So, banks are said to be “financial
Supermarket”. It charges certain interest at some fixed interest rate per annum. Beside
this, a bank also involves on a number of agency services like remitting and collection
cash on behalf of its client opening bank drafts and LC activities and or writing shares of
newly established companies. Banks are those institution, which are established under
certain act to perform monetary and credit transactions.
According to Crowther: “The bankers business is to take the debts of other people
to offer his own in exchange and these create money”.
Therefore, summarizing the above, banks are those financial institution that offer
the widest range of financial services and accepts deposits with order or otherwise.
Although the above act defines the banking in broad sense, it does a lot more than these
works.
The term bank Originated from Latin word “Bancus” which refers to bench on
which the bankers would keep its money and his records. Some believes it has been origin
from French word “Banqee” and Italian word “Banca” which means a bench for keeping,
lending and exchanging of money or coins in the market place by money lender and
money changer.
The first bank called “Bank of Venice” was established in Venice, Italy 1157
A.D. is supposed to be the most ancient bank. Following its establishment, a lot of banks
in different parts of the world were established. After the evolution of “Bank of England”
in 1694 A.D. there came a remarkable change in process of establishing the banking
institution. It was established as a joint stock bank and later on it became first central
bank in the world. The idea of commercial banks rapidly spread all over the world only
after the foundation of bank.
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1.2 Meaning and definition of Commercial Bank
“A commercial bank is business organization that receives and holds deposits of funds
from others, makes loans or extends and transfer funds by written order of depositors”
“A commercial banker is a dealer in money and substitute for money such as cheques
or bill of exchange. It also provides a variety of financial services”
Commercial banks are those institutions which are established for purpose of
promoting the trade and business in the country by providing them the short term and
midterm loan. For the promotion of trade and business the commercial banks also
provides the information about the goods or product, technology, market and the
customers attitude towards the product which help the business by earning desired profit.
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2) Underwriting function: This includes the functions of selling shares and
debentures of a joint stock company to general public. It underwrites shares and
debenture of newly established company.
3) Receiving deposits: Receiving deposits from the public is the first function of any
commercial bank. For the benefit and convenience bank of deposits it has opened
different accounts like:
- Current Account
- Saving Account
- Fixed Account
4) Discounting of bills: Commercial bank discounts the bills and promissory notes of
business man so as to facilities them in their business.
There are more other services provided by commercial banks.
Nabil Bank Ltd is the 1st joint venture bank in Nepal, established in 1984 A.D. under the
company Act. Dubai Bank Ltd was the initial foreign joint venture partner with 50%
equity investment. The shares owned by DBL were transferred to Emirates Bank
International Ltd (EBIL), Dubai. Later on EBIL sold its entire holding to National Bank
Ltd, Bangladesh (NBLB). Nabil bank limited had the official name Nepal Arab Bank Ltd
till Dec31st 2001. Hence 50% equity shares of Nabil Bank Ltd are held by NBLB and out
of another 50%, financial institutions has taken 20% and remaining 30% were issued to
general public of Nepal. At present 19 branches are operated in different parts of the
country.
The Bank operations were highly satisfactory even in the prevailing hard times in the
country. NABIL announces with some pride that The Bankers’ Almanac, published in
Britain, in its July 2003 edition, rated NABIL Bank Limited as number one bank in
Nepal. Furthermore, the bank received the “National Excellence Award 2003” from the
Federation of Nepal’s Chambers of Commerce and Industry.
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1.5.1 Location of NABIL
It is already described that, NABIL is one of the joint venture commercial bank in Nepal.
At the time of establishment, it has got fewer branches throughout the valley. For the
reliable services to the general public, it has operated the many branches throughout the
valley as well as outside the valley.
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facility from other banks as well as facilitate efficient transfer. Further more it can be
transferred with in the country to the following cities in Nepal directly and provide
service of transferring funds to other cities like Nepal via its local correspondents cities
like Biratnagar, Pokhara, Birgunj, Bhaktapur, Hetauda, Bhairawa etc. outward remittance
can also be done as per the rules and regulation of central bank The remittance facility
from middle east. The bank has also launched lottery of Rs.25000 fixed deposit and with
in 2 week the lottery is opened. The lottery is of millionaire.
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1.6.2 Significance of financial analysis:
Significance of this analysis lies on the objectives of financial analysis of firm. The fact
discovered by the analysis are perceived different groups associated with the concern. The
facts and the relationships concerning managerial performance, corporate efficiency,
financial strength and weakness are interpreted on the basis of objectives in the hand. The
parties that are benefited from he results drawn from the analysis of financial
performance are:
1) Top management
2) Creditors
3) Shareholders
4) Labour union
5) Economist
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1.7 Objectives of study:
The main objective of study is to analyze and interpret the financial state and policy of
NABIL. The study focuses whether it is backward or forward in liquidity position and its
fund efficiency with respect to industry average. The prime objectives of the study are to
evaluate the financial performance of NABIL. The main objectives of NABIL are as
follows:
1) To evaluate liquidity, leverage, capital adequacy, turnover and profitability
position of NABIL.
2) To evaluate the growth ratios of cash and bank balance, loan and advances, net
worth.
3) To provide suitable and useful suggestion on finding of study.
4) To discuss fund mobilization and strategy of liquidity management of NABIL.
5) To find out the future trend of total deposit, investment, loans and advances, net
worth, etc.
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1.9.2 Nature and sources of Data:
This report is based in secondary sources obtain from the bank, library and internet.
Secondary sources used in this study are listed below:
1) Economic survey
2) Annual report published by bank,
3) Profit and loss account and balance sheet of NABIL for 4 years.
4) Books and magazines, internet, etc.
CHAPTER-2
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Since the report is based on the contribution of saving deposits in the banks total capital,
the way of presenting the data are of numerical form i.e. the mathematical numbers the
data are presented in the tabulation method.
Tabulation Method:
Generally, the tables are classified in two ways.
1. According to purpose:
a) Reference table: It is big and has large data and general in nature.
b) Summary table: It contains data, which may be useful for the study of
particular problem and specific in nature.
2. According to character:
a) Simple table: It provides information about only one characteristic of the
particular data.
b) Complex table: the data are classified with respect to two or more inter-
related characteristics.
Charts:
The chart is used to show the range of variation in the values.
Pie-chart: It divides the data into several parts into which it is broken
up form of circle. It is called pie-chart because it looks like slices of a
pie.
a) Current Ratio
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Similarly, current liabilities refers to obligations maturing
within a year such as bills payables, provision, dividend payables, outstanding
expenses, current deposits, call deposits, saving deposits and other short term
deposits, borrowing, bank overdraft, customer acceptance outstanding, etc .
Table-1
Current Ratio (In RS million)
Year Current Assets Current liabilities Ratio
2006/07 17359.42 18747.46 0.93
2007/08 14305.35 12254.88 1.73
2008/09 13123.51 12448.68 1.05
2009/10 13478.28 13290.40 1.01
Figure-1
1.01 0.93
2006/07
2007/08
2008/09
2009/10
1.05
1.73
10
2009/10 2001.18 21010.33 0.07
Figure-2
0.07 0.08
2006/07
2007/08
2008/09
2009/10
0.08 0.06
Table-3
Long-term Debt to Net worth Ratio (In RS. Million)
Years Long-term Debt Net worth Ratio
2006/07 6614.21 1198.27 5.52
2007/08 6954.08 1501.53 4.63
2008/09 6271.44 1905.88 3.29
2009/10 8719.93 2219.93 3.80
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Figure-3
3.8
5.52
2006/07
2007/08
2008/09
3.29 2009/10
4.63
Table-4
Net worth to Total Liabilities Ratio (In RS. Million)
Year Net worth Total Liabilities Ratio
2006/07 1198.27 19500.57 0.06
2007/08 1501.53 21315.85 0.07
2008/09 1905.88 24197.98 0.08
2009/10 2291.93 23437.86 0.10
Figure-4
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Net Worth to Total Liability Ratio
0.06
0.1
2006/07
2007/08
2008/09
0.07 2009/10
0.08
Figure-5
Capital Adequacy Ratio
0.07
0.1
2006/07
2007/08
2008/09
0.08 2009/10
0.09
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This ratio reflects how efficiently the company is managing its resources. Thus these
ratios measure the degree of effectiveness in use of resources or funds by a firm. Under
this ratio following ratio are calculated.
Figure-6
0.51
0.59
2006/07
2007/08
2008/09
2009/10
0.46
0.52
Credit and Investment to Total Deposit Ratio = Total loan and advance + Investment
Total Deposits Liabilities
Table-7
Credit and Investment to Total Deposits Ratio (In RS. Million)
Years Loan and Adv.+ Inv Deposits Liabilities Ratio
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2006/07 13098.51 17532.40 0.75
2007/08 18714.25 18619.38 0.01
2008/09 21020.03 21007.38 0.01
2009/10 22211.73 22010.33 1.00
Figure-7
2006/07
0.75
2007/08
1 2008/09
2009/10
0.01
0.01
Figure-8
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Interest expenses to Total expenses ratio
0.45
0.64
2006/07
2007/08
2008/09
2009/10
0.51
0.56
Figure-9
0.06 0.1
0.06
2006/07
2007/08
2008/09
2009/10
0.6
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Maximization of profit is the main objectives of each and every business concern. It
is very necessary to earn maximum profit for the successful running of a business
concern. According to Lord Keynes, profit is the engine that drives the business
enterprises. The profit is also important to preserve the existence of business as well as
strength and expand it. Following Ratios are calculated to measure the profitability of the
bank.
a) Return on Assets (ROA):
This ratio shows the return or profit generated out of total assets of firm. It is
calculated as:
Return on Assets = Net profit after taxes (NPAT)
Total Assets
Table-10
Return on Asset (In Rs Million)
Years NPAT Total Assets Ratio
2006/07 277.04 19500.57 0.014
2007/08 235.02 21315.83 0.011
2008/09 212.13 24197.38 0.009
2009/10 263.05 25729.79 0.010
Figure-10
Return on Assets
0.01
0.014
2006/07
2007/08
2008/09
2009/10
0.009
0.011
Table-11
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Return on Shareholder’s equity (In RS. Million)
Years NPAT Net Worth Ratio
2006/07 277.04 1198.27 0.23
2007/08 235.02 1501.53 0.16
2008/09 212.13 1905.88 0.11
200708 263.05 2291.93 0.12
Figure-11
0.12
0.23 2006/07
2007/08
0.11 2008/09
2009/10
0.16
Figure-12
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Net Interest earned to Total Assets ratio
0.05
0.07
2006/07
2007/08
2008/09
2009/10
0.05
0.05
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In overall, banks performance is found well in every spare. All the ratios are in well
condition that is because of well management of their Banking business. Besides, each
table can be explained as follows:
Financial analysis is an important and useful technique and useful to check upon the
efficiency of an organization. The management can arrive at important decisions by using
analysis. The financial analysis’s used for expressing the mutual relation of different
accounts consisting in the financial statement. With the help of financial analysis, the big
figures groups can be made short and simple. Out of the various methods of financial
statement analysis, ratio analysis is far and the most widely used method. However, ratio
analysis only is not enough to track down the financial performance of bank. There are
many ways to measure financial performance of a bank such as; cash flow analysis, funds
flow analysis, trend analysis, etc.
CHAPTER–3
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SUMMARY, CONCLUSION AND RECOMMENDATIONS
3.1. Summary
Nepal is being and under privileged country and more then 90% of people being
dependent upon agriculture, which sector is unable to provide full employment to all
people. HMG has to activate people in the nation’s development through overall
industrialization of nation. For which, development of banking system is necessary.
Modern commercial banks make the economy always alive and smart to run and maintain
day-to-day commercial, economical and banning transaction. In short, banking
transaction helps a country to develop its economy swiftly.If there were systematic and
scientific programs for economic development, countries like Nepal would have
developed its economy as much as those countries, which have development the whole
economy. In addition, the today’s circle of the underdevelopment might have perhaps
narrowed down.
At present, commercial banks including joint venture banks are operating in Nepal. Any
country cannot have a developed economy in the absence of modern banking system. As
any development, work needs, sufficient amount if capital and the lack of sufficient
capital is also one of the main reasons as to why Nepal has been backward in developing
this economy.
Therefore it is utterly important to find out whether or not the banks are serving and
import contribution to develop different sector of the economy. Fixed deposit occupies
major portion of banking income. It also pays a vital role upgrading the rational economy.
3.2. Conclusion
It can be concluded from the observation and analysis of above data that ratio analysis
controls the banks and shows the general financial strengths and weaknesses. Similarly, it
also shows the future opportunities and threats for the banks. Therefore it is very
important for the appropriate policy to adopt with calculated various ratios. A large capital
can be managed at very low capital cost. It will encourage industrial and commercial
activities eventually leading to better economic growth, socio-economic development,
employment opportunity etc.
In context of NABIL, it will be found more effective in the sector of banking since its
policies and the implementations are towards the great achievement that symbolisms its
need in the Nepalese economy. NABIL is going towards growth and hope it will
ultimately goes for development very soon if the political scenario and economic
condition walk proper as its result says.
3.3. Recommendation
Some suggestion and recommendation are being put forward for the improvement of
NABIL and Banking industry in Nepal.
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Now, the economic condition of the country is deteriorating, there is danger of
reduction of business and industrial activities. Therefore banks should not
focus only in collecting huge amount of deposit by increasing the interest rate.
It is common complain that customers entering the branch premises have
crave for employee attention. The remedy lies in creation of a friendly
behavior to all customers who come into the branch, whether valuable or not.
A smile on the face would not cost but would go along way in satisfying
customer’s expectation.
Considering the present economic condition of the country, the bank should
pay pivotal role for the economic development of the country. They should
promote balanced regional development by financing funds in remote and
other priority sectors.
The banks mobilized capital should be made available for investment in
productive enterprises whether the business is of small, medium of large sized.
Thus the bank should expand its credit to promote economic development
more rapidly.
Higher interest rate is a tool to attract customer to deposit their money. This
will eventually lead to the collection of funds. The cash deposited by the
customer are liquid position to help maintain adequate liquidity position of the
bank. It also offers more chance to invest or lend.
There is serious competition among joint venture banks, finance companies
and insurance companies being ruined or even strong companies going to
losses and liquidate. Therefore the bank should be service oriented. They
should train and motivate the staffs, get up-to date information about other
bank and try to grow their market.
The bank should concentrate in various investment policies, so that the
investment is done in wide range of profitable sectors in proportionate manner.
The bank should scrutinize with, are parties, bank are dealing with, are having
good reputation or not otherwise, the transaction, the truncation with bad
parties may lessen the value of bank.
The bank should publish annual report and distribute booklets containing
details information about its activities and performance as well.
The bank should follow the discipline and adopt directives of NRB. This helps
to maintain harmonious relationship between other banks as well.
The bank should launch various kinds of welfare programs for its staffs and
the society. Excellent staffs should be promoted in order to motivate them.
The bank should grab opportunities as soon possible, by adopting efficient and
latest market strategies. Traditional method should be left behind.
There should be certain fund for advertising. Advertising also helps to attract
depositors and borrowers.
NRB should invite commercial banks officials to participate in formulating
policies rules, regulation and directives.
Banks should bring attractive motivational programs to motivate their
employees effectively and efficiently.
NABIL should change its marketing concept. It should adopt new and modern
marketing concept. Now, it should go for the societal marketing concept for
the betterment of the society and itself.
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