CHAPTER-1
INTRODUCTION
1.1 Industry
information
Origin of the
word bank
The word bank was borrowed in Middle English from
Middle French banque, from Old Italian banca, from Old High German bank, bank
"bench, counter". Benches were used as desks or exchange counters
during the Renaissance by Florentine bankers, who used to make their
transactions atop desks covered by green tablecloths.
One of the oldest items found showing money-changing
activity is a silver Greek drachm coin from ancient Hellenic colony Trapezus on
the Black Sea, modern Trabzon, and c. 350–325 BC, presented in the British
Museum in London. The coin shows a banker's table laden with coins, a pun on
the name of the city. In fact, even today in Modern Greek the word Trapeza means
both a table and a bank (in everyday speech). [The everyday word used for
"table" is trapezi, a modern form of the archaic trapeza.
In the modern era, the story of "the
elite" commences with the development of the modern banking system in
Middle Ages Europe. At that time, disposable wealth was usually held in the
form of gold or silver bullion. For safety, such assets were kept in the safe
of the local goldsmith, he usually being the only individual who had a vault on
his premises. The goldsmith would issue a receipt for the deposit and, to
undertake financial transactions, the buyer would withdraw his gold and give it
to the seller, who would then deposit it again, frequently with the same
goldsmith. As this was a time-consuming process, it became common practice for
people to simply exchange smiths' receipts when conducting financial
transactions.
As
time passed, the goldsmiths began to issue receipts for specific values of
gold, making buying and selling easier still. The smiths' receipts thus became
the first banknotes. The goldsmiths, now fledgling bankers, noticed that at any
one time only a small proportion of the gold held with them was being
withdrawn. So they hit upon the idea of issuing more of the receipt notes
themselves, notes that did not refer to any actual deposited wealth. By giving
these receipts to people seeking capital, in the form of loans, the goldsmiths
could use the money deposited with them by others to make money for themselves.
It was found that, for every unit of gold held by the goldsmith, ten times the
sum could be safely issued as notes without anyone usually becoming any the
wiser. If a goldsmith held, say, 100 pounds of other people's gold in his
vaults, he could issue banknotes to the value of 1000 pounds. As long as no
more than 10 percent of the holders of those notes wanted their gold at any one
time, no one would realize the fraud being perpetrated. This practice, known as
"fractional reserve lending," continues to this day and is actually
the backbone of the modern banking industry. Banks typically loan ten times
their actual financial holdings, meaning 90% of the money they lend does not
now, never has, and never will exist.
Loans
issued by the goldsmiths had to be paid back to them with interest, meaning
non-existent money slowly became converted to tangible assets in the form of
goods and labour. Should the loan be defaulted upon, the banker had the right
to seize the defaulter's property. As time passed, therefore, the goldsmiths
became wealthier and wealthier. They had devised a scheme to create money out
of thin air and then convert this money into real goods, labour, or property. A
loan of money at 12% interest recouped not merely 12% for the banker, but 112%,
as it does to this day.
As
the industrial era began, so the potential for furthering this scheme increased
exponentially. The goldsmiths were now fully-fledged bankers, and their ability
to create money out of thin air and then convert it into tangible assets
enabled them to begin to control whole industries to the point where the worlds
of banking and industry became, to all intents and purposes, seamless entities.
Extended family banking structures, such as the Rothschilds, acquired so much
power in this manner that the various monarchies and fledgling governments of
the time soon began to seem quite feeble by comparison.
To
increase their power and influence still further, these elite banking families
would subtly buy influence within governments or monarchies and utilise this
influence to strategically stir up unrest between nations. When the inevitable
disputes broke out, they would then lend vast sums of money, usually to both
sides, so that war could be waged. Any armaments purchased would be those
manufactured by the industrial wing of the banking-industrial cartel, and by
regulating the loan of money and the timing of the delivery of weapons, the
outcome of any conflict could effectively be controlled. If deemed necessary,
monarchies and governments could further be destabilized by generating poverty
through regulating the money supply, and by using agent-provocateur tactics to
fuel any latent desire for revolution. With such power it was easy to control
the fledgling governments of Europe and ensure that only those politicians who
would do the will of the banking families came to power.
As
the technological revolution progressed, so the buying up of TV stations and
newspapers allowed the creation and control of the mass media. This served to
ensure that only a portrayal of events that suited the interests of the elite
banking families would get to public attention - invariably one that all but
denied their very existence.
Banking in Nepal
The
initiation of formal banking system in Nepal commenced with the establishment
in 1937 of Nepal Bank Limited (NBL), the first Nepalese commercial bank, the
country's central bank, Nepal Rastra Bank (NRB) was established in 1956 by Act
of 1955, after nearly two decades of NBL having been in existence. A decade
after the establishment of NRB, Rastriya Banijya Bank (RBB), a commercial bank
under the ownership of His Majesty’s Government of Nepal (HMG/N) was
established. Thereafter, HMG/N adopted open and liberalized policies in the mid
1980s reflected by the structural adjustment process, which included
privatization, tariff adjustments, liberalization of industrial licensing,
easing of terms of foreign investment and more liberal trade and foreign
exchange regime was initiated. With the adoption of liberalization policy,
there has been rapid development of the domestic financial system both in terms
of number of financial institutions and as ratio of financial assets to the
GDP. As of July 2005, the number of commercial banks has reached 17 and their
branches numbered 375. A total of 60 finance companies and other Development
Banks and numerous credit cooperatives have also been established. Total
financial assets in 2004/2005 reached around 54.09 percent of GDP and the
M2/GDP ratio, which shows the financial sector development or financial
deepening increased from in 12.4 percent in 1975 to 50.9 percent in 2000.
In the
context of banking development, the 1980s saw a major structural change in
financial sector policies, regulations and institutional developments. HMG/N
emphasized the role of the private sector for the investment in the financial
sector. The financial sector liberalization, started already in the early
eighties with the liberalization of the interest rates, encompassed further
deregulation of interest rates, relaxation of entry barriers for domestic and
foreign banks, restructuring of public sector commercial banks and withdrawal
of central bank control over their portfolio management (Acharya et al, 2003).
These policies opened the doors for foreigners to enter into banking sector
under joint venture. Consequently, the third commercial bank in Nepal, or the
first foreign joint venture bank, was set up as Nepal Arab Bank Ltd (now called
as NABIL Bank Ltd). In 1984
Range of
activities performed by Bank
Activities undertaken by large banks include
investment banking, corporate banking, private banking, insurance, consumer
finance, foreign exchange trading, commodity trading, trading in equities,
futures and options trading and money market trading.
Types of Banking
1. Retail
banking: dealing directly with individuals and small businesses;
2. Business
banking: providing services to mid-market business;
3. Corporate
banking: directed at large business entities;
4. Private
banking: providing wealth management services to high net worth individuals and
families;
5. Investment
banking: relating to activities on the financial markets.
In Context of
Nepal
1. (Class:
A) Commercial Bank
2. (Class:
B) Development Bank
3. (Class:
C) Finance Companies
4. (Class:
D) Micro Credit Developments Banks
Most banks are profit-making, private enterprises.
However, some are owned by government, or are non-profit organizations.
Challenges of
Banking
As the financial markets continue to evolve,
financial institutions are working to grow and maintain profits while adjusting
to ever-changing regulations and the downturn’s effects on profitability and
performance. Successful institutions will need to reassess their operating
models and address the effects of regulatory reform, competitive dynamics,
evolving markets and increased expectations from stakeholders. The main
challenges banking institutions face nowadays can be categorised as follows:
Ø Industry strategic
challenges:
Banks have to face significant strategic challenges.
Private banking industry professionals need to reinvent themselves in order to
reinforce as a leading pole in private banking services. Retail bankers also
have to face a growing competition from abroad as well as from non-traditional
institutions. Asset management and investor services institutions need to
prepare themselves for significant changes in infrastructures, regulatory frameworks
and their competitive landscape. Institutions will have to improve their
understanding of their clients and re-examine the value and promotion of their
products to ensure they remain competitive in this new environment.
Ø Industry regulatory
challenges:
The constant evolution of local and international
regulations is a major driving force in the banking and securities industry. The
likely introduction of Basel III standards, as an example, will have a major
impact on the way institutions run their business. There is likely to be an
increased focus on capital efficiency. The introduction of new oversight rules
and bodies may also have far reaching implications for the industry. Implementing
all these rules can be an issue, yet the real challenge is more about
optimising your regulatory investments than merely complying.
Ø Industry operational
efficiency challenges:
To appropriately address strategic and regulatory
challenges, impeccable execution is a must. Constantly improving operational
efficiency has to be high on the agenda of bankers. Now more than ever,
institutions have to optimise their processes, control their cost structure,
and explore new operating models using all the tools now at their disposal. Analysing
the opportunity to mutualise operations or IT systems across entities or
geographies, outsourcing non core activities, improving risk management
frameworks and tools are some of the areas where financial institutions can
find the levers to reach excellence.
Some of other
risks faced by banks include:
Ø Credit
risk: risk of loss [citation needed] arising from a borrower who does not make
payments as promised.
Ø Liquidity
risk: risk that a given security or asset cannot be traded quickly enough in
the market to prevent a loss (or make the required profit).
Ø Market
risk: risk that the value of a portfolio, either an investment portfolio or a
trading portfolio, will decrease due to the change in value of the market risk
factors.
Ø Operational
risk: risk arising from execution of a company's business functions.
Ø Reputational
risk: a type of risk related to the trustworthiness of business.
Ø Macroeconomic
risk: risks related to the aggregate economy the bank is operating in.
The capital requirement is a bank regulation, which
sets a framework within which a bank or depository institution must manage its
balance sheet. The categorization of assets and capital is highly standardized
so that it can be risk weighted.
1.2 Organization
Information
History of
Banking in Nepal
His
Majesty King Tribhuvan inaugurated Nepal Bank Limited on Kartik 30, 1994 Bikram
Sambat. This marked the beginning of an era of formal banking in Nepal. Until
then all monetary tractions were carried out by private dealers and
trading centre.
Then Prime Minister Maharaja Juddha Shumsher J.B.R. speaking on the occasion with the kind permission of His Majesty the King stated this work which is being done in the larger interest of the nation is a great moment for me. Until today a bank could not be opened in Nepal. Therefore this bank, which is being established under the name of Nepal Bank Limited to fill that, need and to be inaugurated by His Majesty the King, is a moment of great joy and happiness.
The Bank's objectives to render service to the people whether rich or poor and to contribute to the nation's development will also need the support and best wishes of all, which I am confident, will be forthcoming.
In that era, very few understood or had confidence in this new concept of formal banking. Rising equity shares were not easy and mobilization of deposits even more difficult. This was evident when the bank floated equity shares worth NRs. 2,500,000, but was successful only in raising NRs. 842,000.
"In the absence of any bank in Nepal the economic progress of the country was being hampered and causing inconvenience to the people and therefore with the objective of fulfilling that need by providing service to the people and for the betterment of the country, this law in hereby promulgated for the establishment of the Bank and its operation"
The total deposits for the first year was NRs. 17,02,025 where current deposits was about NRs. 12,98,898 fixed was about NRs. 3,88,964 and saving was NRs. 14,163. Loan disbursed and outstanding at the end of the first year was NRs. 1,985,000.
From the very conception and its creation, Nepal Bank Ltd, was as joint venture between the government and the private sector. Out of 2500 equity shares of NRs. 100 face value, 40% was subscribed by the government and the balanced i.e. 60% was offered for the sale to private sector. There were only 10 shareholders when the bank first started.
Then Prime Minister Maharaja Juddha Shumsher J.B.R. speaking on the occasion with the kind permission of His Majesty the King stated this work which is being done in the larger interest of the nation is a great moment for me. Until today a bank could not be opened in Nepal. Therefore this bank, which is being established under the name of Nepal Bank Limited to fill that, need and to be inaugurated by His Majesty the King, is a moment of great joy and happiness.
The Bank's objectives to render service to the people whether rich or poor and to contribute to the nation's development will also need the support and best wishes of all, which I am confident, will be forthcoming.
In that era, very few understood or had confidence in this new concept of formal banking. Rising equity shares were not easy and mobilization of deposits even more difficult. This was evident when the bank floated equity shares worth NRs. 2,500,000, but was successful only in raising NRs. 842,000.
"In the absence of any bank in Nepal the economic progress of the country was being hampered and causing inconvenience to the people and therefore with the objective of fulfilling that need by providing service to the people and for the betterment of the country, this law in hereby promulgated for the establishment of the Bank and its operation"
The total deposits for the first year was NRs. 17,02,025 where current deposits was about NRs. 12,98,898 fixed was about NRs. 3,88,964 and saving was NRs. 14,163. Loan disbursed and outstanding at the end of the first year was NRs. 1,985,000.
From the very conception and its creation, Nepal Bank Ltd, was as joint venture between the government and the private sector. Out of 2500 equity shares of NRs. 100 face value, 40% was subscribed by the government and the balanced i.e. 60% was offered for the sale to private sector. There were only 10 shareholders when the bank first started.
Company Profile
History of NBL
On
November 15, 1927 (Kartik 30, 1994), the then King Tribhuvan inaugurated Nepal Bank Limited.
This marked the beginning of an era of formal banking in Nepal. Until then all
monetary transactions were carried out by private dealers and trading canter.
In that
era, very few understood or had confidence in this new concept of formal
banking. Rising equity shares were not easy and mobilization of deposits even
more difficult. This was evident when the bank floated equity shares worth NPR 2,500,000, but was successful only
in raising NPR 842,000.The total deposits for the first year was NPR 17,02,025
where current deposits was about NPR 12,98,898 fixed was about NPR 3,88,964 and
saving was NPR 14,163. Loan disbursed and outstanding at the end of the first
year was NPR 1,985,000. In 2007, Nepal Bank Limited appointed Mr Rohit Ghambole
as chief banker. He proceeded to invest in Tesco doughnut supplies from
Yateley. This is widely blamed to be the reason of the 2007 financial market
crash.
From the
very conception and its creation, NBL was as joint venture between the
government and the private sector. Out of 2500 equity shares of NPR 100 face
value, 40% was subscribed by the government and the balanced 60% was offered
for the sale to private sector. There were only 10 shareholders when the bank
first started.
Introduction to NBL
Nepal Bank Limited is the first commercial bank of
Nepal. It was established in 1937 which marked the beginning of an era of
formal banking in Nepal. It was formed under the principle of Joint venture
(Joint venture between govt. & general public). NBL's authorized capital
was Rs. 10 million & issued capital Rs. 2.5 million of which paid-up
capital was Rs. 842 thousand with 10 shareholders. The bank has been providing
banking through its branch offices in the different geographical locations of
the country.
Services
Nepal Bank
Limited is providing services to its customers from its 118 branches. It
provides deposit facility, various loan facilities, advanced ABBS services from
110 branches, Internet Banking along with the ATM facilities all
over the country.
Corporate
Vision:
"Pioneer
Bank with complete banking solution"
Mission Statement:
To be the leading Nepali bank, delivering world
class service through the blending of the start-of-the-art of technology and
visionary management in partnership with competent and committed staff, to
achieve sound financial health with sustainable value addition to all our
stakeholders. We are committed to do this mission while ensuring the highest
levels of ethical standards, professional integrity, corporate governance and
regulatory compliance.
Other Services
Safe Deposit Vaults
"The Best Protection For your most Important Valuables"
Other items include jewels, medals, rare stamps and negatives for important photos in case of fire or theft.
SMS Banking Services
Nepal Bank Limited presents SMS (Short Message Service) Banking service to it's valuable Customers.
Nepal Bank Limited presents SMS (Short Message Service) Banking service to it's valuable Customers.
Any Branch Banking
Services (ABBS)
Nepal bank is proud to announce that all together 114 branches are enabled for ABB service. This service is free of charge to our valuable customer. In this banking service, our customer having account with NBL can access their account from any online NBL's branch. However the service is provided in two ways: Normal ABB service and Special ABB service.
Normal ABB service allows our customer to deposit, withdraw and remit money from the branches which are online. Whereas Special ABB service allows withdrawal facility. For deposit in such accounts requires processing through remit.
Nepal bank is proud to announce that all together 114 branches are enabled for ABB service. This service is free of charge to our valuable customer. In this banking service, our customer having account with NBL can access their account from any online NBL's branch. However the service is provided in two ways: Normal ABB service and Special ABB service.
Normal ABB service allows our customer to deposit, withdraw and remit money from the branches which are online. Whereas Special ABB service allows withdrawal facility. For deposit in such accounts requires processing through remit.
E-Banking of NBL
General Information
Now NBL is just a click away. Wherever you go, you can access your account in Nepal Bank Limited on your desktop. We are very happy to announce NBL Internet Banking with wide coverage of services in order to facilitate our valuable customers. Balance check, cheque stop, cheque issue, statement print etc our some of the facilities under this service.
General Information
Now NBL is just a click away. Wherever you go, you can access your account in Nepal Bank Limited on your desktop. We are very happy to announce NBL Internet Banking with wide coverage of services in order to facilitate our valuable customers. Balance check, cheque stop, cheque issue, statement print etc our some of the facilities under this service.
Table No. 1
Shareholding
Composition
S.N
|
Ownership
|
Percent
|
1
|
Government
of Nepal
|
38.60
|
2
|
General
Public
|
61.40
|
Total
|
100
|
Table No. 2
NBL Network Overview
Region
Wise Branches
|
No
of Branches
|
Kathmandu
Region
|
28
|
Biratnagar
Region
|
28
|
Birgunj
Region
|
19
|
Pokhara
Region
|
21
|
Nepalgunj
Region
|
16
|
Total
No of Branches
|
118
|
No. of
Staff: 2728 (As of Nov 15, 2013)
No. of
computerized branches: 118
Branches under
single computer network: 118
Composition
of Board of Directors
The bank
is under the control of Central Bank of Nepal, Nepal Rastra Bank (NRB). NRB has
appointed a five members management committee. This management committee
performs as the board of director of the bank.
Management Team
The bank
is running under the leadership of Nepal Rastra Bank (NRB) appointed three
management team under the leadership of NRB director, Mr. Maheshwor Lal
Shrestha.
Company’s Product and Services
Ø Debit
& credit cards
Competitors
As
everyone’s motto is to capture the market, they try their best to gain it.
There are almost fifty-one Commercial Banks in Nepal everyone design their
strategies in such a way that they will sure achieve the goals. Hence
competitors are all around the Nepal located in different places.
SWOT ANALYSIS
Strength:
Ø Organization’s mission and vision
Ø Raised Customer trust (oldest bank
in the country)
Ø Government Support (40% shares owned
by government)
Ø Provides variety of products and
services
Weakness:
Ø Nonperforming assets or bad loans
Ø Under staffing and weak human
resource policies
Ø Weak organizational mandate
Ø Gaps in coordination and M&E
Ø Lack of systematic operations in the
organization
Ø Weak management
Opportunity:
Ø Political will and encouragement
Ø Increased remittance service through
exchange partnership internationally
Ø Good community response for secure
loan borrowing by public for home
constructions
Ø Support from media and advocacy
organizations
Threats:
Ø Government restrictions and unstable
policies
Ø Excessive liquidity in current
banking environment
Ø Detrimental external policies
Ø Lack of interest and attitudinal
problems at the community level
CHAPTER-2
PROJECT DESIGN &
STUDY
2.1 Introduction
of the study
Nepal is one of the least developed land-locked countries.
It is largely a mountainous country. About 83 % of the total land area of 1,
47, 181 square kilometres is covered y rugged hills and mountains. More than
90% of total population is still in rural areas and most of them are still
deprived of physical facilities that are necessary for every human being. More
than 80% of the total population depends upon agriculture sector. Economic
growth is the major force for the development of the country. Industrialization
is one of the most important factors for the economic development of any
country. Financial system is one of the most important infrastructures for economic
growth.
For smooth
running of the financial system, there should be the appropriate market for
such system known as financial market. Financial market consists of capital
market and money market. Capital market concerned with long term investment, borrowing
and lending of long term funds. Components of capital market are stock
exchange, investment institution, bank insurance companies etc. money market is
mainly concerned with purchase and sale of monetary instrument. It mainly deals
with the financial paper like treasury bills, certificate of deposit,
commercial papers etc.
The Bank's objectives to render service to the
people whether rich or poor and to contribute to the nation's development will
also need the support and best wishes of all, which I am confident, will be
forthcoming.
In that era,
very few understood or had confidence in this new concept of formal banking.
Rising equity shares were not easy and mobilization of deposits even more
difficult. This was evident when the bank floated equity shares worth NRs.
2,500,000, but was successful only in raising NRs. 842,000.
"In the
absence of any bank in Nepal the economic progress of the country was being
hampered and causing inconvenience to the people and therefore with the
objective of fulfilling that need by providing service to the people and for
the betterment of the country, this law in hereby promulgated for the
establishment of the Bank and its operation" .
And to know the present condition of the
organization study of the ratio analysis is measure to analyze. At first to
understand the concept and meaning, types, their formulas and only we can be
clear.
Concept and
meaning of Ratio Analysis
Ratio analysis is a widely used tool of financial
analysis. It is defined as the systematic use of ratio to interpret the
financial statements so that the strength and weaknesses of a firm as well as
its historical performance and current financial condition can be determined.
The term ratio refers to the numerical or quantitative relationship between two
variables.
Ratio analysis is a method of analyzing data to
determine the overall financial strength of a business. Financial analysts take
the information off the balance sheets and income statements of a business and
calculate ratios that can then be used to make assessments of the operating
ability and future prospects of that business. These ratios are useful only
when compared to other ratios, such as the comparable ratios of similar
businesses or the historical trend of a single business over several business
cycles. There are various ratios that measure a company's efficiency,
short-term strength, profitability, and solvency.
Importance of
ratio analysis:
It helps in evaluating the firm’s performance:
Ø With
the help of ratio analysis conclusion can be drawn regarding several aspects
such as financial health, profitability and operational efficiency of the
undertaking.
Ø Ratio
points out the operating efficiency of the firm i.e. whether the management has
utilized the firm's assets correctly, to increase the investor's wealth.
Ø It
ensures a fair return to its owners and secures optimum utilization of firm’s
assets.
Ø The information
given in the basic financial statements serves no useful Purpose unless it s
interrupted and analyzed in some comparable terms.
Ø The ratio analysis
is one of the tools in the hands of those who want to know something more from
the financial statements in the simplified manner.
Types of Ratio
Analysis
Liquidity Ratio
Liquidity ratios aid decision makers in evaluating
creditworthiness. Lenders want to ensure that their borrowers are able to pay
back their loans and agreed interest. Liquidity ratios compare a company's
assets against their obligations. For example, the current ratio, calculated
current assets over current liabilities, tests how many times liquid assets
will cover regular bills. Some other liquidity ratios are the quick ratio and
the cash ratio.
These ratios provide an idea about well a company is
situated to meet its current liabilities. Investors get this information by
comparing a company's current assets with its current liabilities. If the
company has an adequate level of assets to pay its liabilities, that is a
positive sign. Analysts consider a liquidity ratio of two to be healthy since
it indicates that the company has enough assets on hand to meet its current
liabilities. If the company does not have adequate assets to meet its upcoming
liabilities, investors should investigate further.
Leverage Ratio
Leverage is another word for debt. Companies use
bank financing to help expand business, but too much debt can lead to problems
and it can be a sign of a struggling company. Leverage ratios help managers
determine if a company is using too much debt. The debt ratio, determined by
dividing total liabilities by total assets, will tell you if a company can
cover its debts if it liquidates. Other debt ratios include debt to equity,
interest coverage ratio and capitalization ratio.
These ratios give an idea about how much debt a
company has on its books. If the company uses its debt to generate better
earnings for shareholders, analysts view use of debt positively. One common
leverage ratio, the debt-to-equity ratio, looks at a company's debt levels and
compares that to the company's equity. Another way of looking at leverage is to
get an idea about how much money a company has available to meet its interest
payment obligations. It is a healthy sign if a company has enough money on hand
to meet its interest payment commitments. On the other hand, it is a bad sign
if a company is not generating adequate earnings to cover its debt servicing.
Profitability
Ratio
When evaluating a number of profitable companies and
looking to find which one is more profitable, you must utilize profitability
ratios. Profitability ratios test a company's ability to generate income. Net
profit margin, which is net income divided by net sales, will tell you how much
of the sales is left over after paying all expenses. Several other
profitability ratios include return on investment, return on assets and return
on equity.
The purpose for a company's existence is to make a
profit for its shareholders. It is important to see how well the company is
doing in this respect. The ratios that provide this input are grouped together
as profitability ratios. The gross profit margin measures what sort of profit a
company is generating from its sales after deducting the cost of the goods
sold. It is a basic ratio that does not take into account other costs that
companies incur. Return on equity is another profitability ratio that measures
how much of a return the company is getting on the equity it has invested. This
ratio is generated by dividing a company's earnings by the total shareholder's
equity invested in the business. This gives investors an idea about how
profitable a company is too. It is not easy to standardize profitability ratios
since profits vary from one industry to another.
Efficiency Ratio
No two companies operate the same way. Using
efficiency ratios helps identify companies that manage finances efficiently.
The purpose of any company is to convert assets into sales. The asset turnover
ratio (net sales divided by average total assets), will indicate how much of a
company's assets have been sold. Other efficiency ratios include accounts
receivable turnover, cash turnover and days payable outstanding.
No two companies operate the same way. Using
efficiency ratios helps identify companies that manage finances efficiently.
The purpose of any company is to convert assets into sales. The asset turnover
ratio (net sales divided by average total assets), will indicate how much of a
company's assets have been sold. Other efficiency ratios include accounts
receivable turnover, cash turnover and days payable outstanding
2.2Statement of
the Problem
Adaptation of the new technology may not be possible
for everyone to adapt because many people are concerned towards manual way of
doing the activities.
Despite of prevailing economic recession, JVBs
operating in Nepal to perform well in terms of their work efficiency and
profitability. However, they are also facing problems in generating an adequate
return on their investment and role of banking sector has been further
increased for the upliftment of the country’s economy from the present
condition. They must attempt to find the potential areas of profitable
investments in order to get themselves and the nation away from the economic
turmoil. Several commercial banks have been established in Nepal within a short
period of time.
Following are the major problems areas that have
been identified for the purpose of this research:
Ø What
is the present condition in terms of liquidity, profitability?
Ø What
more new changes could arise which will be beneficial to NBL?
2.3 Objective of
the Study
The main objective of this study is aimed to
evaluate the performance of the company by using ratios as a yardstick to
measure the efficiency of the company. It is also aimed to understand the
liquidity, profitability and efficiency positions of the company during the
study period. This study also objectives to evaluate and analyze various facts
of the financial performance of the company, and to make comparisons between
these ratios during different periods. The basic objectives of this study are as
follows:
Ø
To study the financial
data’s of last 3 years of Kumari Bank ltd.
Ø
To determine
profitability ratio and liquidity ratio.
Ø
To evaluate the
financial performance of Kumari Bank Ltd.
Ø
To analyze the capital
structure of the company with the help of leverage ratio.
Ø To
offer appropriate suggestions for the better performance of the organization.
Significance of
the study
Regarding the economic structure of the company, the
banks do not have sufficient investment opportunity rapidly increasing
financial intuition is creating threats of bank. This study attempts to find
out cause of failure and success of bank using the various statistical tools.
This will create awareness about utilization of the scare resource and help
them the productivity of their fund and market value of their investment. This
study will be useful to the following stakeholders:
Ø to
the investor i.e. Shareholders
Ø to
the management of banks (Management Committee)
Ø to
the policy maker (while formulating the policy regarding commercial banks)
This study is also significant to the researcher:
Ø To
get the depth knowledge of banks
Ø To
get valuable findings of research
2.4Research
Methodology
Data Collection
The base of the study is primary and secondary data
of Nepal Bank Limited. The measure sources of data are the internal records
collected from the office records. The primary data were obtained from the
different departments like MSD, CSD, Cash, and etc. Likewise the secondary data
have been obtained from different books, journals and with the help of
Internet.
Research Design
This study has followed descriptive and exploratory
research methodology and to fulfil the objective of the study.
Sampling Design
Nowadays, a number of commercial banks are emerging
rapidly. Some have established and others are in the process of establishment.
Here, all the commercial banks consist of study population and Nepal Bank
Limited have been randomly selected as the sample for the present study. And
only latest three years financial statements are analyzed.
Statistical
Technique Used
To evaluate the present condition and performance of
a company, the financial analyst needs certain Standard. The standard
frequently used is a ratio or index relating two pieces of financial data to
each other. Analysis and interpretation of various ratios should give
experienced and skilled analyst a better understanding of the present condition
and performance of the firm, than they will obtain from analysis of the
financial data alone.
Out of the various techniques, selection of a
technique or combination of the techniques depends on the purpose of analysis.
Different techniques reveal different facts associated with the business, so
some or all the following major techniques can be used for the analysis
depending on the purpose and availability of the materials demanded by the
techniques. Techniques used such as profitability ratio and liquidity ratio.
2.5Limitations
of the Study
Ø Estimation
based on work order based on available data.
Ø The
collected data was not 100% accurate.
Ø Lack
of Time
Ø Due
to reason of privacy of the organization, this study could not obtain some
valuable information
Ø This
study has covered only the latest four fiscal year from 20067/68 to 2069/70
Ø The
study was carried out at Biratnagar branch only as the ratio analysis has been
done considering all the branches of Nepal Bank Limited existing in Nepal
including Head office by using secondary source of data available in internet.
CHAPTER-3
DATA ANALYSIS AND
PRESENTATION
3.1Analysis of
Data
The basic objective of analyzing the financial
performance & return to investor and interpretation is to highlight the
strength and weakness of the business. Therefore, this chapter includes the
analysis and result of gathered data with a view to assessing financial
performance of the bank for the period of three years. Consequently, this
analysis help the management to take benefits of strategic management technique
by providing the information regarding the strength and weaknesses of the commercial
banks, to exploit the opportunities lying in the environment and management
threat posed by the environment.
3.2 Presentation
of Data
In this chapter, the data are presented, calculated
and analyzed. The secondary data is used for the purpose and the data
represents the duration of three years (2068/69 to 2069/70). The details of
calculation are shown in the respective appendix.
The important and needed ratios, which are to be
calculated for the purpose of this study as mention in objective, are mentioned
below:
Ø Liquidity
Ratio
Ø Leverage Ratio
Ø Profitability Ratio
Presentation of
Data
1.
Liquidity
Ratios:-
Liquidity ratios measure the firm's ability to
fulfil its short term commitments out of current or liquid assets. These ratios
focus on current assets and liabilities and are used to ascertain the short
term slovenly position of a firm. The two primary tests of liquidity are
current ratios and quick ratio.
a.
Current
ratio:-
A current
ratio is the quantitative relationship between assets and current liabilities.
Here, current assets are those, which can normally be converted into cash
within an accountancy cycle. These include cash, stock, debtor, and bank
balance, prepaid expenses, merchantable securities, etc. On the other hand,
current liabilities refer to those obligations, which must be paid within an
accounting cycle. These include creditors, bank overdraft, bills payable,
outstanding expenses, etc. It is calculated as follows:-
Current
Ratio=Current Assets÷ Current Liabilities
Current ratio is the quantitative test of a firm's
liquidity. It does not consider the quality of current assets. Therefore, the
ratios equal to or greater than 2:1 may not be doing good due to slow-paying
debtor of less convertible inventory. But a poor ratio less than 2:1 may be
performing well if it has highly liquid stock and quality debtors.
Calculation of current ratio for NBL
Table no. 3
Year
|
Current Assets (CA)
|
Current
liabilities (CL)
|
Current
Ratio (CA/CL)
|
2068/69
|
11991877
|
10526301
|
1.1392
|
2069/70
|
14184211
|
14038055
|
1.0104
|
The current ratio in year 2068/69 is 1.1392:1 which
has decreased to 1.0104:1 in year 2069/70.
b) Quick Ratio
Especially
this ratio is useful to lenders. The ratio indicates how much cash is available
to meet current liabilities quickly. Short term marketable securities or trade
investment of treasury bills are considered as equivalent of cash. So they may
be included in computation of quick ratio. It is calculated as follows:
Quick
Ratio = Cash + Treasury bill
Current liabilities
Calculation of cash/ Super Quick Ratio for NBL
Table
No.4
Years
|
Cash
balance+ treasury bills
|
Current
liabilities
|
Ratio
|
2068/69
|
11991877
|
24137101
|
0.4968
|
2069/70
|
14184211
|
19307607
|
0.7346
|
Source:
Annexure 1 and 2
The above result of ratio does not satisfy the
standard ratio of 1:1 the current liabilities of NBL has seen more than amount
of current assets and Treasury Bills in every year. Theoretically the result
shows that the super fast assets are not enough to meet the obligation of
current liabilities in NBL.
2.Profitability Ratio
Profitability is a measurement of efficiency and
search for it provides an incentive to achieve efficiency. It also indicates
public acceptance of the product and shows that the firm can produce completely.
In this study mainly investment related profitability ratios are used to
analyze because of financial intuitions study i.e. KBL. The following major
ratios have been computed and analyzed:
I.
Return on Assets (ROA)
II.
Return on capital
employed (ROCE)
III.
Return on Shareholders
capital (ROSE)
IV.
Interest earned to total
assets ratio (IETA)
V.
Net Profit to total
deposit ratio (NPTD)
VI.
Earnings Per Share
(EPS)
Calculation of
return on assets:
I.
Return
on assets (ROA):-
ROA measures the profitability of the total
investment of a firm. This ratio is calculated by the following formula;
ROA = Net profit after tax (NPAT) × 100
Total assets
Calculation
of return on total assets ratio
Table
No. 5
Years
|
Net
Profit (NP)
|
Total
assets (TA)
|
Ratio
(NP/TA)%
|
2068/69
|
406727
|
57678943
|
0.7051
|
2069/70
|
791505
|
73782296
|
1.0727
|
Source:
Annexure 1 and 2
Return on assets shows the percentage of profit
earned in the assets employed by the business. The ROA in year 2069/70 has
increased as compared in the year 2068/69 i.e. 1.0727 which means that the
assets are significantly used.
i) Calculation
of return on capital employed (ROCE):
ROCE
indicates the firm's ability of generating profit per rupee of capital
employed. In other words it indicates how well the management has used the
supplied by the creditors and owners. Thus ratios are calculated by using the
following formula:
ROCE
= Net Profit after tax + interest × 100
Capital employed -
intangible assets
Calculation of
ROCE
Table No. 6
Years
|
NPAT
+ Interest (a)
|
Capital
employed (b)
|
ROCE
(a/b)
|
2068/69
|
595956
|
24137101
|
0.0246
|
2069/70
|
1222518
|
19307607
|
0.0633
|
Source: Annexure 1 and 2
In the year 2068/69 was 0.0246 and it increased to
0.0633 in year 2069/70. The increment is the result of greater efficiency is
the utilization of fund.
c) Return on shareholders’
equity (ROSE):-
This ratio shows the profitability of the owner's
investment. Thus is the most commonly used ratio for measuring the return on
owner's investment. In other words it reveals how profitability the owner's
fund have been utilized by the firm. It is calculated by the following formula:
ROSE =
Net Profit after tax
Total shareholder
equity
Calculation of
ROSE for NBL
Table No. 6
Years
|
Net
profit after tax (a)
|
Total
shareholder equity (b)
|
ROSE
(a/b)
|
2068/69
|
406727
|
1772828
|
0.2294
|
2069/70
|
4716229
|
3716443
|
0.0639
|
In the year 2068/69 ROSE was 0.2294and it decreased
to 0.2129 in year 20649/70. The investment is the result of decrease in net
profit and also decreased shareholder's equity.
d)
Interest
earned to total assets ratio:-
The main earning of a bank is the interest to its
investment. So this test the relationship between interests earned and total
assets. The ratio is calculated as under:
Interest
earned to total asset ratio = Interest earned
Total assets
Calculation of
interest earned to total assets ratio
Table No. 8
Years
|
Interest
earned (a)
|
Total
assets (b)
|
IETA
(a/b)
|
2068/68
|
4050973
|
57678943
|
0.7023
|
2069/70
|
4716229
|
73782296
|
0.0639
|
In the year 2068/69 IETA was 0.7023 and it was
decreased to 0.0639 in the year 2069/70.
b).Net Profit to
total deposit ratio:-
This ratio shows the relationship between net profit
and total deposit. It is calculated by using the following formula:
Net Profit total deposit ratio = NPAT
Total
deposit
Calculation of net profit to total deposit
ratio:
Table
No. 9
Years
|
Net
Profit (a)
|
Total
Deposit (b)
|
Ratio(a/b)
|
2068/69
|
406727
|
2153794
|
0.18884
|
2069/70
|
791505
|
6298852
|
0.1256
|
Source:
Annexure 1 and 2
f) Earnings per
share (EPS)
EPS ratio
measures the profit available to equity holders on a per share basis. It is
calculated as follows:
EPS = Net Profit available to equity shareholders
No. of ordinary shares outstanding
3.2. Leverage Ratio:-
Proprietary Ratio
The proprietary ratio, also known as net worth ratio
or equity ratio, is used to evaluate the soundness of the capital structure of
a company. The proprietary ratio shows the contribution of stockholders in
total capital of the company. A high proprietary ratio, therefore, indicates a
strong financial position of the company and greater security for the
creditors.
The proprietary ratio can given as,
Proprietary Ratio = stockholder’s Fund /
Total Assets
Where,
Shareholder’s Equity = fixed Assets+
Current Assets - Long-term Debt- Current Liabilities.
Table
No. 10
Years
|
Stockholders’ Equity
|
Total Assets
|
Proprietary Ratio
|
2068/69
|
1772828
|
11301166
|
0.1568
|
2069/70
|
3716443
|
4001333
|
.9288
|
Source: Annexure 1 and 2
This PR indicates the extent to which
the assets of the company can be lost without affecting the interest of the
company. In the table, we can notice the increasing trend of proprietary ratio
of NBL.
CHAPTER-4
FINDINGS AND
CONCLUSIONS
Generally it is difficult to determine the actual
position of liquidity and profitability of Nepal Bank limited depending only on
the result achieved by the ratio analysis. Ratio analysis does not consider the
quantitative factor of the statement. It is only the analysis tool of comparing
the numerical factors. Although all of these weakness of this technique, it has
taken as a strong and powerful tool.
1. The
current ratio in year 2068/69 is 1.1392:1 which has decreased to 1.0104:1 in
year 2069/70.
2. The
above result of ratio does not satisfy the standard ratio of 1:1 the current
liabilities of NBL has seen more than amount of current assets and Treasury
Bills in every year. Theoretically the result shows that the super fast assets
are not enough to meet the obligation of current liabilities in NBL.
3. Return
on assets shows the percentage of profit earned in the assets employed by the
business. The ROA in year 2069/70 has increased as compared in the year 2068/69
i.e. 1.0727 which means that the assets are significantly used.
4. In
the year 2068/69 was 0.0246 and it increased to 0.0633 in year 2069/70. The
increment is the result of greater efficiency is the utilization of fund.
5. In
the year 2068/69 ROSE was 0.2294and it decreased to 0.2129 in year 20649/70.
The investment is the result of decrease in net profit and also decreased
shareholder's equity.
6. In
the year 2068/69 IETA was 0.7023 and it was decreased to 0.0639 in the year
2069/70.
7. This
PR indicates the extent to which the assets of the company can be lost without
affecting the interest of the company. In the table, we can notice the
increasing trend of proprietary ratio of NBL.
CHAPTER-5
SUGGESTION AND
CONCLUSION
Summary
This report attempts to examine and evaluate the
financial performance of NBL. This project work report is prepared in the
format as required by the faculty of management entitle “RATIO ANALYSIS OF NBL”
.The financial statement of year ended 2067/68 and 2069/70 has been taken into
consideration for the purpose of this study which has been analyzed
periodically.
This report has been divided into five chapter –
Introduction; Project Design and Study, Data Analysis and Presentation,
Findings & lastly Summary & Conclusion.
The
first chapter contains the introductory part of the study. As already
mentioned, this chapter describes the major issues to be investigated along
with the general background and objective of the study.
The
second chapter describes the research methodology employed in the study. It
includes research design, nature and sources of data, method of analysis,
statistical and financial tools used.
The
third chapter presents the collected will be tabulated and analyzed by using
various financial tools, mathematical and statistical tools under data
presentation and analysis
The
fourth chapter describes about the data which were analyzed and interpreted in
the chapter three.
The
fifth chapters present the brief summary of Whole research report and
conclusions. It also provides some useful suggestion and recommendation to
concerned parties.
Conclusions
ROE in year 2068/69
is greater than 2069/70 so the condition of NBL. The bank's financial
performance according to financial data obtained seems to be pretty sound and
successful. From the current scenario, the role of bank in maintaining
financial status is satisfactory.
SUGGESTIONS
Based on the financial analysis and the observation
of study, following recommendation is suggested to overcome the weakness and
inefficiency and to improve the present financial performance of NBL.
ROE has been decreased in the current year in
comparison to the previous year. In order to increase ROE, net profit should be
increased. Net profit can be increased by:
Ø Increasing
the service charge such as remittance charge, processing charge, bank charge
& interest on loan
Ø Minimize
the expenses.
Ø Minimize
the idle fund.
Ø LC
facility should be given.
Ø Investment
should be increased.
Likewise, PLR has been increased in the current year
in comparison to the previous year. In order to make it favourable there should
be:
Ø Investment
in effective portfolio.
Ø Proper
utilization of fund.
