FINANCIAL ANALYSIS OF

NABIL Bank Limited, Nepal Investment Bank Limited

& Himalayan Bank Limited

Submitted by :

Martha Ghale
Patan Multiple Campus
Faculty of Management
T.U. Registration No. : 7-2-256-172-2003
Campus Roll No. : 104/063
Exam Roll No. : 4328/065

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the degree of

Master in Business Studies (M.B.S)

Patan Dhoka ,Lalitpur

April,2013

1
 RECOMMENDATION

This is to certify that the thesis

Submitted by
Martha Ghale

Entitled

Financial Analysis of
NABIL Bank Limited, Nepal Investment Bank Limited &
Himalayan Bank Limited

has been prepared as approved by this campus in the prescribed format of Faculty
of Management. This thesis is forwarded for examination.

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

Arjun Prasad Shrestha Dinesh Man Malego Babu Ram Singh Thapa
(Thesis Supervisor) (M.B.S. Coordinator) (Assistant Campus Chief)

Date: .....................................

2
 Viva - Voce Sheet

We have conducted the viva-voce examination of the thesis of presented by

Martha Ghale

Entitled

Financial Analysis of
NABIL Bank Limited, Nepal Investment Bank Limited &
Himalayan Bank Limited

and found the thesis to be the original work of the student and written
according to the prescribed format of Faculty of Management,Tribhuvan
University . We recommend the thesis to be accepted as partial fulfillment of
the requirements for Master's Degree in Business Studies (M.B.S.)

Viva-Voce Committee

Chairperson, Research Committee ………………………………………

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

Member (External Expert) ……………………………………….

Date: .......................................................

3
 DECLARATION

I hereby declare that the work reported in this thesis entitled ‘Financial
Analysis of NABIL Bank Limited, Nepal Investment Bank Limited &
Himalayan 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 in Business
Studies (M.B.S) prepared under the supervision of Mr. Arjun Prasad Shrestha,
lecturer , Patan Multiple Campus.

...............................................

Martha Ghale
Patan Multiple Campus
Campus Roll No. : 104/063
Exam Roll No. : 4328/065
T.U. Registration No.: 7-2-256-172-2003

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 ACKNOWLEDGEMENTS

This thesis entitled “Financial Analysis of NABIL Bank Limited, Nepal

Investment Bank Limited & Himalayan Bank Limited” has been prepared
for partial fulfillment of the requirement for the degree of Master in Business
Studies (M.B.S).

I have pleasure in thanking my project supervisor Mr.Arjun Prasad Shrestha,

lecturer, Patan Campus for his constructive suggestions, techniques,
procedure of research and valuable suggestions that provide me the
necessary energy and confidence to make this thesis possible .The report in
this form is the result of his inspiring guidance and supervision. My thanks
are due to him. I must, of course, continue to offer my thanks to the staff of
‘Patan Multiple Campus’, Faculty of Management, M.B.S. section.

Last but not least, I would like to thank all my family members, friends and
related people who were directly and indirectly involved to assist me in the
entire preparation period .

Martha Ghale
Patan Multiple Campus
Patan Dhoka , Lalitpur
April, 2013

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 ABBREVIATIONS

ABBS : Any Branch Banking Service

CSR : Corporate Social Responsibility
C.V. : Co-efficient of Variations
CAPM : Capital Assets Pricing Model
DPS : Dividend per Share
EPS : Earning Per Share
F/Y : Fiscal year
FV : Future Value
Govt. : Government
HBL : Himalayan Bank Limited
HMG : His Majesty’s Government
IP : Interest Paid
JVBs : Joint Venture Bank
n : Number of Year
NABIL : Nepal Arab Bank Limited
NIBL : Nepal Investment Bank Limited
OI : Operating Income
P.Er. : Probable Error
PD : Preference Dividend
PV : Present Value
RRR : Realization Rate of Return
R&D : Research and Development
r : Rate of Interest
R2 : Co-efficient of Determinants
RBB : Rastriya Banjiya Bank
ROA : Return on Total Assets
S.D. : Standard Deviation
SML : Security Market Line
TDD : Total Distributed Dividend

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 TABLE OF CONTENTS
Recommendations
Viva-Voce Sheet
Declaration
Acknowledgement
Contents
List of Tables
List of Figures
Abbreviations

CHAPTER 1 INTRODUCTION Page

1.1 Background of the Study 1
1.2 Profile of Sample Banks 2
1.2.1 Nabil Bank Limited 2
1.2.2 Nepal Investment Bank Limited 4
1.2.3 Himalayan Bank Limited 6
1.3 Statement of the Problem 8
1.4 Objectives of the Study 9
1.5 Significance of the Study 10
1.6 Limitation of the Study 10
1.7 Organization of the study 11

CHAPTER 2 REVIEW OF LITERATURE

2.1 Conceptual Review of the Study 12
2.1.1 Concept of banking 12
2.1.2 Concept of commercial bank 14
2.1.3 Concept of Joint Venture Banks in Nepal 15
2.1.4 General concept of Financial Analysis 16
2.1.5 Objectives of Financial Analysis 18
2.1.6 Need of Financial Analysis 19
2.1.7 Limitations of Financial Analysis 19
2.1.8 Technique of Financial Analysis 21
2.1.9 Ratio Analysis 21

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2.2 Review of Related Studies 23
2.2.1 Review of Article 26
2.2.2 Review of the Past Thesis 27

CHAPTER 3 RESEARCH METHODOLOY

3.1 Research Design 32
3.2 Nature and Sources of Data 33
3.3 Population and Sampling Design 33
3.4 Data Collection Procedure 34
3.4.1 Financial Tools 34
3.4.2 Ratio Analysis 34
3.4.2.1 Liquidity Ratio 34
3.4.2.2 Activity Ratio 36
3.4.2.3 Profitability Ratio 39
3.4.2.4 Leverage Ratio 42
3.4.2.5 Capital Adequacy Ratio 43
3.4.2.6 Market Value Ratio /Growth Ratio 44
3.5 Statistical Tools 46
3.5.1 Limitation of the Methodology 50
3.5.2 Review of related studies 51

CHAPTER 4 PRESENTATION AND ANALYSIS OF DATA

4.1 Presentation and Analysis of Data 52
4.1.1 Ratio Analysis 52
4.1.1.1 Liquidity Ratios 53
4.1.1.1.1 Current Ratio53
4.1.1.1.2 Cash and Bank Balance to Total Deposit Ratio 54
4.1.1.1.3 Cash and Bank Balance to Current Assets Ratio 56
4.1.1.2 Activity Ratio / Assets Management Ratios 57
4.1.1.2.1 Loan and Advance to Total Deposit Ratio 57
4.1.1.2.2 Investment on Govt. Securities to Total Deposit Ratio 58
4.1.1.3 Profitability Ratios 59
4.1.1.3.1 Net Profit to Total Assets Ratio 59
4.1.1.3.2 Net Profit to Total Deposit Ratio 60

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4.1.1.3.3 Total Interest Earned to Total Working Fund Ratio 61
4.1.1.3.4 Total Interest Paid to Total Working Fund Ratio 62
4.1.1.4 Leverage Ratios 63
4.1.1.4.1 Debt-Asset Ratio 64
4.1.1.4.2 Debt-Equity Ratio 60

4.1.2 Statistical Analysis 66

4.1.2.1 Coefficient of Correlation Analysis 66
4.1.2.1.1 Coefficient of Correlation between Deposits 66
and Loans & Advances
4.1.2.1.2 Coefficient of Correlation between Deposits 67
and Investment
4.1.2.1.3 Coefficient of Correlation between Investment 68
and Net Profit
4.1.2.1.4 Coefficient of Correlation between Loans & 69
Advances and Net Profit

4.1.2.2 Trend Line Analysis 70

4.1.2.2.1 Trend Line Analysis of Total Deposit 71
4.1.2.2.2 Trend Line Analysis of Loans & Advances 72
4.1.2.2.3 Trend Line Analysis of Investment 73
4.1.2.2.4 Trend Line Analysis of Net Profit 74

4.2 Major Finding of the Study 75

4.2.1 Liquidity Ratio 75
4.2.2 Activity Ratio / Assets Management Ratio 76
4.2.3 Profitability Ratio 77
4.2.4 Leverage Ratio 78
4.2.5 Coefficient of Correlation Analysis 78
4.2.6 Trend Line Analysis 79

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CHAPTER 5 SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 81
5.2 Conclusions 82
5.3 Recommendations 85

Bibliography
Appendices

10
 LIST OF TABLE

Table no. Name of Table

Page
a. Share Subscription & Capital Structure of NIBL 5
b. Share Subscription & Capital Structure of HBL 7
1. Current Ratio 53
2. Cash and Bank balance to Total Deposit Ratio 55
3. Cash and Bank balance to Current Assest Ratio 56
4. Loan and Advance to Total Deposit Ratio 57
5. Investment on Govt. Securities to Total Deposit Ratio 58
6. Net Profit to Total Assets Ratio 60
7. Net Profit to Total Deposit Ratio 61
8. Total Interest Earned to Total Working Fund Ratio 62
9. Total Interest Paid to Total Working Fund Ratio 63
10. Debt-Asset Ratio 64
11. Debt-Equity Ratio 65
12. Coefficient of correlation between deposits and loans &advances
67
13. Coefficient of correlation Between Deposits and Investment 68
14. Coefficient of correlation between Investment & Net profit 69
15. Coefficient of correlation between Loan and
advances & Net profit 70
16. Trend Line Analysis of Total Deposit 71
17. Trend Line Analysis of Loan & Advances 72
18. Trend Line Analysis of Investment 73
19. Trend Line Analysis of Net Profit 74

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 LIST OF FIGURE

Figure no. Name of Table Page

1. Trend Line Analysis of Total Deposit 72

2. Trend Line Analysis of Loan & Advances 73
3. Trend Line Analysis of Investment 74
4. Trend Line Analysis of Net Profit 75

CHAPTER 1

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 INTRODUCTION

1.1 Background of the Study

The growth of banking sector in Nepal is not so long ago as compared with
other banks of the world. In comparison with other developing country the
institutional development in banking system is far behind. Nepal had to wait
for the period to enter the present banking position. The origin and growth of
bank in Nepal is controversial. At present there are altogether 30 commercial
banks operating in the country. Commercial banks are major financial
institution, which occupied quite important place in the framework of every
economy because they provide capital for the development of industry, and
business and other resources, deficit sector by investing the saving collected
as deposit. The role of commercial bank in economy is prime requisite in the
formulation of Bank Policy. The key factor in the development of country is the
mobilization of domestic resources and their investment for productive use to
the various sectors. Although commercial banks are truly inspired with the
objective of gaining profit, they provide welfare and facility to make available
loan to the agriculture, Industry and commerce and provide the banking
services to the public and the state. In the present situation, Nepal banking
system is evaluating itself as a powerful instrument of planning and economic
growth of all the developed and underdeveloped countries. The
encouragement by Nepalese government for joint venture operations made
possible for different joint venture commercial banks establishment. We know,
In Nepal, different joint Ventures Banks are established but we cannot say
which bank is best among them, without doing any financial analysis. With the
help of financial analysis, we know the firm’s strength and weaknesses.
Financial analysis is the process of determining the significant operation and
financial characteristics of a firm from accounting data. It shows the
relationship between the various components which can be found in balance
sheet and profit and loss statement. The analyze statement contain those
information which is useful for management, shareholder, creditors, investors,
depositors etc. It refers to an assessment of the viability, stability and
profitability of a business, sub-business or project. It is performed by

13
professionals who prepare reports using ratios that make use of information
taken from financial statements and other reports. These reports are usually
presented to top management as one of their bases in making business
decisions. It also refers to the assessment of a business to deal with the
planning, budgeting, monitoring, forecasting, and improving of all financial.
Another important aspect of analyzing a case study and writing a case study
analysis is the role and use of financial information. For financial performance
analysis ratio analysis is the most widely used technique. The systematic use
of the ratio interprets the financial statements so that the strengths and
weaknesses of the firm as well as its historical performance and current
financial condition can be determined.
As there has been number of commercial banks established, the present aims
are to analyze the financial performance of Nabil Bank Limited, Nepal
Investment Bank Limited (NIBL) and Himalayan Bank Ltd (HBL).

1.2 Profile of Sample Banks

1.2.1 Nabil Bank Limited (NBL)

NABIL Bank, previously known, as Nepal Arab Bank Limited, is Nepal’s first
private commercial bank and major joint venture Bank commenced operation
on July 12, 1984 A.D. under the technical service agreement approved by
Nepal Rastra Bank. Joint venture operation in Nepal was started by NABIL
Bank after Nepal encouraged foreign investment and joint venture operation
with Nepalese investors or in certain circumstances as fully owned subsidiary.
NABIL Bank has Head office in Kamaladi, Kathmandu. It has 43 branches,
including its head office, in Nepal.

The mission of Nabil bank is to be the “Bank of the 1st Choice”. The slogan of
NABIL Bank is “Your Bank at Your Service”. The value of NABIL Bank is
CRISP.
C = Customer Focus I = Innovation P = Professional
R = Result Oriented S = Synergistic
Its share capital distribution is as follows:
Authorized Capital (16,000,000 shares of Rs. 100) Rs. 1,600,000,000

14
Issued Capital (6,892,160 shares of Rs. 100) Rs. 689,216,000
Paid up Capital (6,892,160 shares of Rs. 100) Rs. 689,216,000

Today Nabil stands in a position to claim that it is the "Bank of 1st Choice" to
all its stakeholders. In the span of 26 years, it has already distributed Rs. 2.86
billion cash dividend and the wealth of the shareholders of the Bank grew to
Rs. 24.8 billion as at mid December 2009. Spectacular return on assets and
return on equity even during a turbulent and competitive time highlight the
inherent strength of the Bank.

The Bank provides a complete range of consumer, retail, SME and corporate
banking services through its offices spread across the country. Nabil is the
sole banker to a multitude of large corporate, international aid agencies,
NGOs and embassies. It is the largest private bank in the country in terms of
branch and ATM network. All its branches are interconnected on real time
basis. On the technological front, the Bank has earned a reputation in
providing an array of card products and Internet / Tele banking facilities
besides ATMs and Any Branch Banking Service.

The statement 'Your Bank at Your Service' that the Bank holds on firmly is a
resemblance that the Bank's stakeholders are at the core of everything it
does. As for the culture embraced by the entire Nabil team, a set of Values,
referred to as 'C.R.I.S.P.' in short, represents the fact that the bank
uninterruptedly strives to be Customer Focused, Result Oriented, Innovative,
Synergistic and Professional. By living these Values, individually as
professionals and collectively as a Team, Nabil Bank is committed to Surge
Ahead to continue to be the Bank of 1st Choice in Nepal.
The bank is providing customer-friendly services through its Branch Network.
All the branches of the bank are connected through Any Branch Banking
System (ABBS), which enables customers for operational transactions from
any branches. With an aim to help Nepalese citizens working abroad, the
bank has entered into arrangements with banks and finance companies in
different countries, which enable quick remittance of funds by the Nepalese

15
citizens in countries like UAE, Kuwait, Bahrain, Qatar, Saudi Arabia, Malaysia,
Singapore and U K. Bank has set up its representative offices at New Delhi
(India) to support Nepalese citizen remitting money and advising banking
related services.
Board of Directors of NABIL

Mr. Shambhu Prasad Represents Group 'C'

Poudyal Board Chairman shareholders
Mr. Represents Group 'C'
DayaramGopalAgrawal Board member shareholders
Mr. Krishna Prasad Represents Group 'B'
Acharya Board member shareholders
Represents Group 'A'
Mr. Nirvana Chaudhary Board member shareholders
Mr. Krishna Represents Group 'A'
BahadurManandhar Board member shareholders
Mr. Binaya Regmi Company Secretary

1.2.2 Nepal Investment Bank Limited (NIBL)

Nepal Investment Bank Limited (NIBL), previously Nepal Indosuez Bank Ltd.,
was established in 1980 as a joint venture between Nepalese and French
partners which was the second private commercial bank of Nepal. The French
partners (holding 50 % of the capital of NIBL) were Credit Agricole Indosuez,
a subsidiary of one of the largest banking group in the world. NIBL has Head
office in Durbar Marg, Kathmandu and has 30 branches in Nepal. NIBL, which
is managed by a group of experienced bankers and professionals having
proven track record, are offering customers what they are looking for.

The mission of Nepal Investment bank is to be the leading Nepali Bank,

delivering world class service through the blending of state of the art
technology and visionary management in partnership with competent and
committed staff, to achieve sound financial health with sustainable value
addition to all our stakeholders. The main focus of NIBL is to become most

16
preferred provision of financial services. It is operating with a motto: “Truly a
Nepali Bank”.

Nepal Investment Bank at present has fourty branches namely Durbar Marg
Kathmandu(Headoffice),SeepadoleBranch,BirgungBranch,PulchowkBranch,B
anepa Branch, Jeetpur Branch, Newroad Branch, BiratnagarBranch,Butwal
Branch, BhairahawaBranch,Pokhara Branch, PutalisadakBranch,Narayangarh
Branch, Janakpur Branch, Nepalgunj Branch, Thamel Branch, Kalimati
Branch, Birtanod Branch, Battisputali Branch, Dhangadi Branch, Gongabu
Branch, SurkhetBranch,Jumla Branch, Boudha Branch , Hetauda Branch,
PalpaBranch,LuklaBranch,DhumbarahiBranch,NayaBaneshworBranch,Bhota
hitiBranch,TulsipurBranch,TripureshworBranch,DamauliBranch,Krishnanagar
Branch,Gaighat Branch, LazimpatBranch,ParsaBranch,Maharajgung
Branch&Lalbandhi Branch .

Its share capital distribution is as follows:

Authorized Capital (10000000 shares @ Rs 100) Rs 1,000,000,000

Issued Capital (8,013,526 shares@ Rs 100) Rs 801,352,600
Paid up Capital (8,013,526 shares @ Rs 100) Rs 801,352,600

Table no. a
Share subscription and Capital Structure of NIBL
Subscription % Holding
A group of companies 50
RastriyaBanijya Bank 15
RastriyaBeemaSansthan 15
The general public
20
Total 100

Strategic Objectives

17
  To develop a customer oriented services culture with special emphasis
on customer care and convenience.
 To increase market share by following a disciplined growth strategy.
 To leverage our technology platform and open scalable systems to
achieves cost effective operations efficient MIS, improved delivery
capability and high services standards.
 To develop innovate products and services that attract our targeted
customers and market segments.
 To continue to develop products and services that reduces our cost of
funds.
 To maintain a high quality asset portfolio to achieve strong and
sustainable returns and to continuously build shareholder’s value.
 To explore new avenues for growth and profitability.

Board of Directors of NIBL

Mr.Prithivi B Pande Chairman and Chief Executive Director

Mr.PrajanyaRajbhandari Director
Mr.Deepak Man Sherchan Director
Mr.SurendraBahadur Singh Director
Mr.MohanMadanBudhathoki Director
Mr.JanardanDev Pant Director
Mr.OmkarNidhiTiwari Director

1.2.3 Himalayan BankLimited (HBL)

Himalayan Bank was established in 1993 in joint venture with Habib Bank
Limited of Pakistan. Despite the cut-throat competition in the Nepalese
Banking sector, Himalayan Bank has been able to maintain a lead in the
primary banking activities- Loans and Deposits. It is the first commercial bank
of Nepal with maximum shareholding by the Nepalese private sector. Besides
commercial activities, the Bank also offers industrial and merchant banking.

18
Himalayan Bank at present has total of thirty-three branch scattered all over
the Nepal. The bank is also operating a counter in the premise of the Royal
Palace. The Bank has a very aggressive plan of establishing more branches
in different parts of the Kingdom in near future. The bank is also operating a
counter in the premise of the Royal Palace. The Bank has a very aggressive
plan of establishing more branches in different parts of the Kingdom in near
future.

Its share capital distribution is as follows:

Authorized Capital (20,000,000 shares @ Rs 100) Rs 2000,000,000

Issued Capital (10,135,125 shares@ Rs 100) Rs 1,013,512,500
Paid up Capital (10,135,125 shares @ Rs 100) Rs 1,013,512,500

Table no. b
Share subscription and Capital Structure of HBL
Subscription % Holding
Promoter Share Holder 51
Habib Bank Ltd, Pakistan 20
Financial Institution(Employees Provident 14
Fund)
15
Nepalese Public Share holder
Total 100

Himalayan Bank's policy is to extend quality and personalized service to its

customers as promptly as possible. All customers are treated with utmost
courtesy as valued clients. The Bank, as far as possible, offers tailor made
facilities to its clients, based on the unique needs and requirements. To
extend more efficient services to its customers, Himalayan Bank has been
adopting innovative and latest banking technology. This has not only helped
the Bank to constantly improve its service level but has also kept it prepared
for future adaptation of new technology.
Himalayan Bank is committed to be a "BANKING WITH A DIFFER
Board of Directors of Himalayan Bank Limited

19
Mr. Manoj B. Shrestha Chairman
Mr. Ashraf M. Wathra First Vice Chairman
Mr. PremP.Khetan Second Vice Chairman
Mr. Prachanda B. Shrestha Director
Mr. Bijaya B. Shrestha Director
Mr. Ramesh K. Bhattarai Director
Mr. Amar S. Rana Director
Mr. UpendraKeshariPoudyal Professional Director
Mr. Himalayan S.Rana Chief Advisor to the Board
Mrs. RanjanaShrestha Alternate Director
Mr. SurendraSilwal Alternate Director
Ms. MenukaShrestha Alternate Director
Mr. SushilBikramThapa Alternate Director
Mr. RajendraKafle Alternate Director
Mr. BipinHada Alternate Director

1.3 Statement of the Problem

As we know Nepal is developing country and its economy is much more
depends on the agriculture. Most of the industries are based on the agriculture
which provide employment opportunities and assist in improving national
economy. Poverty and unemployment has been a major problem in the
country. Therefore, public enterprises are established but most of the public
enterprises are not able to run in profit. Even though the government has
given the subsidy to run public enterprises, but still they are not able to
contribute to society at desirable rate.

This research will highlight the problems relating with banking sector with
respect to three sample commercial banks. They are Nabil Bank Limited,
Nepal Investment Bank Limited and Himalayan Bank Limited. The sample
banks which are choosing for the studies have achieved success in terms of
market share and profitability. However it cannot always predict that these
banks will continue to maintain profitability and stability of earning. Thus the

20
management of bank should evaluate financial performance of the banks to
prepare the sound financial policies.

Ratio analysis is powerful tools for evaluating the financial analysis. It is also a
process of determining and interpreting numerical relationship with the help of
financial statement. Management use effective strategies through financial
tools and analysis for achieving optimal goal. Financial analysis satisfies the
interest of common stock holders, equity investors, creditor and management
of the banks.

Although all sample banks are able to earn profit and dividend to
shareholders, they are facing throat cut competition between them or with
other commercial banks. Therefore some question of problem arises in these
sample banks, which are as follows:
a) What is the liquidity, profitability, leverage, efficiency of capital
adequacy position of NBL, NIBL & HBL ?
b) what is the comparative financial position of these three banks?
c) What is the trend of financial performance of three banks?
d) What is the relationship between financial performance of three
commercial banks ?

1.4 Objectives of the Study

The general objectives of this study are to analysis, examine and interpret the
financial position of NBL, NIBL and HBL with the help of different ratios. The
specific objective of the study will be pointed out as follows:

 To analyze the liquidity, profitability, leverage, efficiency of capital

adequacy position of NBL, NIBL&HBL.
 To examine the comparative financial position of these three banks.
 To point out the trend of financial performance of three banks.
 To assess the relationship between financial performance of three
commercial banks.
1.5 Significance of the Study

21
In banking world, Nepal is still in its infant stage although the numbers of
financial institution have been increasing. Many commercial banks, finance
and insurance companies have opened up within a few years. The
competition in the financial sector in banking industry is ever increasing.
However, there have been few commercial banks creating to banking need of
the country. The success and failure of such financial institutions would be
responsible for disparity of the economy.

Financial analysis play vital role in the management decision. Every

organization has to analyze its financial performance. In this way this study is
very useable and valuable to major parties interested in the reference to the
policy making bodies. This study is important for the following groups and
individuals.

 Further researcher
 University students who are new generation
 Financial managers
 Government
 NGO’s and INGO’s
 Shareholders and creditors
 Stockbrokers

1.6 Limitations of the Study

This study is simply for partial fulfillment for the requirement of Master in
Business Studies (MBS). The research will deal with the comparative financial
analysis among three sample banks but due to the rime constraints, financial
constraints and other, the study is bound within the limited area.
This study will be limited by following factors:

a) The study concerns only a periods of 5 years i.e. from 2007/08 to

2011/12 .
b) The study deals with only three banks but it may not be applicable to
other banks.

22
 c) The study is mainly based on the published secondary data. Therefore
the conclusion is concern with only above period.
d) Time and budget limitation.

e) This study has been conducted to fulfill the requirement of the MBS

programs T.U. for a prescribed time not for the generalization purpose.

1.7 Organization of the Study

The study has been divided into five sequential chapters and at the end
bibliography and appendices have been maintained. Chapter one covers
background of the study, introduction of NABIL, NIBL and HBL, statement of
the problem, Focus of the study, Objectives of the study, Significance of the
study and limitations of the study. Second chapter includes the theoretical
analysis and brief review to related literature available. It includes a
discussion of the conceptual framework and review of the major studies. The
third chapter is concern with research question, research design, sources of
data, population and sampling, data collection procedures and data analysis
procedures. In data analysis there are two parts. One is financial analysis
where different ratio analysis concern with financial performance is study.
Another is statistical analysis where different statistical tools like trend line
analysis, correlation analysis and simple regression analysis are mention. The
fourth chapter deals with presentation and analysis of data through definite
course of research methodology. The main working of this chapter is to
analyze different financial ratios related to the financial performance and fund
mobilization of three banks. Also different part of ratio analysis like liquidity
ratio, profitability ratio, assets management ratio and growth ratio are
analyzed. Statistical analysis and interpretations of data through the help of
the trend analysis, correlation analysis between different variable terms like
total deposit, investment, net profit and loan & advances, study analyzed.
Finally, the fifth chapter consists the summary of whole chapter and different
results found in data analysis and recommendations to bank for national
development. It also provides suggestions for further improvement. Beside
these, bibliography and appendices are also included.

23
 CHAPTER 2
REVIEW OF LITERATURE

A literature review is a body of text that aims to review the critical points of
current knowledge including substantive findings as well as theoretical and
methodological contributions to a particular topic. Literature reviews are
secondary sources, and as such, do not report any new or original
experimental work. Review of literature broadly means reviewing research
studies or other relevant proposition in the related area of the study so that
the past studies, their conclusion and deficiencies may be known and further
research can be conducted. This chapter will help to check the chances of
duplication in the present study. Thus the gap and the deviation between the
previous research and current research can fill out. A literature review usually
precedes a research proposal and results section. Its ultimate goal is to bring
the reader up to date with current literature on a topic and forms the basis for
another goal, such as future research that may be needed in the area

2.1 Conceptual Review of the Study

2.1.1 Concept of Banking

Banking from investors prospective has been defined as engaging in the
business of keeping money for savings and checking accounts or for
exchange or for issuing loans and credit, etc. However, from finance
perspective, it is defined as 'the management of money and credit & banking
and investments. From rights of offset perspective, Investor word sees
banking as the legal right of a bank of seize deposited fund to cover a loan
that is in default. Banking is generally a highly regulated industry, and
government restrictions on financial activities by banks have varied over time
and location. The current set of global bank capital standards is called Basel
II. In some countries such as Germany, banks have historically owned major
stakes in industrial corporations while in other countries such as the United
States banks are prohibited from owning non-financial companies. In Japan,

24
banks are usually the nexus of a cross-shareholding entity known as the
keiretsu. In Iceland banks had very light regulation prior to collapse.
Bank is the financial institution, which plays a significant role in the
development of the country. It is also considered as the backbone of the
development of the national economy which facilitates the growth of trade and
industry and other sectors of the n economy. However, bank is the resource
for economic development, which maintains the self-confidence of various
segments of society and extends credit to the people. In common sense, an
institution that is involved in monetary transaction is called as Bank. An
establishment for the custody, loan, exchange, or issue, of money, and for
facilitating the transmission of funds by drafts or bills of exchange an institution
incorporated for performing one or more of such functions, or the stockholders
(or their representatives, the directors), acting in their corporate capacity is
also known as the bank . On the other hand we can also define the bank as
an organization, usually a corporation, chartered by a state or federal
government , which does most or all of the following: receives demand
deposits and time deposits, honors instruments drawn on them, and pays
interest on them; discounts notes , makes loans, and invests in securities;
collects checks, drafts, and notes; certifies depositor's checks; and issues
drafts and cashier's checks.

The bank plays an important role in financial markets and offer services such
as investment funds and loans. It is a business organization that receives and
holds deposits of funds from others makes loans or extends credits and
transfers funds by written orders of depositors. So, among the various
function to provide loan to the investors in the major function- through the
loan, there will be increased in the environment of the investment and the
bank has the major role in creating such an environment. Bankers play very
important role in the economic life of the nation. The health of the economy is
closely related to the soundness of its banking system. Although banks create
no new wealth but their borrowing, lending and related activities facilitate the
process of production, distribution, exchange and consumption of wealth. In
this way they become very effective partners in the process of economic

25
development. Today modern banks are very useful for the utilization of the
resources of the country. The banks are mobilizing the savings of the people
for the investment purposes. If there would be no banks then a great portion
of a capital of the country would remain idle. A bank as a matter of fact is just
like a heart in the economic structure and the Capital provided by it is like
blood in it.

A bank is a financial institution, which can play a significant role in the

upliftment of the economic situation of the developing country like Nepal.
Bank plays a vital role to encourage thrift and discourage hoarding by
mobilizing the resources and removing the habit of hoarding. They pursue
economic growth rapidly, developing the banking habit among the people by
collecting the small scattered resources by one bulk, using them in the further
productive purposes, and rendering other valuable service to the country.
Thus, this gives the individual an opportunity to borrow funds against future
income, which may improve the economic well-being of the borrower. A bank
deal with the offer of collected deposited and provides the loan for commercial
purpose.

2.1.2 Concept of Commercial Bank

As per Commercial Bank Act 2031 B.S, “A commercial Bank means the bank
which deals in exchanging currency, accepting deposits, giving loans and
doing commercial transactions.” A commercial bank is a financial intermediary
which collects credit from lenders in the form of deposits and lends in the form
of loans. A commercial bank holds deposits for individuals and businesses in
the form of checking and savings accounts and certificates of deposit of
varying maturities while a commercial bank issues loans in the form of
personal and business loans as well as mortgages. The term commercial
bank came about as a way to distinguish it from an "investment bank." The
primary difference between a commercial bank and its counterpart is that a
commercial bank earns revenue by issuing primary loans from its pool of
deposits while an investment bank brings debt and equity offerings to market
for a fee. Among its assets, including loans, a commercial bank holds a

26
portfolio of other securities to generate proprietary income. Commercial bank
is one, which exchange money deposits money, accept deposits grants loans
and performs commercial banking functions and which is not a bank meant for
co-operation, agriculture and industries or for such specific purpose.

The American Institute of the Banking has down the four major functions of
Commercial Bank such as receiving and handling deposits, handling
payments for its clients making loan and investments and creating money by
extension of credit.
Commercial banks are the important type of financial institution for the nation
in terms of the aggregate assets. The business of banking is very broad in
modern business age. The number and variety of services provided by
commercial bank will probably expand. Recent innovation in banking includes
the introduction of credit cards, accounting services for business firms,
factoring, leasing participation in the Eurodollar market and lock-box banking.
The major functions of the commercial banks are explained in brief below:
a. Creating Money
b. Payment Mechanism
c. Pooling of the Nation is Saving
d. Extension of credit
e. Facilities for the financing of foreign Trade
f. Trust Service
g. Safekeeping of Valuables

2.1.3 Concept of Joint Venture Banks in Nepal

An agreement between two or more parties to invest in a specific single
business or property to achieve a single objective is known as the Joint
Venture. The first joint venture bank in Nepal is Nabil Bank Ltd. (Nepal Arab
bank Ltd.). It was established on July 12, 1984 (2041B.S.) under the technical
services agreement with Dubai Bank Limited. Joint Venture Bank in Nepal is
in better position than local commercial banks in terms of profit make and
service providing. These banks plays vital role in attracting foreign investment
by familiarizing the foreign investors.

27
HMG adopted liberalization Policy and started allowing the setting of Joint
Venture Banks in F.Y.1984/1985. Government, through these policies allowed
private sectors both domestic and foreign to enter in the banking business in
order to bring healthy competition among banks and increase foreign
investment in Nepal. As the result of the first joint venture bank Nepal Arab
Bank Ltd. Was established in 2041 B.S.It’s joint venture partner was Emirates
Bank International Ltd., Deirm, Dubai.
Government decided to establish banks with joint ventures, two benefits were
expected which are as follows:

 The competition would force domestic banks: Nabil Bank Ltd. &
Rastriya Banizya Bank to improve their services and efficiencies.
 The introduction of new banking procedures, methods and
technology would occur.

The existence of foreign joint venture banks has presented an environment of

healthy competition among the existing commercial banks. The main
beneficiary of this is the bank’s client. The increased competition among the
banks leads to increment in the quality and services to the bank.

2.1.4 General Concept of Financial Analysis

Research into data relating to the stability and profitability of businesses,
especially to guide one's investing practices is broadly called as the Financial
Analysis. At its most basic, financial analysis involves looking at financial
statements to determine if a company is healthy. Balance sheets are
important to financial analysis as they provide a ready-made means of
investigating performance. However, it is important to note that quantitative
financial analysis has limits: the accounting methods a particular business
employs, for example, may make it look more or less healthy than it really is.
Profit is one of the indicators of sound performance, which indicates the result
of sound business management. “Profit earned by the firm is the main
financial performance indicators of the business enterprise”. So, every
business organization is established with view of earning profit. Bank is also

28
established with the objectives of maximizing the profit. Profit is necessary of
long term existing of business. An Investor always invests in that area where
profit is maximum. Financial statement is the indicator of business
performance that whether business is profitable or not.

Financial statement analysis is helpful to the decision maker for finding out
favorable or unfavorable situation of a business concern. Financial statement
analysis is important not only for the firm’s managers but also for the firm’s
investors and creditors. Internally, financial managers use the information
provided by financial analysis to help make financing and investments
decisions to maximize the firm’s value. Externally, stockholders and creditors
use financial statement analysis to evaluate the attractive of the firm as an
investment by examining its ability to meet its current and expected financial
obligations. Financial analysis reflects the financial position of a firm, which is
the process of determining the operational and financial characteristics of a
firm. Financial analysis also includes consideration of the strategies and
economic development. Financial analysis is the main indicator of success or
failure of the company. The main function of financial analysis is the
pinpointing of the strengths and weakness of a business undertaking by
regrouping and analysis of figures contained in financial statements, by
making comparison of various components and by examining their content.
This can be used by financial managers as the basis to plan future financial
requirement by means of forecasting and budgeting procedures.

According to the Weston, Besley and Brigham E.F (1996) have stated,”
Financial statement analysis involves a comparison of analysis firm’s
performance with that of other firms in the same line of business which often
is identified by the firm’s industry classification. Generally speaking, the
analysis is used to determine the firm’s financial position in order to identify its
current strength and weakness and to suggest actions that might enable the
firm to take advantage of the strength and correct its weakness.

29
2.1.5 Objectives of Financial Analysis
Financial analysis enables us to explore various facts related to the past
performance of business and predict about the potential for achieving
expected results. Major objective of analysis of financial statement is to
assess various factors in relation to the business firm.
a. To make comparative study regarding to one form with another firm.

b. To analysis the present and future earning capacity or profitability of

the concern.

c. To find out the operational efficiency of the concern as a whole and of

its various parts or department.

d. To find short term and long term solvency of the concern.

e. To evaluate possibility of developments in the future making, future

forecasts and preparing budgets.

f. To analysis financial stability of business concerns the real meaning

and significance of financial data.

g. To find long term liquidity of its fund.

On the other hand we can summarize the objective of the Financial Statement
Analysis as:

 Equity Investment

Here look at risk vs. return, take into account inflation, recessions,
etc

 Credit Extension

Look at financial statements to determine the short term cash

generating ability.

 Corporate bond Investment

Here look at the long-run viability of the firm - based on financial
statements and the economic factors.

 Supplier/Customer health
Use financial statements to assess the health of key suppliers or
customers to whom you extend credit.

30
  Competitor analysis
Analyze financial statements to determine market share, pricing,
product mix, etc.

2.1.6 Need of Financial Analysis

Financial statement analysis is used to identify the trends and relationships
between financial statement items. Both internal management and external
users (such as analysts, creditors, and investors) of the financial statements
need to evaluate a company's profitability, liquidity, and solvency. The most
common methods used for financial statement analysis are trend analysis,
common-size statements, and ratio analysis. These methods include
calculations and comparisons of the results to historical company data,
competitors, or industry averages to determine the relative strength and
performance of the company being analyzed.
The need for the analysis of financial statement arises in order to address the
following question:

a. How was the firm doing in past? Was there any problem? If so in what

areas?

b. How it is doing at present? Is it doing better compared to the past

performance, competitors and industry average? Is there any problem

at present? If so, in what areas?

c. What about the future? Is there any likely problem on the way in the

future? What will its position be in the future?

d. What are the expected results of recommendations? Are there

improvements?

2.1.7 Limitations of Financial Analysis

Financial Analysis is of great significance for investor, creditors, management,
economist and other parties having interest in business. It helps
managements to evaluate its efficiency in past performance and take

31
decisions relating to the future. However, it is not free from drawbacks. Its
limitations are listed as:
a. Historical nature:
The basic nature of financial analysis is historical. Past can never be a precise
and infallible index of the future and can never be perfectly helpful for the
future forecast and planning.
b. No substitute for judgment:
Analysis of financial analysis is a tool to be used by expert analyst to evaluate
the financial performance of a firm. That’s why it may lead to faulty conclusion
if used by unskilled analyst.

c. Reliability of figures:
Reliability of analysis depends on reliability of the figures of the financial
statements under inspection. The entire working of analysis will be vitiated by
manipulation in the income statement, window dressing in the balance sheet,
questionable procedures adopted by the accountant for the valuation of fixed
assets and such other facts.

d. Result may have different interpretation:

Different users may differently interpret the result derived from the analysis.
For example, a high current ratio may suit the banker but it may be the index
of insufficiency of the management due to under- utilization of fund.

e. Change in accounting methods

Analysis will be effective if the figures derived from the financial statements
are comparable. Due to change in accounting methods, the figures of current
period may have no comparable base and then the whole exercise of analysis
will useless.

f. Selection of appropriate tool

There are different tool of analysis available to the analysis. The tools to be
used in a particular situation depend on skill, training, intelligence and
expertise of the analyst. If wrong tools used, it may give misleading results

32
and may lead to wrong conclusion, which may be harmful to the interest of
business.

2.1.8 Technique of Financial Analysis

The Fundamental of the analytical technique is to simply or reduce the data
under review to the understandable terms. There are various tools and
technique of financial statement analysis, each of which is used according to
purpose for which the analysis is carried out. The widely technique used is as
follows:
 Ratio Analysis
 Statement of changes in financial position
 Cash flow statement
Among them ratio analysis is used by most companies. Therefore in this
study we will discuss only about ratio analysis.

2.1.9 Ratio analysis

Ratio analysis is one of the important and mostly used financial analysis tools.
Ratio analysis is analysis of numerical relationship between financial factors
of financial statements Ratios express a logical relationship between financial
elements. It is computed by dividing one element/item/variable by another.
Financial ratio analysis is designed to determine the relative strengths and
weakness of business operations. It also provides framework for financial
planning and control. Financial managers need the information provided by
analysis both to evaluate the firm’s past performance and to map future plans.
Ratio analysis is widely used but no one ratio gives exact picture.

A ratio is an expression of the quantitative relationship between two numbers.

[Wixon, Kell and Bedford,1970]

Ratio analysis is a powerful tool of financial analysis, which helps in identifying

strength and weakness of business concerns. It is a important way to state
meaningful relationships between components of financial statements. The

33
primary purpose of ratio is to point out area for further investigation. Ratio
analysis has been a major tools used in the interpretation and evaluation of
financial statements since late 1800.

Ratio analysis involves basic understands of comparison to a useful

interpretation of the financial statements. A single ratio by itself does not
indicate favorable or unfavorable condition of a firm unless it is compared to
some appropriate standard. Selection of a proper standard of comparison is a
most important element of the ratio analysis. Ratio analysis provides guides
specially in spotting trends toward better or poor performance and in finding
out significant deviation from any average or relatively applicable standard.

Ratio analysis is widely used but no one ratio gives exact picture. In other
hand ratio by them is not conclusion, as they are only means and not and
end. Ratio analysis is in conceivable that accounting into ratio.

A single ratio itself does not indicate favorable or unfavorable condition. It

should be compared with some standard. As
 Time serious analysis
 Cross- sectional analysis
 Industry analysis
 Perform analysis

Among the large number of financial ratio existing they have been categorized
into following groups:

 Liquidity Ratio
 Current Ratio
 Cash and Bank Balance to Total Deposit Ratio
 Cash and Bank Balance to Current Assets Ratio

34
  Activity Ratio
 Loan and Advances to Total Deposit Ratio
 Loan and Advances to Fixed Deposit Ratio
 Loan and Advances to Total Working Fund Ratio
 Investment on Government Securities to Total Working Fund
Ratio
 Investment on Government Securities to Total Working Fund
Ratio

 Profitability Ratio
 Net Profit to Total Assets Ratio
 Net Profit to Total Deposit Ratio
 Net Profit to Net Worth Ratio
 Total Interest Earned to Total Working Fund Ratio
 Total Interest Paid to Total Working Fund Ratio

 Leverage Ratio
 Debt-Asset Ratio
 Debt-Equity Ratio

 Capital Adequacy Ratio

 Shareholders Fund to Total Deposit Ratio
 Shareholders Fund to Total Assets Ratio

2.2 Review of Related Studies

The review of journal and books are necessary for analyzing deeply on the
related subject matter. The bank are such types of institution, which deal in
money and substitute for money. They deal with credit and credit instruments.
Good circulation of credit is very much important for the Bank. Unsteady and
unevenly flow of credit with ad-hoc decisions harm the economy and the bank
as well. Thus, to collect fund and utilize it in a good investment, is not a joke

35
for such organization. An investment of the fund may be the question of life
and death for the bank.

In the words of Gitman&Joehnk (1990), Investment is any vehicle into which

fund can be placed with the expectation that will preserve or increase in value
and generate positive returns.”

Shrestha,(2047) in the journal entitled, “Commercial Bank’s Comparative

Performance Evaluation”, which was published in ‘Karmachari Sanchay Kosh
Publicaiton’ , is review as follows:

The journal stresses on a proper risk management with appropriate

classification of loans under performing and non performing category.
Researcher further clarify that adequate provisioning is the surest way to get
relief from sinking loan after careful consideration of portfolio risk. A clear out
criteria is necessary to treat interest suspense account and it is advisable that
all interest unpaid for more than six month need to be treated as unearned
income. Regarding risk management of banks Dr. Shrestha’s other
suggestion are as follows:

 Any customer having overdue loan of two years or more in his account
should not be given other loan facilities.
 Strong provisioning or reservation is required in restructuring portfolio
relating to overdue loans.
 All credits including overdrafts should be given a maturity date and
should be subjected to revision at that date and consequently
categorize as good, substandard or doubtful loans.
 Financial credit worthiness of the borrower must be evaluated properly
before granting the loans.

Shrestha’s suggestions are focused towards proper risk management.

Whatsoever , aspects of the bank the above journals target, they all have to

36
be combinable assessed and kept in strict consideration for effective and
efficient financial performance of the banks in the Nepalese economy.

Fama’s study (1965), on the random walk model was one of the best
definitive and comprehensive every study conducted. He observed the daily
proportionate crises of 30 individual stocks of the Dow Jones industrial
average index (DJIAI) for the period 1957-1962. He employed the statistical
tools such as serial correlation and runs test to draw inference to about
depend of the price series. He calculated auto – correlation, coefficient for
daily changes in log prices for lag from 1-30 and found that the coefficient
where most close to zero in overall. The correlation coefficient for daily
changes in average was +0.03, which is near to 0. But on the daily price
changes, 11 out of 30 stocks had correlation coefficient more than twice their
computed standard errors. The coefficient ranged from smallest 0.06 to
largest 0.123. However, Fama concluded, “Dependence as such a small order
of magnitude is, from a particle point of view, probably unimproved for both
the statistician and the investor.” Fama also concluded serial correlation for
lag from 1 to 10 for no- overlapping differencing intervals of four, nine and
sixteen days to examine the possibility if price change across longer interval
shows dependence. All the results are again not significantly different from 0.

Chandler (1973) says in this regard, “A banker seeks optimum combination

of earning, liquidity and safety, while formulating investing policy.”

Emphasizing the importance of investment policy, H.D. Cross puts in this

way, “Lending is the essence of Commercial banking, and consequently the
formulation and implementation of sound policies are among the most
important responsibilities of bank directors and management.

Reilly defines investment in this words, “An investment may be defined as

the current commitment of funds for a period of time to derive a future flow of
funds that will compensate the investing unit for the time funds are committed,

37
for the expected rate of inflation and also for the uncertainty involved in the
future flow of the funds.”

2.2.1 Review of Article

In this section, effort has been made to examine and review of some related
articles in different economic journals, magazines, newspapers and other
related books.

Thapa,(2010) in his article, “Finance & the Money” published in “The

Himalayan Times” concluded that during difficult financial times, it is important
to create a sense of security when it comes to our financial health. This
means attempting to put away a "Cushion of Cash" in case times get rough.
One way to do this is to pay yourself first. When you pay yourself first, you
take money off the top of whatever your earnings and make yourself a "bill"
that needs to be paid.

Wales, in his article, “Financial Analysis: Technical Analysis Alerts”

(http://www.articlesbase.com/leadership-articles) before focus that starting on
the financial analysis, there are things that must be prepared beforehand. This
is a checklist of the factors that need to be identified specifically for this task:

 What is the precise nature and range of the issue that needs analysis?
Will this have a relative significance in the overall context of the
business?
 What specific trends, relationships and variables can help the analysis
of this issue?
 Is there any possible way to derive to an estimate of the probable
result?
 How reliable and exact are the available data? How can this data have
an immediate effect on the range of results of the analysis?

38
The above are only a few of the things that need clarification before
conducting an analysis. There is still some immediate information that can
have a direct and indirect effect on the stature of the business.

But as always, a financial analysis is being conducted in order to assess the

outflow of the business. More so, the analysis can also increase the business'
productivity and help identify waste. As such, there are really a number of
business owners who conduct this analysis at the end of their fiscal year. Yet,
there are some business owners who conduct the analysis several times
throughout the year. This is so they can achieve the optimum performance
evaluation of their business.

2.2.2 Review of Related Thesis

Prior to this thesis, the students have concluded several works .They have
prepared various aspects of commercial banks such as lending policy,
financial performance, investment policy, interest rate structure, resources
mobilization and capital structure have been conducted several thesis works.
Some of them are supposed to be relevant for the studies which are present
below:

Kishi ,(1996) in his article ,”The changing face of the banking sector and the
HMG/N recent budgetary policy” concludes that following an introduction of
the reform in the banking sectors as an integrate part of the liberal economic
policy, more banks and finance companies have come up as a welcome
measure of competition. Slowly and steadily, the two governments controlled
banks.

Poudel(2005) gives more emphasis on financial performance of financial

companies in his article “An Overview Financial Companies of Nepal”. He had
written that at the time 1996, the ratio of capital funds to deposits has been
increasing over the time but on top of this , it is substantially below than the
authorize level of deposit mobilization, which is ten times of the capital base.
Never the less, some of the finance companies have even mobilized the
deposits by more than ten times of their capital base by violating the

39
regulatory norms issued by NRB. The credit/ deposit ratio has remained quite
high leaving the room for doubt about the quantity of loan especially in the
absence of repayment schedule. The loan diversification has been improved
however, during a short span of time. As such, the hire purchase housing and
term loans are the major sectors, which all together received more than 95%
of the total loan and advances in mid July 1996. Because of the mushrooming
growth of the number of finance companies, the average sources of funds for
each company are natural to decline. Since the varying factor, it is too early to
evaluate the performance of financial companies in Nepal but equally
important factor is that the regulatory and supervisory authority should keep
close eyes to monitor their activities.

Maharjan(2008), on his thesis entitled, “Financial performance of commercial

banks in Nepal: A Comparative Study of Nepal Bank Ltd. and Nabil Bank Ltd”.
The result of analysis of activity ratio shows that Nabil is efficiently utilizing its
outsider funds by extending loans & advances and investment to generate
profit, whereas NBL cannot utilize totally its outsider fund but holding the fund.
It shows NBL is discouraging the investment of its resources. Nabil is utilizing
its assets on generating satisfactory profit but NBL cannot generate
satisfactory profit because of not utilizing its assets on loan & advances and
investment. While analyzing of valuation ratio of this two banks, it is
concluded that the NABIL has higher ratio than NBL. So, the market judges
Nabil bank’s performance and prospect is better than those banks.

Maharjan(2008), on her thesis entitled,” A Comparative Study of The

Financial Performance of Everest Bank Ltd.(NBL) & Himalayan Bank
Ltd.(HBL)”. It was found that the performance of HBL seems to be better than
NBL with respect total investment to total deposit ratio. Both banks are highly
leveraged. PE ratio of NBL was found to be raising trend which increase the
confidence of investors towards the bank. It is concluded that NBL is more
successful to earn high profit through the efficient utilization of its owned
capital. Securities to total deposit and cash and bank balance to total deposit

40
ratio of NBL as higher in composition to HBL. The overall financial
performance of NBL is slightly better than the comparison of HBL.

Shakya(2008), on her thesis entitled,” A Comparative Study of The Financial

Performance of all Commercial Banks (with reference to Nabil Bank Limited,
Nepal Investment Bank Limited and Himalayan Bank Limited)”.NBL has
lowest mean ratio which mean it may invest the more fund in the productive
sector. NBL has a highest liquidity ratio among sample banks. The loan and
advances to total deposit ratio of all banks found to be at satisfactory level
and maintain the good consistency in ratio, however NIBL has a highest mean
ratio which it shows that NIBL‘s liquidity position with respect to this ratio is
more satisfactory than other sample banks. Among sample banks NBL is
successful in mobilizing the deposit in invest on government securities, since
it has a higher mean ratio. But NIBL has a lower mean ratio; they are less
successful to utilize the deposit in investment on government securities in
compare with sample banks. Similarly, HBL is also successful in mobilizing
the deposit in investment on Government securities. We can conclude that
NBL has loans and advances appeared satisfactory. Trend of deposit
collection showed that the bank was in a higher risk with respect to saving
deposit as against the fixed deposit.

Poudel (2009) in the article, “Present Condition of Financial companies” has

presented with compared to the commercial bank, the interest rate is relatively
high that is provided and accepted by finance companies. The financial
companies should not be confined only in the valley. They should extend their
services to the rural sectors of Hill and Terai to reduce regional imbalance.
The collection of deposit and loan investment done by the commercial banks
also, to sustain themselves in the environment of competitions, they should
introduce novel technology and equipment’s to collect deposits and
investments .They should learn from the drawbacks, failure and success of
commercial banks to effectively maintain as alternative status.

41
Shakya (2009),on her thesis entitled, “A Comparative Study on the Financial
Performance of Nepal Investment Bank Ltd (NIBL) &Laxmi Bank Ltd. (LXBL)”
evaluates the financial performance of the selected banks. On the basis of the
comparative analysis of the data of LXBL and NIBL, the study has focused on
liquidity ratio, leverage or capital structure, Capital Adequacy, Management of
assets, Profitability and other ratios. According to their analysis, I found that
among the various profitability ratios, return on net worth ratio, return on
capital employed ratio, return on total assets, return on total deposit ratio and
interest earning to total assets ratio of NIBL are greater than that of LXBL.
Liquidity position of LXBL and NIBL are lower, they are still able to meet their
current obligation. According to capital Adequacy Ratio, NIBL’s position is
better than that of LXBL.

Thapa (2009), on her thesis entitles, “A Comparative analysis of financial

performance of Standard Chartered Bank and Himalayan Bank Ltd.” In this
analysis, the study reveals that the current ratio of HBL is greater than 1 and
SCBNL current ratio is less than 1, which should be considered satisfactory
for HBL but not satisfactory for SCBNL. The liquidity position of HBL is better
than SCBNL. The cash and bank balance of HBL with respect to deposit is
greater than SCBNL this puts, HBL in a better position with respect to meeting
customer requirement than SCBNL. The cash and bank balance of HBL with
respect to current assets is higher than SCBNL. This shows greater capacity
of HBL to meet its customer’s cash requirement but that doesn’t mean SCBNL
cannot meet its daily customer cash requirement. Both the banks have
successfully managed their assets.

From the review of various books, articles, journals and thesis, this study is
different from previous studies. In this study, researcher has taken three
banks for financial analysis. They are NBL, NIBL&HBL. This study will be
fruitful to those interested person, researchers, students, teacher,
businessmen and government for academically as well as policy perspectives.

42
Dangol (2010), in his thesis entitled, “A Comparative Analysis of Investment
Portfolio Management of Bank of Kathmandu (BOK) and NABIL Bank
Limited”, focus has been made to the different investment portfolio of the
concern banks. It seems that Bok has successfully utilized its deposit money
but NABIL has gradually decreasing its deposit money in total investment.
One of the vital reasons might be the terrible political circumstances going in
the country. Due to this reason NABIL might have made such decision. On
considering the ROTA values, the NABIL Bank is in better situation than BOK
because of higher and uniform values. Whereas, the BOK has satisfactory
values which indicates that there is consistent increase in ROTA throughout
the review period. This means BOK and NABIL are efficiently utilizing their
deposit resources.

2.3 Conclusion of the Review

All the sample bank are not strong in overall performance. Despite of cut
throat competition commercial banks have managed to sustain themselves.
Some are strong in liquidity and some are strong in profit making. Analysis of
liquidity position of these commercial banks shows different position.

Banks are the backbone of economic development. Banks have to prove that
they are the potential contributors to the national economy ensuring adequate
rate of return on investment, efficient and viable agencies for mobilization of
savings and its channels into productive sectors and strategically well planned
to be competitive with competitors and other agencies and are trust worthy.

43
 CHAPTER 3
RESEARCH METHODOLOGY

Research methodology is the process of arriving at the solution of the

problem through planned and systematic dealing with the collection, analysis
and interpretation of facts and figures. Research is a systematic method of
finding right solutions for the problem whereas research methodology refers
to the various sequential steps to adopt by a researcher in studying a problem
with certain objectives in view. In other words research methodology refers to
the various methods of practices applied by the researcher in the entire
aspects of the study.

The basic objective of the study is to compare the financial performance of

Nabil Bank Limited; Nepal Investment Bank Limited & Himalayan Bank
Limited The study will be successful in finding out the position of these
sampled banks. The study will be able to make some useful and meaningful
recommendation to the concern banks as well as to the others who find it
reliable.

In order to accomplish this study, both the primary and secondary data will be
used. The data will be analyzed by using various financial and statistical tools
useful to study. For this purpose the financial data of the last five years from
the fiscal year 2007/08 to 2011/12 have been examined to their financial
performance study. For this purpose, the following research methods have
been adopted:

3.1 Research Design

The study is mainly based on two types of research design i.e. descriptive
and analytical. Descriptive research design describes the general pattern of
the Nepalese investors, business structure, problem of portfolio management,
etc. The analytical research design makes analysis of the gathered facts and
information and makes a critical evaluation of it. "A research design is the
arrangement of condition for collection and analysis of data in a manner that

44
aims to combine relevance to the research purpose with economy in
procedure." Some statistical and accounting tools will be applied to evaluate
financial performance of the three Banks.

3.2 Natures and Sources of Data

Mainly, the study is conducted on the basis of the secondary data. The data
relating to investment, deposit, loan and advances and profit are directly
obtained from the balance sheet and profit and loss account of the concerned
bank’s annual reports published in their respective annual general meetings
and website www.nrb.org.np and relevant bank's website. In addition to that
some of the relevant data will also collect from the non bank financial statistics
published by the non bank regulation department of Nepal Rastra Bank.
All the secondary data are compiled, processed and tabulated in the time
series as per the need and objectives. Formal and informal talks with the
concerned authorities of the bank were also helpful to obtain the additional
information of the related problem.
Likewise, various data and information are collected from the economic
journals, periodicals, bulletins, magazines and other published and
unpublished reports and documents from various sources.

3.3 Population and Sampling Design

There are many commercial and joint venture banks are operating in the
country and their stocks are traded actively in stock market. The number is
increasing by day. So, among them as a sample three major banks has been
taken in consideration as it is not possible to study all the data related with all
bank of Nepal. Due to the limitation of time and unavailable of the relevant
data has forced to take research on the few commercial banks. So the
financial analysis of listed three banks is being compared with that average of
the same, which are selected from population. From the above listed
commercial banks are considered as population.
The selected samples are as follows:
a) Nabil Bank Limited (NABIL)
b) Nepal Investment Bank Limited (NIBL)

45
 c) Himalayan Bank Limited (HBL)

3.4 Data Analysis Procedure

In this study, various accounting, statistical and financial tools have been used
to achieve the objective of the study. The analysis of data is done according
to pattern of data available. With the available tools and resources statistical
tools such as Karl Pearson's coefficient of correlation, simple and multiple
regressions analysis as well as corresponding hypothesis etc. is use in the
study. Similarly some strong accounting and financial tools such as ratio
analysis and trend line analysis are also apply in this study.
The various calculated results obtained through financial and statistical tools
are tabulated under different headings. Then they are compared with each
other to interpret the results.

3.4.1 Financial Tools

There are various financial tools and technique each of which is used
according to their purpose carried out. Among them ratio analysis is used by
most companies.
Therefore in this study we discuss about ratio analysis.

3.4.2 Ratio Analysis

Financial ratio is the mathematical relation between two accounting figures.
Ratio analysis is the part of the whole process of analysis of financial
statements of any business or industrial concern especially to take output and
credit decisions. It is the powerful tool of financial analysis, which helps in
identifying financial strengths and weakness of business concerns, compare a
firm’s financial performance and status. The qualitative judgment regarding
financial performance of a firm can be done with the help of ratio analysis.

3.4.2.1 Liquidity Ratios

Liquidity ratios are used to judge the ability of banks to meet its short-term
liabilities that are likely to mature in the short period. From them, much insight
can be obtained into present cash solvency of the bank and its ability to

46
remain solvent in the event of adversities. It is measurement of speed with
which a bank’s assets can be converted into cash to meet deposit withdrawal
and other current obligations.

i. Current Ratio
The current ratio is the ratio of total current assets to total current liabilities. It
shows the relationship between current assets and current liabilities, which is
presented as follows:
Total Current Assets
Current Ratio =
Total Current Liabilities
Where,
Current assets include cash and bank balance within analysis accounting
period such as cash bank balance, investment in Treasury bill, money at call
or placement, loans, receivable and prepaid expenses etc.
Current Liabilities refers to the short- term maturing obligations. This includes
all deposit liabilities, intra bank reconciliations account, bills payable, tax
provision, staff bonus, dividend payable overdrafts, provisions and accrued
expenses.

ii. Cash and Bank Balance to Total Deposit Ratio

Cash and bank balance are the most liquid current assets. This ratio
measures the percentage of liquid fund with the bank to make immediate
payment to the depositors. This ratio is computed by dividing cash and bank
balances by total deposit. This can be presented as follows:
Cash and Bank Balance to Total Deposit Ratio = Cash and Bank Balance

Total Deposit

Where,
Total deposits consist of deposits on current account, saving account, fixed
account, money at call and other deposits.

47
iii. Cash and Bank Balance to Current Assets Ratio
This ratio shows the percentage of liquid assets i.e. cash and bank balance
among the current assets of the firm. Higher ratio shows the higher capacity
of firms to meet the cash demand. The formula is as follows:

Cash and Bank Balance to Current Assets Ratio Cash and Bank Balance
=
Current Assets
Hence, cash and banks balance includes cash in hand, foreign cash and
foreign banks.

iv. Investment on Government Securities to Current Assets Ratio

This ratio is used to find the percentage of the current assets invested on
government securities, treasury bills and development bonds. This ratio can
be calculated dividing the amount of investment on government securities by
the total amount of current assets and can be stated as follows:

Investment of Government Securities to = Investment on government securities

Current Assets Ratio Current Assets

v. Loan and Advances to current Assets Ratio

Banks measured earning source is loan. Loan are also taken as currents
assets as most of them are maturing within the period of one year and
represents short term disbursement .A bank should not allocate all funds in
loan and advance so, it must maintain in an appropriate level. In other to
calculate the proportion of loan and advance to total current assets, the ratio
is obtained by dividing loan and advance by current assets.
Loan and Advance to Current assets ratio= Total loan & Advance
Current Asset

3.4.2.2 Assets Management Ratios (Activity Ratios)

Assets management ratio is used to measure how effectively the firm utilized
the investments and the economic resources at its command. Investments are

48
made in order to produce profitable sales. Achieving profitable sales,
therefore involves making sound investments. At the practical level, this
involves comparisons between the sales and the investment in various assets
accounts. The methodology postulates an optimal relationship between sales
and the various types of asset investment.

The following financial ratios related to investment policy are calculated under
asset management ratio and interpretations are made by these calculations.

i. Loan and Advances to Total Deposit Ratio

This ratio is calculated to find out how successfully the selected banks and
finance companies are utilizing their total collections/deposits on loan and
advances for the purpose of earning profit. It can be calculated by dividing the
amount of loans and advances by the amount of total deposits, which is given
below:

Loan and Advances to Total Deposit Ratio = Loan and Advances

Total Deposit
Where,
Loan and advances refers to total of loan, advances and overdraft and total
deposits refer to total of all kinds of deposits.

ii. Loan and Advances to Fixed Deposit Ratio

This ratio indicates how many times the amount is used in loans and
advances in comparison to fixed deposits. Fixed deposits are the main
sources of deposit of bank and are high interest bearing obligation whereas
loans and advances are the major sources of investment to generate income
for the commercial banks. This ratio is calculated by dividing the amount of
loans and advances by fixed deposits that is given below:
Loan and Advances
Loan and Advances to Fixed Deposit Ratio=
Fixed Deposit

49
iii. Loan and Advances to Total Working Fund Ratio
Loan and advances is the major components in the total working fund, which
indicates the ability of banks are successful in mobilizing their loan and
advances on the working fund ratio for the purpose of the income generation.
This ratio is computed by dividing loans and advances by total working fund
.This are stated as below:
Loan and Advances
Loan and Advances to Total Working Fund Ratio=
Total Working Fund

Here Total working fund includes all assets of on balance sheet items. In
other words, this includes current assets, net fixed assets, loans for
development bonds and other investment in share, debenture and other etc. A
high ratio indicates a better mobilization of fund as loan and advances and
vice - versa.

iv. Investment on Government Securities to Total Deposit Ratio

Investment is one of the major forms of credit created to earn income. This
implies the utilization of firm’s deposit on investment in government securities
and share, debenture of the other companies and banks. This ratio measure
the extent to which the bank are successful in mobilizing total investment on
the total deposits, the amount of deposits should be soundly investment in the
bank has to put only provide interest on its deposits but also has to declared a
handsome dividend to its owners and share holders. This ratio can be
calculated by dividing total investment by total deposit. This ratio is mention
as below:

Investment on Government Investment on Government Securities

Securities to Total Deposit Ratio =
Total Deposit

Investment consists of investment of government securities, investment on

debenture and bonds, share in subsidiary companies, share in other

50
companies and other investment. A high ratio that the bank’s efficiency is
more investing on its deposit and low indicates in ability to put its deposits for
the lending activities.

v. Investment on Government Securities to Total Working Fund Ratio

Investment on government securities to working fund ratio shows how much
part of investment is there on government securities in percentage. It can be
obtained by;

Investment on Govt. Securities Investment on Government Securities

to Total Working Fund Ratio =
Total Working Fund

vi. Investment on Shares and debentures to Total Working Fund Ratio

Investment on Shares and debentures to total working fund ratio shows the
investment of banks and finance companies on the shares and debentures of
obtained dividing on shares and debentures by total working fund. It can be
obtained by;

Investment on Shares and debentures Investment on share &debenture

to Total Working Fund Ratio =
Total Working Fund

3.4.2.3 Profitability Ratios

Profit is the different between total revenue and total expenses over a period
of time. Profit is the ultimate out put of a commercial bank and it will have no
future if it fails to make sufficient profits. Therefore, the financial manager
continuously evaluates the efficiency of the banks in terms of profits.
Profitability shows the overall efficiency of the business concerns. The relation
of the return of the firm to either its sales or equity of its assets is known as
profitability ratio. Profit is necessary to survive in any business field for its
successful operation and further expansion. It measures management’s
overall effectiveness as shown by the return generated on sales and
investment. Higher the profitability ratio, better the financial performance of

51
the banks and vice- versa. Profitability ratio can be calculated by following
different ratio:

i. Net Profit to Total Assets

Net profit refers the profit after interest and taxes. It is also known as return on
total assets (ROA). This ratio evaluates the efficiency of company in utilizing
and mobilizing of assets and its survival. It is useful for measurement of the
profitability of all financial resources invested in the bank assets. It also
provides the foundation necessary for company to deliver a good return on
equity. Higher return on assets (ROA) indicates higher efficiency in utilization
of total assets and vice- versa. ROA is calculated by dividing the amount of
net profit by the total assets.

Net Profit
Net Profit to Total Assets Ratio =
Total Assets

ii. Net Profit to Total Deposit Ratio

Net profit to total deposit ratio evaluated whether management has been
capable to mobilizes and utilize the deposit. It also helps to known the overall
performance and generation of profit of Bank. This ratio is most important to
identify whether the organization well efficient or not in mobilizing its total
deposits. So that corrective action could be taken. Higher ratio indicates better
utilization of deposit and vice- versa. Here net profit is profit after taxes and
total deposit means total amount of deposit in various account i.e. saving,
current, fixed and other .The return on total deposit ratio can be computed by
dividing net profit by total deposit. This can be express as follows:
Net Profit
Net Profit to Total Deposit Ratio =
Total Deposit

iii. Net Profit to Net worth Ratio

Net worth or shareholders equity refers to the owners claim on the assets of
the bank. It can be found by deducting total liabilities from total assets

52
(excluding intangible assets and accumulated losses.) This ratio measures
the profit earned by the commercial banks by utilizing owner’s equity and
there by generating return to satisfy the owners. This ratio indicates sound
management and efficiency and wealth maximization of the banks, which in
turn is the wealth maximization of the banks. It is calculated by dividing net
profit by net worth, which is express as follows.
Net Profit
Net Profit to Net Worth Ratio =
Net Worth

iv. Total Interest Earned to Total Working Fund Ratio

The ratio shows the earning capacity of a bank on its total assets (working
fund). This ratio exhibits the extent on which banks are successful in
mobilizing their working funds to generate income as much as possible. The
higher ratio will indicate the high earning power of the banks on its total
assets. Total interest earned is calculated by adding the total income from
loans, advances, cash, credit, overdrafts and government securities etc. This
ratio is calculated by dividing net profit by total working fund.

Total Interest Earned to Total Interest Earned

Total Working Fund Ratio =
Total Working Fund

v. Total Interest Paid to Total Working Fund Ratio

The ratio is used to measure the percentage of total interest expenses against
the total assets. Higher the ratio, higher will be the indication of interest
expenses on total assets and vice- versa. Total interest expenses consists the
expenses on the deposits, loan and advances, borrowing and other deposits.
The ratio is calculated as follows.

Total Interest Paid To Total Interest Paid

Total Working Fund Ratio =
Total Working Fund

53
3.4.2.4 Leverage Ratios
Leverage ratios have a number of implications. First, creditors look at equity,
or owner supplied funds, as a cushion or base for the use of debt. If owners
provide only a small proportion of total financing, the risk of the enterprise are
borne mainly by the creditors. Second, by raising funds through debt the
owners gain the benefits of achieving control of the firm with a limited
commitment. Third, the use of debt with a fixed interest rate magnifies both
the gains and losses to the owners. Fourth, the uses of debt with a fixed
interest cost and with a specified maturity increase the risk that the firm may
both be able to meet its obligations.

In practice, leverage is approached in two ways. One approach examines

balance sheet ratios and determines the extent to which borrowed funds have
been used to finance the firm. The other approach measures the risks of debt
by income statement ratios designed to determine the number of times fixed
charges are covered by operating profits. These sets of ratios are
complementary, and most analysts examine both.

This ratio is also called solvency ratio or capital structure ratio. A firm should
have strong short- term as well as long -term financial position. To judge the
term financial position of the firm, these ratios helps to measures the financial
contribution of owners and creditors comparatively. These ratios indicate the
situation of the capital structure, which is calculated to measure the
company’s ability of using debt for benefit of shareholders. Long- term
creditors like debenture holders, financial institutions etc. are more interested
to the firm’s long term financial health, debt serving capacity and strength and
weakness of the concerns. This ratio may be calculated from the balance
sheet items to determine the proportion of debt in total financing. In summary
debt ratio tell us the relative proportions of capital of contribution by creditors
and by owners.

i. Debt Assets Ratio

This ratio exhibits the relationships between creditors fund and owners
capital. This ratio shows the proportion of outside fund used in financial total

54
assets. It also provides security / financial safety to the outsider’s i.e. potential
shareholders, depositor or investors. Higher debt ratio indicates higher
financial risk as well as increasing claims of outsiders in total assets and lower
ratio indicates lower financial risk as well as decreasing claims of outsiders
over the total assets of the firm. Generally 1:2 ratios are considered good but
however no hard and fast rule is prescribed. This implies a finance company
success in exploiting debt to more profitable areas. This ratio is represents as
follows:

Total Debt
Debt Assets Ratio =
Total Assets

ii. Debt Equity Ratio

Debt equity ratio examines the relative claims of creditors and owners against
the firm assets. Alternatively, the debt equity ratio indicates the combinations
of debt capital and equity capital fund to the investment .The ratio is computed
by using following formula:
Total Debt
Debt Equity Ratio =
Total Equity

3.4.2.5 Capital Adequacy Ratios

The capital adequacy ratio is used to measure the strength of the capital
adequacy of the available capital .It is measured by the capital (Paid up
capital + free reserves) to the total assets explain the strength of the capital
base of commercial banks. A high or low capital adequacy ratio is
undesirable items of lower return or lowered solvency respectively. Therefore
appropriate capital adequacy is needed but it is a controversial matter.
According to NRB’s prescription bank has to keep capital adequacy ratio.
NRB’s standard of capital adequacy ratio is changing over the time period.
The capital adequacy is measured by analyzing following ratio:

55
i. Shareholder’s Fund to Total Deposit Ratio
Shareholder’s fund to total deposit ratio shows how well bank are maintain
sufficient amount as shareholder’s fund is comparison to the amount of the
total deposit. This ratio is calculated by shareholder’s fund divided by total
deposit, which is presented as follows:
Shareholder’s Fund
Shareholder’s Fund to Total Deposit Ratio =
Total Deposit

ii. Shareholder’s Fund to Total Assets Ratio

This ratio is concerned with the sufficiency of shareholders fund against the
total assets. It is very essential for every financial institution to have a balance
of required percentage of total assets at shareholders fund, i.e. capital fund.
Generally this ratio measures the relative claims of owners of the bank over
its assets. .A high ratio indicates that out of total assets shareholders have
more controlled, owner command and vice -versa. This ratio is calculated by
dividing shareholder’s fund by total assets which is presented as follows:
Shareholder’s Fund
Shareholders Fund to Total Assets Ratio =
Total Assets

3.4.2.6 Market Value Ratio / Growth Ratio

Market value ratio represents how well the banks are maintaining their
economic and financial position. The ratios can be calculated by dividing the
last period divided by the first period divided, then by referring to the
computed interest tables. Alternatively, it is calculated by using the following
formula,
FV= PV (1+ r) n
Where,
FV = Future Value
PV= Present Value
r = rate interest

56
n= no. of year A high ratio generally indicates better performance and vice-
versa. To examine and analyzed the expansion analysis growth of company.
Following growth ratio are calculated in this study.

i. Net Profit
Net Profit is the main indicator of financial position of any business
organization. Net profit is essential for its survival and growth and to maintain
capital adequacy through profit retention. This indicator is computed by
subtracting total expenditure including tax from operating income and interest.
It is also called net profit after tax and interest.

Net Profit. = Operating Income – (Total Expenditure + Interest Paid +Taxes)

ii. Earning Per Share (EPS)

It is calculated by dividing the net profit after tax less preference dividend by
the total no. of common shares It is calculated by using following formula.

Net Profit after Interest and Taxes-Preference Dividend

Earning Per Share =

Number of Equity Shares

iii. Dividend Per Share (DPS)

Bank pay certain amount of net profit as dividend to its shareholders under its’
policy. The term dividend refers to distributed earning to the shareholders of
the bank in return to their investment. Generally, dividend implies that portion
of net profit, which is allocated to shareholders as their return in term of cash
or share. The difference fund between EPS and DPS is retaining in the
company as retain earning. It is calculated total dividend by number of share.
Total Distributed Dividend
Dividend per share =
Number of Common Share Outstanding

57
3.5 Statistical Tools
Various statistical tools related to this study will draw out to make the
conclusion more reliable according to the available financial data. For this
study following statistical tools are used.

i. Arithmetic Mean or Average

The average value is a single value with in the range of the data that is used
to represent all of the values in the series. Since an average is somewhere
with in the range of that data, it is also called a measure of central value.
Since average represents the entire data, its value lies somewhere in
between the two average. Among them is use the arithmetic mean which is
more popular to denote particular type of average. It is obtain dividing sum of
obtain observations by the number of items which is presented as follows.

Where, X = Arithmetic Mean

x = Summation for Total Values of the Variable / Observation
N = Number of Items

ii. Standard Deviation

The standard deviation is the most important and widely used measure of
studying dispersion. It is also known as root mean square deviation for the
reason that the square root of the mean of the standard deviation from the
arithmetic mean. It is also denoted by the small Greek letter  (Sigma). The
standard deviation measures the absolute dispersion or variability of a
distribution. A small standard deviation means a high degree of uniformity of
the observation as well as homogeneity of a serious, a large standard
deviation means just the opposite. Hence, standard deviation is extremely
useful in judging the representative of the mean.
Symbolically,

 
d 2

58
Where,
 = Standard Deviation

d 2
= Sum of Squares of the Deviation Measured from the Arithmetic

Average
n = Numbers of Item

iii. Co-efficient of Variation (C.V)

The co-efficient of variation is the corresponding relative measure of
dispersion, comparable across distribution, which is defines as the ratio of the
standard deviation to the mean expressed in percentage. It is used in such
problems where we want to compare the variability of two or more than two
series. The series for which the co-efficient of variation is greater is said to
be more variable or conversely less consistent, less uniform, less stable or
less homogeneous. On the other hand, the series for which co- efficient of
variation is less is said to be less variable or more consistent, more uniform,
more stable or more homogenous. We can denotes this by following formula

CV   100
x
Where,
CV = Co-efficient of Variation
= Standard Deviation
= Mean / Average

iv. Co-efficient of Correlation (r)

Correlation is the statistical tool that we can use to describe the degree to
which one variable is linearly related to another. The coefficient of correlation
measures the degree of relationship between two sets of figures. Among the
various methods of finding out coefficient of correlation, Karl Pearson’s
method is applied in the study. The result of coefficient of correlation is always
between +1 and –1. When r =+1, it means there is perfect relationship
between two variables and vice-versa. When r=0, it means there is no
relationship between two variables. The Pearson’s 1 formula is

59
as follows:

Where, r = Co-efficient of Correlation

x = Independent Variable
y = Dependent Variable
N = Number of Periods

v. Probable Error of the Co-efficient of Correlation

After the calculation of co-efficient of correlation the next thing is to find out
extent to which it is dependable. For this purpose the probable error of the
coefficient of correlation is calculated. If the probable error is added to and
subtracted from the co-efficient of correlation it would give two such limits with
in which we can reasonably accept the value of co- efficient of correlation to
vary. The formula for finding out the probable of error of the Karl Pearson’s
co-efficient of correlation is:

Where, P.E.r = Probable Error of Co-efficient of Correlation

r = Co-efficient of Correlation
n = Number of Pairs of Observations

In other to conclude whether co-efficient of correlation is significant or not.

The following points should be kept in mind.
 If the co-efficient of correlations is less than its probable error, it is not
at all significant.
 If the co-efficient of correlations is more than six times of probable
error, it is definitely significant.
 If the probable error is not much and if the coefficient of correlation is
0.5 or more it is generally to be significant.

vi. Co-efficient of Determination (R2)

The Co-efficient of determination is the measure of the degree of linear
association or correlation between two variables, one of which happens to be
independent and other being dependent variable. In other words, co-efficient

60
of determination measures the percentage of total variation in dependent
variable explained by independent variable. The co-efficient of determination
can have value ranging from zero which simply means that all the data points
in the scatter diagram fall exactly o the regression line. Co- efficient of
determination is the square of the co-efficient of correlation.
Symbolically,
R2 = (r)2
where,
R2= Co-efficient of Determination
r=Co-efficient of Correlation

vii. Trend Line Analysis

Trend line analysis describes the average relationship between series where
the one series related to time and other series to the value of the variable. It is
generally shows that the line of the best fit or straight line is obtained or not.
The line of the best fit describes the changes in a given series accompanying
a unit change in time. Another word, it gives the best possible mean values of
dependent variable for a given value of independent variable.
For calculation of the “Line of the best fit “, following equation should be kept
in mind.
Yc = a + bx
Where, Yc = the estimated value of Y for given value of x obtained from the
line of regression of Y on X
a = “Y- intercept “/ mean of Y value
b = “slope of line “/ rate of change
x = the variable in time series analysis represent time

In order to determine the value of the constants a and b the following two
normal equations are to be solved.
Y = Na+ bX and XY=a X + bX2
Where;
N= Number of Years for with the date are given

61
Here, X stands for the time variations and Y for the variables related to
time. Naturally, if we take the middle year or the mid – point of the two
years as the starting point, X will be equal to 0 and the two equations will
then be
Y= N a and XY= bx2

By transformation, we can write

a=
Y and b=
 XY
N X 2

The term best fit is interpreted in accordance with the principle of least
squares which consists in minimizing the sum of squares of the residual of the
errors of estimates i.e. the deviation between the given observed value of the
variable and their corresponding estimated values as given by the line of best
fit.
This topic will be used to forecast the ratios of Total deposit, Total Loan and
Advances, Total Investment and Net Profit of the banks for next five years on
the base of past five years. The analysis is done under limited factors which
are as follows:
 The economy will remain unchanged as of present the stage.
 Banks will run as of present position.
 The guidelines by NRB for Banks will remain unchanged.
 The forecast will be true only when the limitations of least square
method are carried out.
 The main assumption is that other factors are constant.

3.5.1 Limitation of the Methodology

In the Nepalese context, data gathering is taken as the major problem for the
study. There is a considerable place to argue regarding its accuracy and
reliability. There are many limitations, which weaken the generalization e.g.
inadequate coverage of the financial sector, time period taken and other
variables.

62
3.5.2 Review of Related Studies:

During the study period, more and more books, various types of journals and
thesis was studied for the knowledge. Previous research work was the
backbone of the present research work.

63
 CHAPTER 4
PRESENTATION AND ANALYSIS OF DATA

In this chapter data, facts figures relating to three banks NABIL, NIBL & HBL
are presented according to the objectives set in the introduction chapter.
These data are translated, analyzed and interpreted so that financial forecast
of banks can be done easily. To make a data more realistic and complete
qualitative and quantitative analysis is done through different financial ratio
and statistical analysis. However there are many ratios but due to some sort
coming and constraints, only selected ratios have been taken for analyzing
the strength and weakness of the sample banks.

In other to find out the strength and weakness and financial performance of
the sample banks various ratios and variable have been calculated that are as
follows:

4.1 Presentation and Analysis of Data

4.1.1 Ratios Analysis
Ratio analysis is a powerful tool of financial analysis, which helps in identifying
strength and weakness of business concerns. The term ratio refers to the
numerical or quantities relationships between two variables. Important ratios
can be calculated from the balance sheet and profit & loss account and thus
calculated financial ratios can be useful for analyzing and assessing the
performance and position of the bank, which reflect the relative strength and
weakness of any particular bank over others. Ratio analysis has been a major
tools used in the interpretation and evaluation of financial statements.

There are various types of financial ratio which are used by different field for
different purpose, such as creditors, investors, financial institutions and
management of the firm. In this analysis following ratio are analysis and
interpret for the past five year 2007\08 to 20011\12 for different banks.

64
4.1.1.1 Liquidity Ratios
As name denotes the liquidity refers to the ratio between liquid assets and
liability. Liquidity ratio measures the ability of firm to meet its current
obligations Banks should maintain its satisfactory liquidity position to satisfy
the short-term credit needs of the community , to meet demands for deposits,
withdraws, pay maturity obligation in time an convert non cash assets into
cash to satisfy immediate needs without loss to bank consequent impact in
long run profit. Liquidity ratio measures the short-run solvency of the firm.
The liquidity positions of the banks are comparatively studied through
following ratios:

4.1.1.1.1 Current Ratio

Current ratio indicates the ability of the company to meet its current obligation.
This is the board measure of liquidity position of the banks. In another words,
it is measures the availability for current assets for meeting current liabilities.
This ratio is also known as working capital. Following table shows the
comparative current ratio for five years.
Table 1: Current Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Limited Himalayan Bank Limited
Fiscal Ratio Ratio Ratio
Year Current Current Current Current Current Current
Assets Liabilities (in Assets Liabilities (in Assets Liabilities (in
times) times) times)

2007/08 4,623.50 33,513.47 0.138 3,754.94 34,530.56 0.109 1,966.67 32,028.64 0.061

2008/09 3,925.40 39,492.70 0.099 7,918.00 46,819.24 0.169 4,219.32 34,794.85 0.121

2009/10 4,518.24 46,911.05 0.096 6,815.89 50,170.18 0.136 4,175.33 37,827.36 0.110

2010/11 4,889.06 51,762.48 0.094 8,290.37 50,427.14 0.164 3,698.65 40,962.28 0.090

2011/12 5,102.26 55,513.92 0.092 12,009.11 57,581.16 0.209 6,626.90 47,750.00 0.139

Mean 0.104 0.157 0.104

S.D. 0.019 0.038 0.030

C.V.(%) 18.437 23.856 28.529

[Sources: Annual Report of Concerned Bank, Refer Appendix -1]

Table 1 indicates the current ratios of the sampled banks. Among sampled
banks, NIBL has highest average mean value of current ratio whereas NABIL

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and HBL has the equal lowest ratio. The ratio of Nabil is not so much in
fluctuating order. The highest ratio for NABIL is registered in 2007/08 which is
0.138 and lowest ratio is registered in 2011/12 which is 0.092. Similarly, the
highest ratio of NIBL is 0.209 in fiscal year 2011/12 and lowest ratio is
registered in 2009/2010 which is 1.368. In the same way, HBL’s ratio is in
increasing order. In 2007/08 it has lowest ratio 0.061 and in 2011/12 it has
highest ratio 0.139. Since mean ratios of NIBL found to be highest than Nabil
and HBL, we can conclude that NIBL is successful to meet their current
obligation. Even though Nabil and HBL have failed to maintain the current
obligation they are not failed in earning the profit. From point of view of
working policy they have taken the aggressive policy.

As far as the liquidity and consistency is concern Nabil Bank seems to be in

better position than NIBL&HBL as it has lower C.V. (18.44%) than other two
sample banks NIBL and HBL. NIBL and HBL are failed to maintain the
consistency in the liquidity.

4.1.1.1.2 Cash and Bank Balance to Total Deposit Ratio.

This ratio measures the percentage of liquid fund with the bank to make
immediate payment to the depositors. The main purpose of this ratio is to
examine the bank’s liquidity capacity on the basis of cash and bank balance.
The following table shows the cash and bank balance to total deposit ratio of
selected sample banks.

66
 Table 2 : Cash and Bank Balance to Total Deposit Ratio
(Rs. in millions)

Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal
Year Cash & Total Ratio Cash & Total Ratio Cash & Total Ratio
Bank (in Bank (in Bank (in
Bal. Deposit times) Bal. Deposit times) Bal. Deposit times)

2007/08 2,671.14 31,915.05 0.084 3,754.94 34,451.73 0.109 1,448.14 31,842.79 0.045

2008/09 3,372.51 37,348.26 0.090 7,918.00 46,698.10 0.170 3,048.53 34,681.35 0.088

2009/10 1,400.10 46,410.70 0.030 6,815.89 50,094.73 0.136 3,866.49 37,611.20 0.103

2010/11 2,436.55 49,696.11 0.049 8,140.37 50,138.12 0.162 2,964.65 40,920.63 0.072

2011/12 4,275.82 55,023.70 0.078 11,803.75 57,010.60 0.207 6,362.30 47,730.99 0.133

Mean 0.066 0.157 0.088

S.D. 0.026 0.037 0.033

C.V.
(%) 38.616 23.506 37.182

[Sources: Annual Report of Concerned Bank, Refer Appendix -2]

Table 2 shows cash and bank balance to total deposit ratio of Nabil Bank,
Nepal Investment Bank and Himalayan Bank. During the study period of five
years, the ratio of Nabil has highest in 2008/09 which is 0.090 and lowest in
2009/10 which is 0.030. Similarly NIBL has highest ratio in 2011/12and lowest
in 2007/08 which are 0.207 and 0.109 receptively. On the other hand HBL has
highest ration in 2011/12 which is 0.133 and lowest in 2007/08 which is 0.045.
It is found that NIBL has maintained the highest mean ratio which is 0.157
than Nabil and HBL which shows that NIBL is successful in maintaining the
higher cash and bank balance to total deposit ratio. But it does not mean that
it has invested in profitable sector. It actually means that NIBL are successful
in meeting the daily cash requirement.

NIBL has maintained the higher cash and bank balance to total deposit ratio
as well as has better position in consistency which is shown by lowest C.V.
(23.51%). It has a consistency in utilizing the cash balance among the other
sample banks .Holding cash and bank balance can have a negative impact on
the goodwill and reputation of the bank to fulfill the demand of the profit holder
and lower cash balance can have a negative impact on the customer.
Therefore banks should maintain the enough liquidity.

67
4.1.1.1.3 Cash and Bank Balance to Current Assets Ratio.
Cash and bank balance to total deposit ratio shows the percent of readily
available fund within the banks. A high ratio indicates the sound ability to meet
their daily cash requirements of their customer deposits and vice versa.
Table 3 : Cash and Bank Balance to Current Ratio
(Rs. in millions)

Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal Cash & Current Ratios Cash & Current Ratios Cash & Current Ratios
Year Bank Bank Bank
Balance Assest (in Balance Assest (in Balance Assest (in
times) times) times)

2007/08 2,671.14 4,623.50 0.58 3,754.94 3,754.94 1.00 1,448.14 1,966.67 0.74

2008/09 3,372.51 3,925.40 0.86 7,918.00 7,918.00 1.00 3,048.53 4,219.32 0.72

2009/10 1,400.10 4,518.24 0.31 6,815.89 6,815.89 1.00 3,866.49 4,175.33 0.93

2010/11 2,436.55 4,889.06 0.50 8,140.37 8,290.37 0.98 2,964.65 3,698.65 0.80

2011/12 4,275.82 5,102.26 0.84 11,803.75 12,009.11 0.98 6,362.30 6,626.90 0.96
Mean 0.617 0.993 0.829
S.D. 0.233 0.010 0.109
C.V.
(%) 37.810 0.971 13.109

[Sources: Annual Report of Concerned Bank, Refer Appendix - 3]

Table 3 shows the ratio of Cash and Bank Balance to Current Ratio of Nabil Bank,
Nepal Investment Bank and Himalayan Bank. The ratio of Nabil Bank is ranged
between 0.31 in 2009/10 and 0.86 in 2008/09 with mean ratio of 0.617 and CV of
37.81 %. NIBL’s ratio is ranged between the 0.982 in 2011/12 and 1.00 in 2007/08
with mean ratio of 0.993 and CV of 0.97 %.On the other hand, HBL is ranged
between 0.722 in 2008/09 and 0.96 in 2011/12 with mean ratio of 0.829 and C.V of
13.11 %. Since, the mean ratio of NIBL is higher than the average of all sample
banks, it supports the conclusion that the NIBL has been successful in maintaining its
higher cash and bank balance to current assets ratio, but it doesn’t mean that it has
mobilized its more funds in profitable sectors. It actually means that NIBL can meet
its daily cash requirement. In contrast NABIL has a lowest mean ratio because it may
have invested their fund in more productive sectors. NIBL has lowest C.V. which is
(0.97%) which means they are successful in maintaining a stability of cash and bank
balance in comparison to other sampled banks.

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4.1.1. 2 Activity Ratio/ Assets Management Ratios
Activity Ratio/ Assets Management Ratios indicate the speed with which assets are
being converted or turned over. Thus these ratios are used to measure the banks’
ability to utilize their available resources. Asset management ratio predicts how
efficiently banks manage the resources at its command.The following asset
management ratios are used in this study for comparison of the banks.

4.1.1.2.1 Loan and Advance to Total Deposit Ratio

This ratio measures the extent to which the Banks are successful to mobilize the total
deposits on loans and advances for the purpose of income generation. The following
table exhibits the ratio of loans and advances to total deposits of the Banks
throughout the study period.
Table 4 : Loan and Advances to Total Deposit Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal Loan & Total Ratio Loan & Total Ratio Loan & Total Ratio
Year
(in (in (in
Advance Deposit Advance Deposit Advance Deposit
times) times) times)
2007/08 26,996.63
21,365.05 31,915.05 0.669 34,451.73 0.784 19,497.52 31,842.79 0.612
2008/09 36,241.21
27,589.93 37,348.26 0.739 46,698.10 0.776 24,793.16 34,681.35 0.715
2009/10
32,268.87 46,410.70 0.695 40,318.31 50,094.73 0.805 27,980.63 37,611.20 0.744
2010/11
38,034.10 49,696.11 0.765 41,095.51 50,138.12 0.820 31,566.98 40,920.63 0.771
2011/12
41,605.68 55,023.70 0.756 41,637.00 57,010.60 0.730 34,965.43 47,730.99 0.733
Mean
0.725 0.783 0.715
S.D.
0.041 0.034 0.061
C.V.
(%) 5.668 4.351 8.529

[Sources: Annual Report of Concerned Bank, Refer Appendix - 4]

Table 4 shows the ratio during the study period of five years of three banks. In
fiscal year 2007/08 and 2010/11 NABIL has registered the lowest ratio (0.669)
and highest ratio (0.765) respectively with mean ratio of 0.725 .Similarly, NIBL
has registered the highest ratio (0.820) in year (2010/11) and lowest ratio
(0.730) in year 2011/12 with mean ratio of 0.783. Also, HBL has registered the
lowest (0.612) and highest (0.771) ratio in fiscal year 2007/08 and 2011/12
respectively with lowest mean ratio of 0.715 among the other two banks.

69
As concerned with the consistency, NIBL is successful to maintain the
consistency in comparison to Nabil and HBL. HBL has a highest C.V. of 7.63
%. In case of NABIL it has C.V. of 5.67% which shows that they are not able
to maintain the stability in investing through loan and advance to some extent.

4.1.1.2.2 Investment on Government Securities to Total Deposit Ratio

The main purpose of this ratio is to measure successfulness in mobilizing the
deposit in investment on government securities. The investment on
government securities to total deposit ratio of different banks in the study
period are mentioned in the succeeding table:
Table 5 : Investment on Government Securities to Total Deposit
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal Invest. Invest. Invest.
Year On Total Ratio On Total Ratio On Total Ratio
Govt. (in Govt. (in Govt. (in
Sec. Deposit times) Sec. Deposit times) Sec. Deposit times)

2007/08 9,939.77 31,915.05 0.311 6,874.02 34,451.73 0.200 13,340.18 31,842.79 0.419

2008/09 10,826.38 37,348.26 0.290 7,399.81 46,698.10 0.158 8,710.69 34,681.35 0.251

2009/10 13,703.02 46,410.70 0.295 8,635.53 50,094.73 0.172 8,444.91 37,611.20 0.225

2010/11 13,081.21 49,696.11 0.263 7,423.11 50,138.12 0.148 8,769.94 40,920.63 0.214

2011/12 14,055.85 55,023.70 0.255 10,438.49 57,010.60 0.183 10,031.58 47,730.99 0.210
Mean 0.283 0.172 0.264

[Sources: Annual Report of Concerned Bank, Refer Appendix - 5]

Table 5 reflects that the ratio of NABIL is fluctuating in between the range of
0.290 in 2008/09 and 0.311 in 2007/08 with average being 0.283. Similarly,
the ratio of NIBL is in decreasing trend. Highest ratio 0.200 registered by NIBL
is in 2007/08 and lowest ratio 0.148 is in 2010//11 with mean ratio of 0.172
which is lowest among other sample banks. The ratio of HBL is in fluctuating
order which is ranged from 0.210 in fiscal year 2011/12 and 0.491 in year
2007/08 with mean of 0.264.Among sampled banks Nabil Bank is successful
in mobilizing the deposit, since it has a higher mean ratio. But NIBL has a
lower mean ratio; they are less successful to utilize the deposit in investment
on government securities in compare with sample banks. Similarly, HBL is

70
also successful in mobilizing the deposit in investment on government
securities.

4.1.1.3 Profitability Ratios

The main objective of a bank is to make profit providing different types of
services to its customers. Profit is the different between total revenue and
total expenses over a period of time. Profit is necessary to survive in any
business field for its successful operation and further expansion. Profit is the
ultimate output of a commercial bank and it will have no future if it fails to
make sufficient profits. Therefore, the financial manager continuously
evaluates the efficiency of the banks in terms of profits. Profitability shows the
overall efficiency of the business concerns. To meet those objectives likewise
a good liquidity position, meet fixed interest obligation, overcome the future
contingencies, grab the investment opportunities, business expansions etc.,
they must earn sufficient profit. It is an obvious that profitability ratios are the
best indicators of overall efficiency. In this study, mainly those ratios are
presented which are related with profit as well as fund mobilization.

Profit measures management’s overall effectiveness as shown by the return

generated on sales and investment. The relation of the return of the firm to
either its sales or equity of its assets is known as profitability ratio. Higher the
profitability ratio betters the financial performance of the banks and vice-
versa. The following are profitability ratios those are relevant in this study.

4.1.1.3.1 Net Profit to Total Assets Ratio

This ratio is also known as return on total assets (ROA). This ratio is a
measuring tool of profitability with respect to each financial resources
investment of the assets. If Bank’s working fund (total assets) is well managed
and utilized efficiently, return on such assets will be higher and vice versa.
The following comparative table shows the return on total assets ratio of
different Banks recorded over the study period.

71
 Table 6 : Net Profit to Total Assets Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal Net Total Ratio Net Total Ratio Net Total Ratio
Year
(in
Profit Assets Profit Assets (in times) Profit Assets (in times)
times)
2007/08
746.47 37,132.76 0.020 698.67 38,873.28 0.018 635.88 36,175.53 0.018
2008/09
1,031.05 43,867.40 0.024 916.50 53,010.80 0.017 752.83 39,320.32 0.019
2009/10
1,139.10 52,151.69 0.022 1,265.95 57,305.41 0.022 508.80 42,717.12 0.012
2010/11
1,337.74 58,141.44 0.023 1,176.64 58,356.83 0.020 893.12 46,736.20 0.019
2011/12
1,696.28 63,200.30 0.027 1,039.28 65,756.23 0.016 958.64 54,364.43 0.018
Mean
0.023 0.019 0.017
S.D.
0.002 0.002 0.003
C.V.
(%) 10.780 13.270 17.486

[Sources: Annual Report of Concerned Bank, Refer Appendix - 6]

Table 6 shows that all banks have fluctuating ratio. The ratio of NABIL is
ranged between 0.020 and 0.027 in year 2007/08 and 2011/12 respectively
with the highest mean ratio 0.023. It is more successful in utilizing the total
assets for earning the net profit in compare to other sample banks. Similarly
NIBL has recorded a highest ratio in 2009/10 which is 0.022 and lowest ratio
is 0.016 in year 2011/12 with a mean ratio with 0.019 which determined that
NIBL is some extent successful in earning the net profit with efficient
utilization of total assets with compare to HBL. Lastly, HBL has mean ratio
0.017 with ranged between 0.012 to 0.019 in 2009/10 and 2010/11.

But as concern with consistency, NABIL are able to maintain the consistency
in profit which is shown by lowest CV 10.78 % among the sample banks. NIBL
and HBL have a greater variation in earning the profit on total working fund.
The CV of these banks is 13.27% and 17.49%.

4.1.1.3.2 Net profit to Total Deposit Ratio.

This ratio is the mirror for banks overall financial performance as well as its
success in profit generating, the reason being that the deposits made by its
customer’s is the major sources of earning of the joint venture banks as the

72
earning is made by the efficiency and effective utilization of these deposits.
The following table reveals the percentage of net profit to total deposit of
sample banks.
Table 7 : Net Profit to Total Deposit Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Fiscal Net Total Ratio Net Total Ratio Net Total Ratio
Year (in (in (in
Profit Deposit Profit Deposit Profit Deposit
times) times) times)
2007/08 746.47 31,915.05 0.023 698.67 34,451.73 0.020 635.88 31,842.79 0.020
2008/09 1,031.05 37,348.26 0.028 916.50 46,698.10 0.020 752.83 34,681.35 0.022
2009/10 1,139.10 46,410.70 0.025 1,265.95 50,094.73 0.025 508.80 37,611.20 0.014
2010/11 1,337.74 49,696.11 0.027 1,176.64 50,138.12 0.023 893.12 40,920.63 0.022
2011/12 1,696.28 55,023.70 0.031 1,039.28 57,010.60 0.018 958.64 47,730.99 0.020
Mean 0.027 0.021 0.019

S.D.
0.003 0.003 0.003
C.V.
(%) 10.858 13.582 17.550

[Sources: Annual Report of Concerned Bank, Refer Appendix - 7]

Table 7 reveals the net profit to total deposit ratio is in fluctuating situation of
all sample banks. The ratio of NABIL has ranged between 0.23 in 2007/08 to
0.031 in 2011/12 with mean ratio of 0.027 which is highest mean ratio among
the sample banks. The highest and lowest ratios recorded by NIBL are 0.025
and 0.018 in year 2009/10 and 2011/12 respectively with mean ratio which of
ratio 0.021. Similarly, HBL has recorded highest in year 2010/11 (0.022) and
lowest ratio in year 2009/10 (0.014) with mean ratio of 0.019. Which is the
lowest among the sampled banks. The above statement indicates that NABIL
has better performance in utilizing of total deposit to earn a higher profit than
other sample banks. Similarly, HBL has not better performance in comparison
to NABIL and NIBL since is has low mean ratio 0.019.

As far as consistency level NABIL is successful in maintaining consistency in

mobilizing total deposit to earn the profit. This is shown by lowest CV of
NABIL i.e. 10.89 % than NIBL (13.59%) and HBL (17.55%).

4.1.1.3.3 Total Interest Earned to Total Working Fund Ratio

The ratio shows the earning capacity of a Bank on its total assets (working
fund). This ratio exhibits the extent on which banks are successful in

73
mobilizing their working funds to generate income as much as possible. The
higher ratio will indicate the high earning power of the banks on its total assets
and lower ratio will indicate the low earning power of the banks. The following
table shows the comparative ratios of Banks for the different periods.
Table 8 : Total Interest Earned to Total Working Fund Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Interest Working Ratio Interest Working Ratio Interest Working Ratio
Fiscal (in (in (in
Year Earned Fund times) Earned Fund times) Earned Fund times)
2007/08 1,978.70 33,275.05 0.059 2,194.28 34,451.73 0.064 1,963.64 31,925.97 0.062
2008/09 2,798.49 39,029.56 0.072 3,267.94 46,736.90 0.070 2,342.19 34,681.35 0.068
2009/10 4,047.73 46,485.60 0.087 4,653.52 50,132.04 0.093 3,148.61 37,611.20 0.084
2010/11 5,254.03 51,346.71 0.102 5,803.44 50,418.89 0.115 4,326.14 40,930.63 0.106
2011/12 6,133.74 55,334.78 0.111 5,982.64 57,578.18 0.104 4,724.89 47,730.99 0.099
Mean 0.086 0.0891 0.0835

S.D. 0.021 0.022 0.019

C.V.
(%) 24.539 24.609 22.971

[Sources: Annual Report of Concerned Bank, Refer Appendix - 8]

Table 8 reveals the total interest earned to total working fund ratio. The mean
ratio of NABIL is 0.086. The ratio of NABIL has ranged between 0.059 in year
2007/08 to 0.111 in year 2011/12. Similarly, NIBL has a fluctuating trend as
the ratio is ranged between 0.064 to 0.115 in year 2007/08 to 2011/12
respectively with the highest mean ratio of 0.0891. The ratio of HBL has
ranged between 0.062 in year 2007/08 to 0.106 in year 2010/11.

The mean ratio shows that all sample banks are successful in earning the
interest on total working fund. Among them NIBL found to be a leader in
earning a interest with compare to NABIL and HBL. Since HBL has a lowest
C.V. (22.97%) they have a consistency in earning interest by mobilizing a total
working fund effectively. The highest C.V. is found in NIBL with 24.61% which
shows a greater variability in earning an interest.

4.1.1.3.4 Total Interest Paid to Total Working Fund Ratio

Interest earning is the major source of a commercial bank. The ratio is used to
measure the percentage of total interest expenses against the total assets.

74
The following are the comparative ratio figures of Banks recorded in different
periods.
Table 9 : Total Interest Paid to Total Working Fund Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Interest Working Ratio Interest Working Ratio Interest Working Ratio
Fiscal (in (in (in
Year Paid Fund times) Paid Fund times) Paid Fund times)
2007/08 758.44 33,275.05 0.023 992.16 34,451.73 0.029 823.74 31,925.97 0.026
2008/09 1,153.28 39,029.56 0.030 1,686.97 46,736.90 0.036 934.77 34,681.35 0.027
2009/10 1,960.11 46,485.60 0.042 2,553.85 50,132.04 0.051 1,553.53 37,611.20 0.041
2010/11 2,955.43 51,346.71 0.058 3,620.34 50,418.89 0.072 2,414.81 40,930.63 0.059
2011/12 3,155.49 55,334.78 0.057 3,814.41 57,578.18 0.066 2,816.44 47,730.99 0.059
Mean 0.042 0.051 0.042

S.D. 0.016 0.019 0.016

C.V.
(%) 37.651 36.581 38.501

[Sources: Annual Report of Concerned Bank, Refer Appendix - 9]

Table 9 shows the comparative analysis of total interest paid to total working
fund. All the ratios of NABIL, HBLand NIBL are in increasing trend. The
highest and lowest ratio of NABIL are 0.058 and 0.023 in fiscal year 2010/11
and 2007/08 respectively with mean ratio of 0.042 which is low mean ratio as
compared to NIBL. The highest and lowest ratios of NIBL are 0.066 and 0.029
with mean ratio of 0.051. Similarly, HBL has a ratio which is ranged between
0.059 in the year 2011/2012 and 0.026 in the year2007/08 with the mean
ration of 0.042. The above definition determined that NIBL has paid a higher
interest on working fund in compare to NABIL and HBL which is shown by
highest mean ratio. NIBL has consistency in interest paid because C.V of
NIBL is lowest among sample banks which is 36.58%.

4.1.1.4 Leverage Ratios

A firm should have strong short- term as well as long –term financial position.
Like other ratios, leverage ratio is also very necessarily important tool in
measuring financial performance of any institution. This ratio reveals the
proportion of funds used by the institution either from the creditor’s side or
form owner side. In order to maintain healthy financial position any institutions
need to maintain proper proportion of debt & equity. These ratios indicate the
situation of the capital structure, which is calculated to measure the

75
company’s ability of using debt for benefit of shareholders. Long- term
creditors like debenture holders, financial institutions etc. are more interested
to the firm’s long term financial health, debt serving capacity and strength and
weakness of the concerns. This ratio may be calculated from the balance
sheet items to determine the proportion of debt in total financing. In summary
debt ratio tell us the relative proportions of capital of contribution by creditors
and by owners. Leverage ratio is also called solvency ratio or capital structure
ratio. There are various tools in order to measure leverage of the institution
among them. Debt Asset ratio & Debt Equity ratio has been used.

4.1.1.4.1 Debt-Asset Ratio

It measures proportion of the creditor’s funds used by the institution to acquire
the assets. The increased proportion of debt indicated the risky ness or
burden to the institution. The debt is considering more risky and cheap source
of financing. Risky in the sense that the debt financing needs regular payment
of interest in any condition of economic. The debt asset ratios of sample
banks are as below:
Table 10: Debt Asset Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Total Total Ratio Total Total Ratio Total Total Ratio
Fiscal (in (in (in
Year Debt Assets times) Debt Assets times) Debt Assets times)
2007/08 1,838.42 37,132.76 0.050 1,128.84 38,873.28 0.029 1,045.85 36,175.53 0.029
2008/09 2,444.44 43,867.40 0.056 1,171.14 53,010.80 0.022 613.51 39,320.32 0.016
2009/10 800.34 52,151.69 0.015 1,125.46 57,305.41 0.020 716.16 42,717.12 0.017
2010/11 2,366.37 58,141.44 0.041 1,339.01 58,356.83 0.023 541.66 46,736.20 0.012
2011/12 790.22 63,200.30 0.013 1,620.56 65,756.23 0.025 519.00 54,364.43 0.010
Mean 0.035 0.024 0.016

S.D. 0.020 0.004 0.008

C.V.
(%) 56.902 14.790 45.739

[Sources: Annual Report of Concerned Bank, Refer Appendix - 10]

Table 10 shows that debt financing ratio of all sample banks are in fluctuating
trend. The highest ratio of NABIL is 0.056 in 2008/09 and lowest is 0.013 in
2011/12 with the highest mean ratio of 0.035. The ratio of NIBL is ranged
between 0.020 and 0.029 in year 2009/10 and 2007/08 a mean ratio 0.024
respectively.Similarly, HBL have highest ratio 0.029 in year 2007/08 and

76
lowest ratio of 0.010 in year 2011/12 with the lowest mean ratio of 0.016
which is the lowest ratio among all sample banks. Therefore, NABIL is utilizing
a highest debt among the sample Banks. NIBL is successful in maintaining a
consistency which is shown by lowest C.V. (14.79%) among sample banks.

4.1.1.4.2 Debt-Equity Ratio

The Debt Equity ratio implies the debt equity proportion used by the
institution. High Debt Equity ratio indicated more use of money from creditor’s
side and vice versa. High Debt Equity ratio considered good if the institution is
able have higher return than the cost paid on debt.
Table 11 : Debt - Equity Ratio
(Rs. in millions)
Banks
Nabil Bank Limited Nepal Investment Bank Ltd. Himalayan Bank Limited
Total Total Ratio Total Total Ratio Total Total Ratio
Fiscal (in
Year Debt Equity (in times) Debt Equity times) Debt Equity (in times)
2007/08 1,838.42 2,437.20 0.754 1,128.84 2,686.79 0.420 1,045.85 2,512.99 0.416
2008/09 2,444.44 3,130.24 0.781 1,171.14 3,907.84 0.300 613.51 3,119.88 0.197
2009/10 800.34 3,836.71 0.209 1,125.46 4,585.39 0.245 716.16 3,439.21 0.208
2010/11 2,366.37 4,566.52 0.518 1,339.01 5,159.76 0.260 541.66 3,995.48 0.136
2011/12 790.22 5,450.89 0.145 1,620.56 6,049.94 0.268 519.00 4,632.01 0.112
Mean 0.481 0.299 0.214

S.D. 0.297 0.071 0.120

C.V. (%) 61.722 23.729 56.220

[Sources: Annual Report of Concerned Bank, Refer Appendix - 11]

Table 11 shows that debt -equity ratio of all sample banks are in fluctuating
trend. The highest ratio of NABIL is recorded in year 2008/09 (0.781) and
lowest ratio is recorded in year 2011/12 (0.145) with mean ratio of 0.481
which is highest among the sample banks. In the same way the ratio of NIBL
is also in fluctuating trend. It has ratio ranged between 0.245 in 2009/10 to
0.420 2007/08 with mean ratio of 0.299. The ratio of HBL is in fluctuating
trend. The ratio is ranged between 0.112 in year 2011/12 whereas it was
0.416 in year 2007/08 with mean ratio 0.214.Since highest mean ratio is
recorded by NABIL, they have more investment from debt than equity fund
which cost a higher than equity. Higher debt investment brings a higher cost
to the banks.

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The C.V. of NABIL, NIBL and HBL are 61.72 %, 23.73% and 56.22%.
Therefore NIBL has lowest C.V which defined that NIBL has consistency in
debt-equity ratio.

4.1.2 Statistical Analysis

This chapter includes some statistical analysis such as Karl Pearson’s
coefficient of correlation, simple regression analysis and trend line analysis,
which are used to analyze the data to achieve the objective of the study.

4.1.2.1 Coefficient of Correlation Analysis (r)

This tool is used to predict the relationship between deposits and loans &
advances, net profit and outside assets and deposits and total investment.
Under this study, Karl Pearson’s coefficient of correlation is being used.

4.1.2.1.1 Coefficient of Correlation between deposits and loans &

advances
Deposit is the main tool for developing the banking performance of the banks.
Likewise loans and advances are the key part to mobilize the collected
deposits. The coefficient of correlation between deposits and loans &
advances measures the degree of relationship between these two variables.
For this study, deposit is taken as independent variable (x) and loans &
advances are dependent variables (y). The purpose of computing ‘r’ between
these two variables is to justify whether deposits are significantly used as
loans and advances in proper way or not.

78
 Table 12: Coefficient of Correlation between Deposits and Loan & Advance

Banks
NABIL NIBL HBL
Loan & Loan & Loan &
T. Deposit Advances T. Deposit Advances T. Deposit Advances
Fiscal Year (x) (y) (x) (y) (x) (y)
2007/08 31,915.05 21,365.05 34,451.73 26,996.63 31,842.79 19,497.52
2008/09 37,348.26 27,589.93 46,698.10 36,241.21 34,681.35 24,793.16
2009/10 46,410.70 32,268.87 50,094.73 40,318.31 37,611.20 27,980.63
2010/11 49,696.11 38,034.10 50,138.12 41,095.51 40,920.63 31,566.98
2011/12 55,023.70 41,605.68 57,010.60 41,637.00 47,730.99 34,965.43
r 0.988 0.959 0.964
r2 0.976 0.919 0.930
PE = 0.6745 * 1- r2
√n 0.007 0.024 0.021
6*Per 0.043 0.146 0.126
Level of
Significant Significant Significant Significant

[Sources: Annual Report of Concerned Bank]

The coefficient of correlation (r) for all the sampled banks found to be almost
‘1’ which indicates there is proportion relationship between the deposits &
loan & advance for all the banks. While testing 6P.E.r for all sample banks
found to be significant as the r value for all the banks are greater than 6Per,
which implies that there found to be perfect correlation between the deposits
and loan & advances. It shows that the loan and advances is depends upon
the deposit and all sample banks are successful in mobilizing the deposit to
loan and advances efficiently.

4.1.2.1.2 Coefficient of Correlation between Deposits and Investment

Investment is also a measures part of banks to mobilize the collected deposit.
By investing in different profitable area like shares and debenture,
government securities banks maximize the profit. Therefore it is important to
study the relation between the deposit and investment. For this analysis
deposit is taken as independent variable (x) and investment (y) is taken as
dependent variable. This analysis measures the degree of relationship
between these two variables. Besides this, it will justify whether the deposits
are significantly used in proper way or not and whether there is any
relationship in between these two components. The following table exhibits

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the coefficient of correlation (r) between deposits and total investment,
coefficient of determination (r2), probable error PEr.
Table 13: Coefficient of Correlation between Deposits and Investment

(Rs. in millions)
Banks
NABIL NIBL HBL
T. Deposit Investment T. Deposit Investment T. Deposit Investment
Fiscal Year (x) (y) (x) (y) (x) (y)
2007/08 31,915.05 9,939.77 34,451.73 6,874.02 31,842.79 13,340.18
2008/09 37,348.26 10,826.38 46,698.10 7,399.81 34,681.35 8,710.69
2009/10 46,410.70 13,703.02 50,094.73 8,635.53 37,611.20 8,444.91
2010/11 49,696.11 13,081.21 50,138.12 7,423.11 40,920.63 8,769.94
2011/12 55,023.70 14,055.85 57,010.60 10,438.49 47,730.99 10,031.58
r 0.956 0.808 -0.371
2
r 0.915 0.653 0.137
PE= 0.6745 * 1- r2
0.026 0.105 0.260
√n
6PE 0.154 0.628 1.561

Level of Significant Significant Significant InSignificant

[Sources: Annual Report of Concerned Bank]

The coefficient of correlation of two sampled banks are found to be positive

which indicates that there is positive and perfect relationship between the
deposits & investments. Whereas coefficient of correlation of HBL is found to
be negative which means there is negative relationship between deposits and
investment. While testing 6P.E.r for all sample banks only two banks were
found to be significant as the r value for all the banks are greater than 6P.E.r
which implies that there found to be perfect correlation between the deposits
and investment .However, HBL had failed to maintain perfect correlation
between the deposit and investment. This shows that NABIL and NIBL are
successful in investment with respect to deposit. These bank’s investment is
depends upon the deposit.

4.1.2.1.3 Coefficient of Correlation between Investment & Net profit

Following table shows the relation between the investment and net profit. As
we say in above investment is done in different profitable area to maximize
the profit. Net profit is the key to survive the banks. Without profit banks
cannot sustain in the market. Therefore it is necessary to measures the
degree of relationship between these two variable. For this study, Investment

80
(x) is taken as independent variable and net profit (y) is taken as dependent
variable. The following table shows the coefficient of correlation between(r),
coefficient of determinants (r2) and probable error PEr. on investment and net
profit of banks.
Table 14 : Coefficient of Correlation between Investment and Net
Profit

Banks
NABIL NIBL HBL
Net Net Net
Fiscal Year
Investment Profit Investment Profit Investment Profit
(x) (y) (x) (y) (x) (y)
2007/08 9,939.77 746.47 6,874.02 698.67 13,340.18 635.88
2008/09 10,826.38 1,031.05 7,399.81 916.50 8,710.69 752.83
2009/10 13,703.02 1,139.10 8,635.53 1,265.95 8,444.91 508.80
2010/11 13,081.21 1,337.74 7,423.11 1,176.64 8,769.94 893.12
2011/12 14,055.85 1,696.28 10,438.49 1,039.28 10,031.58 958.64
r 0.853 0.420 0.119
2
r 0.728 0.177 0.014
2
PE= 0.6745* 1-r
√n 0.082 0.248 0.297
6PEr 0.493 0.410 0.112
Level of
Significant Significant Significant
Significance

[Sources: Annual Report of Concerned Bank]

The coefficient of correlation for all the sampled banks found to be almost ‘1’
which indicates that there is proportion relationship between the investment &
net profit for all the sample banks. While testing 6P.E.r for all sample banks
found to be significant as the r value of these banks are greater than 6P.E.r
which implies there is perfect correlation between the Investment and net
profit. This shows that all sample banks are successful to earn net profit by
mobilizing the deposit to the investment.

4.1.2.1.4 Coefficient of Correlation between Loan and advances & Net

profit
Loan and advances also plays a vital role in earning the profit. By mobilizing
the deposit in loan & advances banks earns the profit. So, it is necessary to
study the relation between these two variable loan & advances and net profit.
Following table shows the coefficient of correlation(r), coefficient of
determinants (r2) and probable error PE.r of loan & advances and net profit of

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sample banks. For this study loan and advances (x) is taken as independent
variable and net profit (y) is taken as dependent variable
Table 15 : Coefficient of Correlation between Loan & Advances
and Net Profit
(Rs. in millions)
Banks
NABIL NIBL HBL
Fiscal Year Loan & Net Loan & Net Loan & Net
Advances Profit Advances Profit Advances Profit
(x) (y) (x) (y) (x) (y)
2007/08 21,365.05 746.47 26,996.63 698.67 19,497.52 635.88
2008/09 27,589.93 1,031.05 36,241.21 916.50 24,793.16 752.83
2009/10 32,268.87 1,139.10 40,318.31 1,265.95 27,980.63 508.80
2010/11 38,034.10 1,337.74 41,095.51 1,176.64 31,566.98 893.12
2011/12 41,605.68 1,696.28 41,637.00 1,039.28 34,965.43 958.64
r 0.974 0.886 0.665
2
r 0.948 0.786 0.442
2
PE = 0.6745* 1-r
√n 0.016 0.065 0.168
6PEr 0.093 0.388 0.310
Level of Significant Significant Significant Significant

[Sources: Annual Report of Concerned Bank]

The coefficient of correlation for allsampled banks found to be almost ‘1’

which indicates there is proportion relationship between the loan & advance
and net profit for two banks.While testing 6P.E.r for all sample banks found to
be significant as the r value for all the banks are greater than 6P.E.r which
implies that there found to be perfect correlation between the Loan & advance
and net profit. It shows that all sample banks are successful in earning the net
profit by mobilizing the loan and advances.

4.1.2.2. Trend Line Analysis

Among the various methods of determining trend of time series, the most
popular and mathematical method is the least square method. Using this
method of least square in the study, it has been tried to analyze the trend of
prospective net profit in future by analyzing the trend of past net profit of the
banks. Banks utilized the deposit by releasing investment in loan and
advances in different profitable area for maximizing the profit. A bank can
invest in shares & debenture, government securities and provide the loan and
advances under different scheme.

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This topic will be used to forecast the ratios of Total deposit, Total Loan and
Advances, Total Investment and Net Profit of the banks for next five years on
the base of past five years. The analysis is done under limited factors which
are as follows:

 The economy will remain unchanged as of present the stage.

 Banks will run as of present position.

 The guidelines by NRB for Banks will remain unchanged.

 The forecast will be true only when the limitations of least square

method are carried out.

 The main assumption is that other factors are constant.

4.1.2.2.1 Trend Line Analysis of Total Deposit

The part of this analysis will analyze Total deposit of banks for five years from
2006 to 2010 and projection for next five years i.e. 2011 to 2015. The
following table exhibits the trend values of Total deposit of sample banks for
10 years.
Table 16 : Trend Line Analysis of Total Deposit
(Rs. in millions)
Trend values of Total Deposit
Year NABIL NIBL HBL
2006 8734.540 11681.780 24529.740
2007 14396.970 19722.890 27034.560
2008 31915.047 34451.726 31842.789
2009 37348.256 46698.100 34681.345
2010 46410.701 50094.725 37611.202
1011 49696.113 50138.122 40920.627
2012 55023.695 57010.604 47730.994
2013 58371.550 67969.550 51063.600
2014 63033.980 76010.660 54568.440
2015 65696.410 84051.770 59073.280

[Sources: Annual Report of Concerned Bank]

Table 16 exhibits that the trend values of all the sample banks are in
increasing trend, which means futures of total deposit of all the sample banks

83
are good. Among the sample banks NIBL has a highest trend of total deposit.
It means NIBL is successful in mobilizing the deposit. In fiscal year 2006 the
trend values of NABIL, NIBL and HBL are 8734.54, 11681.78 and 24529.74
respectively. It can be forecasted to increase up to 65696.41, 84051.77 and
59073.28 for the forecast year 2015.
Figure – 1

Trend Line Analysis of Total Deposit

100000.000

50000.000

0.000
2006 2007 2008 2009 2010 1011 2012 2013 2014 2015

NIBL NABIL HBL

4.1.2.2.2 Trend Line Analysis of Loan and Advances

The analysis will analyze Loan and Advances of banks for five years from
2006 to 2010 and forecast for following five years i.e. 2011 to 2015. The
following table exhibits the trend values of Total deposit of sample banks for
10 years.
Table 17 : Trend Line Analysis of Loan & Advances
(Rs. in millions)
Trend values of Loan & Advance
Year NABIL NIBL HBL
2006 6736.92 7626.50 12629.26
2007 10896.29 14231.30 15485.63
2008 21365.05 26996.63 19497.52
2009 27589.93 36241.21 24793.16
2010 32268.87 40318.31 27980.63
2011 38034.10 41095.51 31566.98
2012 41605.68 41637.00 34965.43
2013 43852.51 49860.10 37623.85
2014 47011.88 56464.90 40480.22
2015 51171.25 61069.70 42336.59

[Sources: Annual Report of Concerned Bank]

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Table 17 exhibits that the trend values of all the sample banks are in
increasing trend, which means futures of total Loan and Advances of all the
sample banks are good. Among the other sample bank, NIBL are in highest
trend .All the sample banks are successful in mobilizing the Loan and
Advances to different productive and profitable sector. In fiscal year 2006 the
trend values of NABIL, NIBL and HBL are 6736.92, 7626.50 and 12629.26
respectively. It will increase to 51171.25, 61069.7 and 42336.59 for the
forecast year 2015.
Figure No - 2

Trend Line Analysis of Loan & Advances

80000.00

60000.00

40000.00

20000.00

0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Nabil NIBL HBL

4.1.2.2.3 Trend Line Analysis of Investment

The following table analyzes the trend values of Investment of sample banks
for five years and prediction for next five years.
Table 18 : Trend Line Analysis of Investment
(Rs. in millions)
Trend values of Investment
Year NABIL NIBL HBL
2006 4365.05 4223.74 10874.40
2007 8365.05 4603.37 11560.25
2008 9939.77 6874.02 13340.18
2009 10826.38 7399.81 8710.69
2010 13703.02 8635.53 8444.91
2011 13081.21 7423.11 8769.94
2012 14055.85 10438.49 10031.58
2013 16553.70 12581.15 10275.35
2014 18528.20 12760.78 12061.20
2015 20602.70 15940.41 13047.05

[Sources: Annual Report of Concerned Bank]

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 Figure No -3
Trend Line Analysis of Investment
25000.00

20000.00

15000.00
NABIL

10000.00 NIBL
HBL
5000.00

0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Table 18 exhibits that the trend values of NABIL and NIBL are in increasing
trend, which means futures of total deposit of these banks are good. In fiscal
year 2006 the trend values of NABIL, NIBL and HBL are 4365.05, 4223.74
and 10874.40 respectively. It is expected to increase up to 20602.7, 15940.41
and 13047.05 for the forecast year 2015.

4.1.2.2.4 Trend Line Analysis of Net Profit

The following table analyzes the trend values of Net Profit of sample banks for
five years and prediction for next five years.
Table 19 : Trend Line Analysis of Net Profit
(Rs. in millions)
Trend values of Net Profit
Year NABIL NIBL HBL
2006 183.22 199.66 358.73
2007 229.92 367.97 410.14
2008 746.47 698.67 635.88
2009 1031.05 916.50 752.83
2010 1139.10 1265.95 508.80
1011 1337.74 1176.64 893.12
2012 1696.28 1039.28 958.64
2013 1810.12 1377.83 1018.60
2014 1956.82 1546.14 1070.01
2015 2103.52 1714.45 1221.42

[Sources: Annual Report of Concerned Bank]

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Table 19 exhibits that the trend values of all the sample banks are in
increasing trend, which means futures of Net Profit of all the sample banks
are good. Among the sample banks NABIL has a highest trend of Net Profit.
In fiscal year 2006 the trend values of NABIL, NIBL and HBL are 183.22,
199.66 and 358.73 respectively. It is expected to increase to 2103.52,
1714.45 and 1221.42 till the forecast year 2015.
Figure -4
Trend Line Analysis of Net Profit
2500.00

2000.00

1500.00
NABIL

1000.00 NIBL
HBL
500.00

0.00
2006 2007 2008 2009 2010 1011 2012 2013 2014 2015

4.2 Major Finding of the Study

The main findings of the study are carried out on the basis of the analysis of
financial data of banks which are as follows:

4.2.1 Liquidity Ratio

 During the five years study period of three banks the current ratio found
to be highly fluctuate. It is well known that the standard current ratio is
2:1. Among sample bank the current ratios of NABIL dominate the
respective current liabilities which indicate that NABIL is capable in
paying the current obligation. Therefore NABIL has a highest liquidity
ratio among sample banks. NIBL and HBL have low current ratio, but it
does not mean that they are failed to maintain the liquidity position.
From point of view of working policy they are very much aggressive.

87
 However average of all banks shows the satisfactory level of current
ratio.

 NABIL and NIBL are found to be in better position to maintain the cash
and bank balance in total deposit ratio and cash and bank balance to
current Assets ratio respectively among the sample banks. But it does
not mean that it has mobilized its more funds in profitable sector. It
actually means that it can meet the daily cash requirement to make
payments of the customer. HBL has an average mean ratio. All the
banks have a fluctuation ratio during study period.

From above results it can said that the liquidity position of NABIL found to
be comparatively better than other sample banks. But NIBL and HBL also
has a satisfactory level of liquidity position due to their aggressive working
policy.

4.2.2 Assets Management Ratio

 The loan and advances to total deposit ratio of all banks found to be at
satisfactory level and maintain the good consistency in ratio. However
NABIL has a highest mean ratio it shows that NIBL‘s liquidity position
with respect to this ratio is more satisfactory than other sample banks.
Apart from that it has a more consistency in ratio than other.

 The mean ratio of loan and advances to total deposit ratio all the banks
are found to be at satisfactory level. Since NABIL has a higher mean
ratio, NABIL is able to proper utilization of loan and advance with
respects to fixed deposit. NIBL and HBL have seemed to less effective
in utilizing the loan and advances in compare to NABIL.

 All the sample banks are successful to mobilize their funds as loan and
advances with respect to total assets. But in comparative study for five
years for three sample banks HBL has a higher mean ratio, so they are
found to be best investor among sample banks. As concern to

88
 consistency, almost all banks are failed to maintain the consistent.
Among them HBL has maintain the consistency in loan and advances
up to some extent.

 Among sample banks NABIL is successful in mobilizing the deposit in

invest on government securities, since it has a higher mean ratio. But
NIBL has a lower mean ratio; they are less successful to utilize the
deposit in investment on government securities in compare with
sample banks. Similarly, HBL is also successful in mobilizing the
deposit in investment on Government securities. NABIL are found to be
best as concern with consistency. It has maintained the consistency
level up to some extent.

From above finding, it shows that all the sample banks are successful in
on-balance sheet utilization as well as off balance sheet operation. Among
them NABIL found a best in mobilizing the assets to the profitable sector.

4.2.3 Profitability Ratio

 All the sample banks are able to earn the profit on total assets. Among
them, NIBL found to be best, since it has a higher mean ratio than
average mean ratio. As concern to consistency NIBL also shows the
consistency on earning the profit. In case of another two banks they
have lowest earning on total assets and also have lowest consistency
in earning the profit.

 The mean ratio of net profit to total deposit ratio of NIBL is highest
among the sample banks. NABIL and HBL has lower mean ratio and
failed to maintain the consistency. Also NIBL is found to be best as
concern with consistency. It has maintained the best consistency level
among the sample banks. NABIL and HBL has lower mean ratio and
failed to maintain the consistency.

89
  Even though all sample banks seem to earn the interest on total
working fund, NIBL has successful in earning the higher interest where
as HBL maintain the consistency in earning. NIBL and NABIL are failed
to maintain the consistency in earning the interest than HBL.

 NABIL and HBL seem to be successful to collect its working fund from
less expensive sources in comparison to NIBL. Even though NIBL has
a higher interest expense they are successful in maintain the stability
on expenses of interest.

From above finding, we can conclude that NIBL has a consistency in

earning the profit and expenses on interest and NIBL are successful in
earning the higher profit with lower interest expenses, whereas NABIL are
average of other comparative banks.

4.2.4 Leverage Ratio

 Debt-assets ratio of the HBL is highest among the sample banks.
Similarly, NIBL and NABIL has maintained the debt-assets ratio but
less than that of HBL. Whereas HBL have more consistence in
maintaining the ratio.

 NABIL is able to maintain the debt-equity ratio than other sample

banks and also maintain the variability. In part of NIBL they are able to
maintain the consistency than other banks but they also failed to use
the equity fund to creditors. In case of HBL is unable to maintain the
debt equity ratio as well as variability.

4.2.5 Coefficient of Correlation

 The Positive correlation between the deposit and loan and
advances are found in all sample banks. The correlation between
the deposit and loan and advances are perfect as there is
significant between them. It means that the all banks provided the
loans and advances from its deposit. Banks are successful in
mobilizing the deposit as loans and advances.

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  There is the perfect positive correlation between the deposit and
investment in all sample banks. In all three banks they have
effectively mobilize its deposit on investment. In another word it can
be said that Investment is depends upon the deposit.

 All three sample banks are successful in earn the net profit from its
investment which means that there is a positive correlation between
the Investment and net profit.

 All the sample banks are successful in earning the net profit by
mobilizing the loan and advances. The correlation between the loan
and advances and net profit are found to be positive.

4.2.6 Trend Line Analysis

Trend analysis is for past five years for projecting future results. The future
trend analysis is done on some basic assumption that will continue in the
future. The trend analysis results are as follows:
 The trend line of total deposit for all sample banks is in increasing
trend. In fiscal year 2006 the trend values of NABIL, NIBL and HBL
are 8734.54, 11681.78 and 24529.74 respectively. It is increase to
59696.41, 84051.77 and 47073.28 for the forecast year 2015.
Among the sample banks NIBL has a highest trend of total deposit.
It means NIBL is successful in mobilizing the deposit.

 All the sample banks have increasing trend of the loan and
advances. Among them NIBL has highest increasing trend and
NABIL has lowest increasing trend. All the sample banks are
successful in mobilizing the Loan and Advances to different
productive and profitable sector. In fiscal year 2006 the trend values
of NABIL, NIBL and HBL are 6736.92, 7626.50 and 12629.26
respectively. It is increase to 44171.25, 67069.7 and 38336.59 for
the forecast year 2015.

91
 The trend values of NABIL and NIBL are in increasing trend, which
means futures of total deposit of these banks are good. But the
sample banks HBL has a decreasing trend of Investment. It means
HBL is not successful in mobilizing the Investment. In fiscal year
2006 the trend values of NABIL, NIBL and HBL are3932.2, 2323.74
and 6074.40 respectively. It is increase to 4602.7, 3940.41 and
5047.05and for the forecast year 2015.

 Although all sample banks has increasing trend of Net Profit NIBL
has highest increasing trend. In fiscal year 2006 the trend values of
NABIL, NIBL and HBL are 183.22, 199.66 and 358.73 respectively.
It is increase to 2103.52, 1714.45 and 1221.42 for the forecast year
2015.

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 CHAPTER 5
SUMMARY, CONCLUSION AND RECOMMENDATIONS

The proceeding chapters have discussed and explored the facts and matters
required for the various parts of the study, analytical part, which is the heart of
the study, made a comparative analysis of various aspects of the financial
performance of commercial banks by using some important financial as well
as statistical tool. Having completed the basic analysis required for the study,
the final and most important task of the researcher is to enlist, finding and give
recommendation for further improvement this would be meaningful to the top
management of the bank to initiate action and achieve the desired result. The
objective of the researcher is not only to point out an errors and mistakes but
also to correct them and give directions for further growth and improvement.

5.1 Summary
The development of any country largely depends upon its economic
development. Banking industries been regarded as one of the component of
economy. It transfers the scattered funds collected from saving of the public
into various productive sectors. Economic activities remains halt in absence of
banking industries as it plays the role of catalyst for economic development of
the country in the developing country where there prevail unorganized
transactions. It helps to enhance economic activities of the country by
providing capital funds for the smooth operation of business activities, create
employment opportunities, investing agriculture, industry. At present there are
more than 25 commercial banks operating in the country among which NBL
and RBB has occupied wide range of the business due to access to most of
the corner of the country. Slowly private banks are also initiating to move
toward every corner of the country but due to prevailing political crisis they are
not being able to meet their objects to reach to every corner of the country.
Due to increasing competition banks are forced to innovate new products to
their customer and they are also shifting from traditional service procedure to
various sophisticated services like ATM card, debit cards, credit card,
housing loan, educational loans, vehicle financing.

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Financial analysis is the process of determining the significant operation and
financial characteristics of a firm from accounting data. It shows the
relationship between the various component which can be found in balance
sheet and profit and loss statement. The analyzed statement contains that
information which is useful for management, shareholder, creditors, investors,
depositors etc. As in other industries banking industries also need financial
analysis, as it is crucial for evaluating and analyzing the performance of the
particular company as compare to the other and also from the previous
performance of the same company. So, this study almost concentrated in
following problems of the sampled banks.

In this study regarding the financial performance of the three banks namely
NABIL, NIBL and HBL has been conducted to highlight the hidden
implications of figures portrayed in the balance sheet and profit loss account
of the banks by interpreting their cause effect relationship with regard to their
finance performance and to identify their contribution to the national economy.
The objective of this study can also be identified as to come up with
conclusion and findings of the financial performance of banks with regard to
their key financial variables and based on the findings of the analysis; provide
specific suggestion which will be beneficial for these banks as well as for the
entire economy. The financial statement of five years 2007/2008 to 2011/2012
has been examined to fulfill the objective of the study.

5.2 Conclusions
The overall performance of sample banks found to be satisfactory. All sample
banks are not strong in all performance. Some are strong in liquidity position
and some are strong in profit making. The analysis of liquidity position of
these commercial banks shows different positions. The current ratio measures
only total rupees worth of current assets and total rupees of current liabilities,
i.e. it indicates the availability of current assets in rupees for everyone rupee
of current liability .Since mean ratios of NABIL found to be highest than NIBL
and HBL from which we can conclude that NABIL is successful to meet their

94
current obligation. Even though NIBL and HBL have failed to maintain the
current obligation they are not failed in earning the profit. From point of view of
working policy they have taken the aggressive policy.

The turnover of the commercial banks is the main indication of income

generating activity. These ratios are used to judge how efficiently the firm has
been using its resources. From the analysis of turnover of banks all the
sample banks are comparatively successful in assets management. Among
sample banks NABIL found to be comparatively best in mobilizing its assets
and deposits in profitable sectors in form of loan and advances and
Investment in Government securities

The main objective of a bank is to make profit providing different types of

services to its customers. Profit is necessary to survive in any business field
for its successful operation and further expansion. Profitability shows the
overall efficiency of the business concerns. From profitability point of view,
NIBL found to be better among sample banks because they pay lower interest
rate for debt fund and earn higher interest by mobilizing its deposit and assets
to different productive and profitable sectors.

Leverage ratio is calculated to measure the long-term financial position of a

firm. The analysis of leverage ratio shows that all the sample banks use a
high equity fund rather than debt fund. Debt fund need to pay an interest until
debt is hold by bank. Therefore debt fund is burden for the bank and it should
decrease according to the necessity.

Deposits are the main tool for developing banking performance of the banks.
And investment and loan and advances are keys to mobilize the deposit. All
sample banks have a positive relation between the Deposit and Loan &
Advances, Deposit and Investment, Investment and Net Profit and also Loan
and Advances and Net Profit, which shows by the correlation between these
variables. All the sample banks use their deposit use in proper way as Loan
and Advances and Investment. Among them NIBL is best. NABIL is weak in
earning the net profit through the loan and advances whereas NIBL and HBL

95
are successful to earn net profit by mobilizing the deposit to the investment.
Coefficient of correlation between Loan and Advances and Net profit shows
that all sample banks are successful in earning the net profit by mobilizing the
loan and advances.

The Trend Line Analysis of Deposit, Loan and Advance and Net Profit shows
increasing trend which indicates futures of those variables are bright. Also the
Trend Line Analysis of Investment of NIBL and NABIL are in increasing trend
but of HBL are in decreasing trend. Among them NIBL has highest increasing
trend in Deposit, Loan and Advances and Net Profit whereas NABIL has
Highest increasing trend in Investment. That indicates NIBL is successful in
mobilizing the deposit, Loan and Advances and net profit whereas NABIL has
successfully mobilize their Investment.

The overall sample banks is satisfactory however inflation in the current

situation came as a major factor in narrowing the scope of operation of these
banks. Therefore Nepal Rastra Bank has to play more active role to enhance
the operation. The analysis of financial performance shows that all the banks
have aggressive polices in investment and lending. Deposits are main tool of
investing and all banks’ deposit and net profit are in increasing trend.

Strengthening and the institutionalization of the banks are very important to

have a meaningful relationship between financial institution and national
development through shift of credit to the productive industrial sectors. At the
same time the series of reforms such as consolidation of banks, good
relationship between financial institution and commercial banks, directing
attention to venture capital financing, appropriate risk return trade of by linking
credit to timely repayment schedules, avoiding imperfections, allowing
flexibility in lending, one window service from NRB, need of a strong
supervision and monitoring from NRB, diversify scope of activities to fee
based services, allow funds transfer, refinancing facilities for banks,
professional culture within banks, etc. All these are necessary to ensure better
future performance of banks that have already been established and growing
in Nepal.

96
Banks have to prove that they are the potential contributors to the national
economy ensuring adequate rate of return on investment, efficient and viable
agencies for mobilization of savings and its channels into productive sectors
and strategically well planned to be competitive with competitors and other
agencies and are trust worthy.

5.3 Recommendations
From above finding and analysis it is clear that all banks are not strong in all
fields. Some of them are stronger in profit making but failed to maintain the
consistency, some are weaker in mobilizing their deposits; few of them have
concentrated into very limited diversified investments etc. Therefore the
following recommendations should be brought into highlight to overcome
inefficiency, weakness and to develop present fund mobilization and
investment policy of the banks:

 Bank should maintain the liquidity ratio for daily cash transaction. Bank
should not invest all the deposit as loan and advances. According to
the policy of NRB some percentage should kept in the banks for
fulfilling require demand of the customer. The Standard liquidity ratio is
2:1. The depositor may demand the money at time so; bank should be
ready at any time. In this research none of sample bank has the
standard ratio due to their aggressive working capital policy. Therefore
all sample banks should modify their working capital policy to maintain
the standard ratio. If sample banks cannot maintain the ratio they may
failed to maintain the daily cash transaction.

 The Company must apply different development scheme such as

deposit, insurance scheme, workers saving scheme and women
development scheme through which banks can attract more
customers.

97
 HBL have less mobilization of total deposit to loan and advances
among sample banks. The purpose of loan and advances is to
generate an income for the banks. So, HBL should increase a loan and
advances to different productive or profitable sectors. HBL should
maintain the consistency.

 HBL are failed to maintain the average ratio which indicate that they
are not very much successful in mobilizing the loan and advance with
respect to the total assets. So, HBL should try to mobilize the Loan and
Advance with respect to Total Assets.

 Among sample banks, HBL is less successful in mobilizing its deposit

by investing in different productive sectors. Investment is the key to
earn a profit. Therefore, they should invest in different productive
sectors by utilizing the different types of deposit. Since there
consistency level is very high they should maintain stability in total
investment.

 The overall investment of the Bank should be concentrated on

productive sector such as business and industrial loan rather than
consumer product such as hire purchase and housing loan. Because
industrial and business sector will create the employment opportunity
which is necessary for capital formation and economic growth.

 NIBL also should increase its investment toward government

securities. And decrease a variation of investment on government
securities. Even though Government Securities have low interest rate,
they are risk free assets because government securities have
marketability and can sell any time when needed.

 Profit is a key of success of any business. The bank also cannot

survive without the profit. So, they should keep in the mind for profit
maximization. But in long term business bank also should be concern

98
 with the shareholder’s wealth maximization as they are investor of the
bank.

 NABIL is not successful as NIBL and HBL to earn a net profit by

utilizing its assets and deposits. So, NABIL should invest its deposits
and utilize its assets in different productive and profitable sectors on
the basis of portfolio management. The portfolio management of assets
basically means allocation of funds into different components of
banking assets having different degrees of risk and varying rate of
return in such a way that the conflicting goal of maximum yield and
minimum risk. So, portfolio condition of each bank should carefully be
examined from time to time and attention should be made to maintain
equilibrium in the portfolio condition as far as possible keeping the
statement in mind that all eggs should not be kept in the same basket.
Even though NIBL has higher net profit with respect to total assets and
deposit, they are failed to maintain stability. Therefore they should
decrease a variation level. HBL also fail to maintain consistency. They
should try to maintain consistency level.

 NABIL should maintain stability in earning an interest since they have

greater variation in earning an interest. Also NABIL have low interest
earning among the sample banks they should increase an interest
earning because it will directly effect to the net profit.

 The economic liberalization has made the entire bank to determine the
own interest rate. But nowadays dew to unhealthy competition the
spread between the deposit and lending interest has being higher than
Nepal Rastra’s Banks policy. If the depositor interest rate is very low
then depositor may not interest to deposit their saving. Therefore the
spread should be fixed according to the NRB.

 NIBL paid a higher interest among sample bank which mean that they
used more creditors funds or paid higher interest rate in investment.

99
 So, they need to use equity fund rather than debt or should pay a less
interest rate. NABIL should maintain stability in paying the interest
because their variation in interest rate is high.

 The discrimination in lending interest should not be done by the bank

because it will bring the dissatisfaction to the general public. This may
lead to discourage toward deposit in the bank in long term business.
The rate of interest should be fixed accordance to the situation of the
country. There should not be unhealthy competition regarding the
interest rate to attract customer.

 All the sample banks have more creditors fund to acquire an assets &
investment. This means they all have more debt financing in assets.
Since debt financing need to pay an interest regularly, higher debt are
burden to bank. Among sample banks highest debt is used by HBL.
Therefore they should decrease a debt financing and increase an
equity financing, which may help in increasing profit to some extent.
Equity fund is invest by shareholder and banks should pay dividend
which may be very low than interest. So, more financing should do
from equity fund rather than debt fund.

 Banks should evaluate its investment portfolio every year. Investment

portfolio must be balanced in each sector according to the NRB rules
and company’s self-policy. It should calculate co-efficient of correlation
and regression among deposit, investment and return of the company.

 Nepal Rastra Bank should clearly define its role and strict monitoring
for the efficient operations of Banks so that they can use the facilities
as much as possible. Besides that, NRB should show open to all,
flexible and strong supervision rather than imposing rules and
regulations only.

100
 The success rate of banking mainly depends upon the banking
awareness by the general public. Unless they find a convincing reason
about their savings as well as new approach of investment, it is almost
impossible to make live for a bank. Therefore there should be the
awareness program, regularly conducted in terms of seminars or
workshops from well experienced personnel such as top executives
from Banks and concerned regulating authorities. This will exchange
the ideas and share the grass root problems. On the basis of this feed
back information, regular changes or implementation of new rules and
regulations can be easily carried out. Nepal Rastra Bank should also
encourage frequent trainings to new entrants to provide orientations on
the conceptual dimensions and practical aspects of operation of the
Banks.

 Today is an age of competition. Bank should be survived within these

competitions. Therefore for attraction of the deposit, they should
brought different attractive programmed , facilities , technology etc. like
ATM, credit cards, 365days banking service, prompt service etc.

 In the present situation, it is the utmost important to provide security

and the reliability. So the bank should focus on the security concern in
order to make the customer feel that they more secured in investing in
the bank whether it may be NABIL, NIBL or HBL.

 It is suggested to all the sample banks that they should use well-trained
manpower. Well trained manpower will provide better services to the
bank and customer. They will try to increase the operating efficiency of
the bank, so the banks have to conduct "Training School" for their
personal.

Banks play a vital role in development of economy of the country. However

all the banks have satisfactory performance, there is situation of inflation
which is a cause of narrow scope operation. Therefore NRB has to come

101
with strong supervision and monitoring with one window service in lending
and investment activities. Banks have to prove that they are the potential
contributors to the national economy ensuring adequate rate of return on
investment, efficient and viable agencies for mobilization of savings and its
channels into productive sectors and strategically well planned to be
competitive with banks and other agencies and are trust worthy.

102
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Websites:
1. http://www.nabilbank.com/
2. http://www.nibl.com.np/
3. www.hbl.com.np
4. http://www.nepalstock.com/
5. http://www.enumerate.com/
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 Appendix - 1
Current Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) X times) X times X
x x ) x
2007/0 (0.049 (0.043
0.138 0.034 0.001 0.109 0.002 0.061 0.002
8 ) )
2008/0 (0.005
0.099 0.000 0.169 0.012 0.000 0.121 0.017 0.000
9 )
2009/1 (0.008 (0.021
0.096 0.000 0.136 0.000 0.110 0.006 0.000
0 ) )
2010/1 (0.010 (0.014
0.094 0.000 0.164 0.007 0.000 0.090 0.000
1 ) )
2011/1 (0.012
0.092 0.000 0.209 0.051 0.003 0.139 0.034 0.001
2 )
∑X 0.520 0.787 0.522
Mean 0.104 0.157 0.104
0.00 0.00 0.00
∑d2
1 6 4
S.D. 0.0192 0.038 0.030
C.V.(%) 18.44 23.86 28.53

Mean =
X
N
Nabil Bank Nepal Investment Bank Himalayan Bank

= 0.520 = 0.787 = 0.522

5 5 5
= 0.104 = 0.157 = 0.104

S.D. =
d 2

N 1
Nabil Bank Nepal Investment Bank Himalayan Bank

0.001 0.006 0.004

= = =
5 1 5 1 5 1
= 0.0192 = 0.038 = 0.004
S .D.
Coefficient of Variations ( C.V.) =  100
Mean
Nabil Bank Nepal Investment Bank Himalayan Bank

106
 0.0192 0.0283 0.0806
= *100 =  100 =  100
0.520 0.9347 0.8444

= 18.44% = 3.0260 % = 9.5452 %

Appendix - 2
Cash balance and Total Deposit
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.084 0.018 0.000 0.109 (0.048) 0.002 0.045 (0.043) 0.002
2008/09 0.090 0.024 0.001 0.170 0.013 0.000 0.088 (0.000) 0.000
2009/10 0.030 (0.036) 0.001 0.136 (0.021) 0.000 0.103 0.014 0.000
2010/11 0.049 (0.017) 0.000 0.162 0.006 0.000 0.072 (0.016) 0.000
2011/12 0.078 0.012 0.000 0.207 0.050 0.003 0.133 0.045 0.002
∑X 0.331 0.784 0.442
Mean 0.066 0.157 0.088
∑d2 0.003 0.005 0.004
S.D. 0.0256 0.037 0.033
C.V.(%) 38.62 23.51 37.18

Appendix - 3
Cash and bank balance to current ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- 2 (in d = X- 2 (in d = X-
d d d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.578 (0.039) 0.002 1.000 0.007 0.000 0.736 (0.093) 0.009
2008/09 0.859 0.243 0.059 1.000 0.007 0.000 0.723 (0.107) 0.011
2009/10 0.310 (0.307) 0.094 1.000 0.007 0.000 0.926 0.097 0.009
2010/11 0.498 (0.118) 0.014 0.982 (0.011) 0.000 0.802 (0.028) 0.001
2011/12 0.838 0.221 0.049 0.983 (0.010) 0.000 0.960 0.131 0.017
∑X 3.083 4.965 4.147
Mean 0.617 0.993 0.829
∑d2 0.217 0.000 0.047
S.D. 0.2331 0.010 0.109
C.V.(%) 37.81 0.97 13.11

107
 Appendix - 4
Loan and Advances to total deposit ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.578 (0.039) 0.002 0.784 0.001 0.000 0.612 (0.103) 0.011
2008/09 0.859 0.243 0.059 0.776 (0.007) 0.000 0.715 (0.000) 0.000
2009/10 0.310 (0.307) 0.094 0.805 0.022 0.000 0.744 0.029 0.001
2010/11 0.498 (0.118) 0.014 0.820 0.037 0.001 0.771 0.056 0.003
2011/12 0.838 0.221 0.049 0.730 (0.053) 0.003 0.733 0.018 0.000
∑X 3.083 3.915 3.575
Mean 0.617 0.783 0.715
∑d2 0.217 0.005 0.015
S.D. 0.2331 0.034 0.061
C.V.(%) 37.81 4.35 8.53

Appendix - 5

Investment on government Securities to Total Deposit

Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.311 0.028 0.001 0.200 0.027 0.001 0.419 0.155 0.024
2008/09 0.290 0.007 0.000 0.158 (0.014) 0.000 0.251 (0.013) 0.000
2009/10 0.295 0.012 0.000 0.172 0.000 0.000 0.225 (0.039) 0.002
2010/11 0.263 (0.020) 0.000 0.148 (0.024) 0.001 0.214 (0.050) 0.002
2011/12 0.255 (0.028) 0.001 0.183 0.011 0.000 0.210 (0.054) 0.003
∑X 1.415 0.862 1.319
Mean 0.283 0.172 0.264
∑d2 0.002 0.002 0.031
S.D. 0.0232 0.020 0.088
C.V.(%) 8.20 11.74 33.42

108
 Appendix - 6
Net Profit to Total Assets Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- 2 (in d = X- 2 (in d = X-
d d d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.020 (0.003) 0.000 0.018 (0.001) 0.000 0.018 0.001 0.000
2008/09 0.024 0.000 0.000 0.017 (0.001) 0.000 0.019 0.002 0.000
2009/10 0.022 (0.001) 0.000 0.022 0.003 0.000 0.012 (0.005) 0.000
2010/11 0.023 (0.000) 0.000 0.020 0.001 0.000 0.019 0.002 0.000
2011/12 0.027 0.004 0.000 0.016 (0.003) 0.000 0.018 0.001 0.000
∑X 0.115 0.093 0.085
Mean 0.023 0.019 0.017
∑d2 0.000 0.000 0.000
S.D. 0.0025 0.002 0.003
C.V.(%) 10.78 13.27 17.49

Appendix - 7
Net Profit to Total Deposit Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.023 (0.003) 0.000 0.020 (0.001) 0.000 0.020 0.001 0.000
2008/09 0.028 0.001 0.000 0.020 (0.002) 0.000 0.022 0.002 0.000
2009/10 0.025 (0.002) 0.000 0.025 0.004 0.000 0.014 (0.006) 0.000
2010/11 0.027 0.000 0.000 0.023 0.002 0.000 0.022 0.002 0.000
2011/12 0.031 0.004 0.000 0.018 (0.003) 0.000 0.020 0.001 0.000
∑X 0.133 0.107 0.097
Mean 0.027 0.021 0.019
∑d2 0.000 0.000 0.000
S.D. 0.0029 0.003 0.003
C.V.(%) 10.86 13.58 17.55

109
 Appendix - 8
Total Interest Earned to Total Working Fund Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- 2 (in d = X- 2 (in d = X-
d d d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.059 (0.027) 0.001 0.064 (0.025) 0.001 0.062 (0.022) 0.000
2008/09 0.072 (0.015) 0.000 0.070 (0.019) 0.000 0.068 (0.016) 0.000
2009/10 0.087 0.001 0.000 0.093 0.004 0.000 0.084 0.000 0.000
2010/11 0.102 0.016 0.000 0.115 0.026 0.001 0.106 0.022 0.000
2011/12 0.111 0.025 0.001 0.104 0.015 0.000 0.099 0.016 0.000
∑X 0.431 0.445 0.417
Mean 0.086 0.089 0.083
∑d2 0.002 0.002 0.001
S.D. 0.0212 0.022 0.019
C.V.(%) 24.54 24.61 22.97

Appendix - 9
Total Interest Paid to Total Working Fund Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- (in d = X- (in d = X-
d2 d2 d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.023 (0.019) 0.000 0.029 (0.022) 0.000 0.026 (0.017) 0.000
2008/09 0.030 (0.012) 0.000 0.036 (0.015) 0.000 0.027 (0.015) 0.000
2009/10 0.042 0.000 0.000 0.051 0.000 0.000 0.041 (0.001) 0.000
2010/11 0.058 0.016 0.000 0.072 0.021 0.000 0.059 0.017 0.000
2011/12 0.057 0.015 0.000 0.066 0.015 0.000 0.059 0.017 0.000
∑X 0.209 0.254 0.212
Mean 0.042 0.051 0.042
∑d2 0.001 0.001 0.001
S.D. 0.0157 0.019 0.016
C.V.(%) 37.65 36.58 38.50

110
 Appendix - 10
Debt Assets Ratio Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- 2 (in d = X- 2 (in d = X-
d d d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.050 0.015 0.000 0.029 0.005 0.000 0.029 0.012 0.000
2008/09 0.056 0.021 0.000 0.022 (0.002) 0.000 0.016 (0.001) 0.000
2009/10 0.015 (0.019) 0.000 0.020 (0.004) 0.000 0.017 0.000 0.000
2010/11 0.041 0.006 0.000 0.023 (0.001) 0.000 0.012 (0.005) 0.000
2011/12 0.013 (0.022) 0.000 0.025 0.001 0.000 0.010 (0.007) 0.000
∑X 0.174 0.118 0.082
Mean 0.035 0.024 0.016
∑d2 0.002 0.000 0.000
S.D. 0.0198 0.004 0.008
C.V.(%) 56.90 14.79 45.74

Appendix - 11
Debt- Equity Ratio
Banks
Nepal Investment Himalayan Bank
Nabil Bank Limited
Bank Limited
Ratio Ratio Ratio
Fiscal (in d = X- 2 (in d = X- 2 (in d = X-
d d d2
Year times) Mean times) Mean times) Mean
x x x
2007/08 0.754 0.273 0.074 0.420 0.122 0.015 0.416 0.202 0.041
2008/09 0.781 0.300 0.090 0.300 0.001 0.000 0.197 (0.017) 0.000
2009/10 0.209 (0.273) 0.074 0.245 (0.053) 0.003 0.208 (0.006) 0.000
2010/11 0.518 0.037 0.001 0.260 (0.039) 0.002 0.136 (0.078) 0.006
2011/12 0.145 (0.336) 0.113 0.268 (0.031) 0.001 0.112 (0.102) 0.010
∑X 2.407 1.493 1.069
Mean 0.481 0.299 0.214
∑d2 0.353 0.020 0.058
S.D. 0.2971 0.071 0.120
C.V.(%) 61.72 23.73 56.22

111
 APPENDIX - 12

Trend Line Analysis of Deposits

y = a + bx

Nabil Bank Limited

Calculation of Trend Values of Deposit Future Projection of Next Five Year

x= x=
2 yc= 20059.4 + 5662.43
Deposit t- xy x x
year t- yc= 20059.4 + 5662.43 x
year (t) (y) 2008 2008
2006 10097.69 -2 -20195.4 4 8734.54 2011 3 37046.69
2007 13802.44 -1 -13802.4 1 14396.97 2012 4 42709.12
2008 19097.7 0 0 0 20059.4 2013 5 48371.55
2009 23976.3 1 23976.3 1 25721.83 2014 6 54033.98
2010 33322.9 2 66645.8 4 31384.26 2015 7 59696.41
100297 0 56624.28 10

Where, a= ∑Y b= ∑XY
N ∑X2

Nepal Investment Bank Limited

Calculation of Trend Values of Deposit Future Projection of Next Five Year

Deposit x = t- 2 yc=27764.0 + 8041.11 x= t yc= 27764.0 +

year (t) (y) 2008 xy x x
year
-2008 8041.11 x
2006 14254.57 -2 -28509.1 4 11681.78 2011 3 51887.33
2007 18927.31 -1 -18927.3 1 19722.89 2012 4 59928.44
2008 24488.84 0 0 0 27764.00 2013 5 67969.55
2009 34451.8 1 34451.8 1 35805.11 2014 6 76010.66
2010 46697.9 2 93395.8 4 43846.22 2015 7 84051.77
138820.4 0 80411.15 10

Himalayan Bank Limited

Calculation of Trend Values of Deposit Future Projection of Next Five Year

x=
2 yc= 29539.4 + 2504.84 x= t yc= 29539.4 +
Deposit t- xy x x
year
-2008 2504.84 x
year (t) (y) 2008
2006 24814.01 -2 -49628.0 4 24529.74 2011 3 37053.92
2007 26490.85 -1 -26490.9 1 27034.56 2012 4 39558.76
2008 29905.8 0 0 0 29539.4 2013 5 42063.6
2009 31805.8 1 31805.3 1 32044.24 2014 6 44568.44
2010 34681.0 2 69362.0 4 34549.08 2015 7 47073.28
0 25048.43 10

112
 APPENDIX – 13

Trend Line Analysis of Loan and Advances

y = a + bx

Nabil Bank Limited

Calculation of Trend Values of Loan and Advances Future Projection of Next Five Year

Loan &
2 x = t
year Advances x = t- xy x yc= 15055.66+4159.37x year
-2008
yc=15055.66+4159.37x x
(t) (y) 2008
2006 7914.4 -2 -15828.8 4 6736.92 2011 3 27533.77
2007 10124.2 -1 -10124.2 1 10896.29 2012 4 31693.14
2008 14059.2 0 0 0 15055.66 2013 5 35852.51
2009 18814.3 1 18814.3 1 19215.03 2014 6 40011.88
2010 24366.2 2 48732.4 4 23374.4 2015 7 44171.25
75278.3 0 41593.7 10

Nepal Investment Bank Limited

Calculation of Trend Values of Loan and Advances Future Projection of Next Five Year

Loan &
2 x = t
year Advances x = t- xy x yc=20836.1+6604.83 x year
-2008
yc=20836.1+6604.83 x
(t) (y) 2008
2006 10295.4 -2 -20590.8 4 7626.5 2011 3 40650.5
2007 13007.2 -1 -13007.2 1 14231.3 2012 4 47255.3
2008 17482 0 0 0 20836.1 2013 5 53860.1
2009 27145.5 1 27145.5 1 27440.9 2014 6 60464.9
2010 36250.4 2 72500.8 4 34045.7 2015 7 67069.7
104180.5 0 66048.3 10

Himalayan Bank Limited

Calculation of Trend Values of Loan and Advances Future Projection of Next Five Year

Loan & x =
2 x= t-
year Advances t- xy x yc=18342+2856.37 x year
2008
yc= 18342+2856.37 x
(t) (y) 2008
2006 13245 -2 -26490 4 12629.26 2011 3 26911.11
2007 15515.7 -1 -15515.7 1 15485.63 2012 4 29767.48
2008 17672 0 0 0 18342 2013 5 32623.85
2009 19985.2 1 19985.2 1 21198.37 2014 6 35480.22
2010 25292.1 2 50584.2 4 24054.74 2015 7 38336.59
91710 0 28563.7 10

113
 APPENDIX - 14

Trend Line Analysis of Investments

y = a + bx

Nabil Bank Limited

Calculation of Trend Values of Investment Future Projection of Next Five Year

x=
year Investment 2 x= t-
(t) (y)
t- xy x yc=4081.2 + 74.5 x year
2008
yc=4081.2 + 74.5 x
2008
2006 2100.3 -2 -4200.6 4 3932.2 2011 3 4304.7
2007 3548.6 -1 -3548.6 1 4006.7 2012 4 4379.2
2008 4704.6 0 0 0 4081.2 2013 5 4453.7
2009 4906.5 1 4906.5 1 4155.7 2014 6 4528.2
2010 5146 2 10292 4 4230.2 2015 7 4602.7
20406 0 7449.3 10

Nepal Investment Bank Limited

Calculation of Trend Values of Investments Future Projection of Next Five Year

x=
year Investment t- 2
x= t-
(t) (y) 2008 xy x yc=2683.0 + 179.63 x year 2008 yc=2683.0 + 179.63 x
2006 1949.5 -2 -3899 4 2323.74 2011 3 3221.89
2007 2522.3 -1 -2522.3 1 2503.37 2012 4 3401.52
2008 3256.4 0 0 0 2683 2013 5 3581.15
2009 3155 1 3155 1 2862.63 2014 6 3760.78
2010 2531.3 2 5062.6 4 3042.26 2015 7 3940.41
13414.5 0 1796.3 10

Himalayan Bank Limited

Calculation of Trend Values of Investments Future Projection of Next Five Year

year Investment x = t- 2
x= t-
(t) (y) 2008 xy x yc=5846.1+(-114.15) x year 2008 yc= 5846.1+(-114.15) x
-
2006 5946.7 -2 11893.4 4 6074.4 2011 3 5503.65
2007 5144.4 -1 -5144.4 1 5960.25 2012 4 5389.5
2008 6454.8 0 0 0 5846.1 2013 5 5275.35
2009 7471.7 1 7471.7 1 5731.95 2014 6 5161.2
2010 4212.3 2 8424.6 4 5617.8 2015 7 5047.05
29229.9 0 -1141.5 10

114
 APPENDIX - 15

Trend Line Analysis of Net Profit

y = a + bx

Nabil Bank Limited

Calculation of Trend Values of Net Profit Future Projection of Next Five Year

Net
year x = t- 2 x= t
(t)
Profit
2008 xy x yc=276.62+46.69 x year
-2008
yc= 276.62+46.69 x
(y)
2006 170.8 -2 -341.6 4 183.22 2011 3 416.72
2007 237.3 -1 -237.3 1 229.92 2012 4 463.42
2008 296.4 0 0 0 276.62 2013 5 510.12
2009 311.4 1 311.4 1 323.32 2014 6 556.82
2010 367.2 2 734.4 4 370.02 2015 7 603.52
1383.1 0 466.9 10

Nepal Investment Bank Limited

Calculation of Trend Values of Net Profit Future Projection of Next Five Year

Net
year x = t- 2 x= t-
(t)
Profit
2008 xy x yc=536.28+168.31x year
2008
yc=536.28+168.31x
(y)
2006 232.15 -2 -464.3 4 199.66 2011 3 1041.21
2007 350.54 -1 -350.54 1 367.97 2012 4 1209.52
2008 501.39 0 0 0 536.28 2013 5 1377.83
2009 696.73 1 696.73 1 704.59 2014 6 1546.14
2010 900.62 2 1801.24 4 872.9 2015 7 1714.45
2681.43 0 1683.13 10

Himalayan Bank Limited

Calculation of Trend Values of Net Profit Future Projection of Next Five Year

Net
year x = t- 2 x= t-
(t)
Profit
2008 xy x yc=461.54+51.41 x year
2008
yc= 461.54+51.41 x
(y)
2006 308.28 -2 -616.56 4 358.73 2011 3 615.78
2007 457.46 -1 -457.46 1 410.14 2012 4 667.19
2008 491.82 0 0 0 461.55 2013 5 718.6
2009 512.23 1 512.23 1 512.96 2014 6 770.01
2010 537.95 2 1075.9 4 564.37 2015 7 821.42
2307.74 0 514.11 10

115