CREDIT MANAGEMENT AND ITS IMPACT ON

PROFITABILITY OF JOINT VENTURE BANKS IN

NEPAL

By:
Hem Kumari Sabenhang
T.U. Reg. No. 7-2-517-13-2006
Roll No: 96/066
Central Department of Management

Thesis Submitted to:

Office of the Dean

Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the Master Degree of

Business Studies (M.B.S.)

Kathmandu, Nepal
June, 2015
 RECOMMENDATION

This is to certify that the thesis:

Submitted by
Hem Kumari Sabenhang

Entitled
Credit Management and its Impact on Profitability of Joint Venture
Banks in Nepal

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

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

Prof. Dr. Bal Krishna Shrestha Prof. Dr. Upendra Kumar Prof. Dr. Bhoj Raj Aryal
Thesis Supervisor Koirala Head
Chairperson Central Department of
Research Committee Management

Date: June 26, 2015

 VIVA-VOCE SHEET

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

Hem Kumari Sabenhang

Entitled
Credit Management and its Impact on Profitability of Joint Venture
Banks in Nepal

And found the thesis to be the original work of the student written according to the
prescribed format. We recommend this thesis to be accepted as partial fulfillment of
the requirements for Master of Business Studies (M.B.S.).

Viva-Voce Committee
Chairman, Research Committee: ………………………………..

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

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

Member (Head of Department): ………………………………..

Date: ................................
 TRIBHUVAN UNIVERSITY
Central Department of Management

DECLARATION

I hereby declare that the work reported in this thesis entitled “Credit

Management and its Impact on Profitability of Joint Venture Banks

in Nepal” submitted to Office of the Dean, Faculty of Management, Tribhuvan
University, is my original work done in the form of partial fulfillment of the
requirement for the Degree of Master of Business Studies (MBS) under the
supervision of Prof. Dr. Bal Krishna Shrestha of Central Department of Management,
Kirtipur, Nepal.

………………………………
Hem Kumari Sabenhang
Researcher
Campus Roll No: 96/066
T.U. Regd. No: 7-2-517-13-2006
 ACKNOWLEDGEMENT

I am extremely grateful to my thesis supervisor Prof. Dr. Bal Krishna Shrestha,

Professor of Central Department of Management, Tribhuvan University, for his
valuable suggestions, environment and guidance while supervising my thesis
work. He has provided me much of their precious time till the completed of this
work. His wise counsel and guidance provided me the inspiration to go ahead
with the work.

I am also grateful to all the professors, lectures, as well as assistance administrator of

the Central Department of Management whose suggestion made me able to finalize
this thesis.

I express debt of gratitude to my friends for their continuous support in my efforts to

complete this thesis work. I owe a special thanks to my friends Mr. Deepak who
provided valuable support in my efforts to complete this thesis work.

Last but not least, I would like to thank my family members for their constant
encouragement and co-operation in my academic pursuit.

There may be some errors in my study, I apologize for the errors.

Hem Kumari Sabenhang

June 26, 2015
 Table of Contents

Recommendation
Viva-Voce Sheet
Declaration
Acknowledgement
Table of Contents
List of Tables
List of Figures
Abbreviation

Page No.
CHAPTER I: INTRODUCTION 1-9
1.1 General Background 1
1.2 Focus of the Study 6
1.3 Statement of the Problem 7
1.4 Objective of the Study 7
1.5 Significance of the Study 8
1.6 Limitation of the Study 8
1.7 Organization of the Study 8

CHAPTER II: LITERATURE REVIEW 10-36

2.1 Conceptual Review 10
2.2 Review of Related Studies 20
2.3 Research Gap 36

CHAPTER III: RESEARCH METHODOLOGY 37-44

3.1 Research Design 37
3.2 Population and Sample 37
3.3 Nature and Sources of Data 37
3.4 Data Collection Techniques 38
3.5 Data Analysis Tools 38
CHAPTER IV: DATA PRESENTATION AND ANALYSIS 45-67
4.1 Analysis of Loans and Advances 45
4.2 Financial Analysis 49
4.3 Regression Analysis 60
4.4 Major Findings of the Study 64

CHAPTER V: SUMMARY, CONCLUSION AND 68-72

RECOMMENDATIONS
5.1 Summary 68
5.2 Conclusions 69
5.3 Recommendations 71

Bibliography
Appendices
 List of Tables

Table No. Table Title Page No.

4.1.1 Performing Loans 46

4.1.2.1 Non-Performing Loans of Everest Bank Limited 47
4.1.2.2 Non-Performing Loans of Nepal SBI Bank Limited 48
4.1.2.3 Non-Performing Loans of Standard Chartered Bank Nepal 49

4.2.1 Loan and Advance to Total Deposit 50

4.2.2 Loan and Advances to Fixed Deposit 52
4.2.3 Loan and Advance to Total Assets 53
4.2.4 Performing Assets to Total Assets 55
4.2.5 Return on Total Assets (ROA) 57
4.2.6 Return on Equity (ROE) 59

4.3.1 (a) Coefficient summary table, Everest Bank Limited 60

4.3.1 (b) Model summary table, Everest Bank Limited 60
4.3.2 (a) Coefficient summary table, Nepal SBI Bank Limited 62
4.3.2 (b) Model summary table, Nepal SBI Bank Limited 62
4.3.3 (a) Coefficient summary table, Standard Chartered Bank Nepal 63
4.3.3 (b) Model summary table, Standard Chartered Bank Nepal 63
 List of Figures

Figure No. Figure Title Page No.

3.1 Different Analytical Tools used under Statistical Analysis 40

4.1.1 Performing Loans 46

4.1.2.1 Non-Performing Loans of Everest Bank Limited 47
4.1.2.2 Non-Performing Loans of Nepal SBI Bank Limited 48
4.1.2.3 Non-Performing Loans of Standard Chartered Bank Nepal 49

4.2.1 Loan and Advance to Total Deposit 51

4.2.2 Loan and Advances to Fixed Deposit 53
4.2.3 Loan and Advance to Total Assets 54
4.2.4 Performing Assets to Total Assets 56
4.2.5 Return on Total Assets (ROA) 58
4.2.6 Return on Equity (ROE) 60
 ABBREVIATIONS

ADB/N Agricultural Development Bank, Nepal

ATM Automatic Trailer Machine
CAR Capital Adequacy Ratio
CD Credit Deposit
CRR Cash Reserve Ratio
EPS Earning Per Share
EBL Everest Bank Limited
FS Financial Sector
FY Fiscal Year
GDP Gross Domestic Product
HBL Himalayan Bank Limited.
i.e. That is
Ltd Limited
NBL Nepal Bank Limited
NPA Non Performing Assets
NPLR Non Performing Loans to Total Loans
NRB Nepal Rastra Bank
RBB Rastriya Bnijya Bank
ROA Return on Assets
ROE Return on Equity
SBI Nepal SBI Limited
SCBNL Standard Chartered Bank Nepal Limited
S.D. Standard Deviation
SPSS Statistical Package for Social Science
Rs. Rupees
& And
X̅ Mean or Average
δ Standard Deviation
∑ Summation
 Bibliography

Books
Acharya, Krishna P., Katuwal, B. &Yadav, Arun K. (2010). Statistical Methods
(3rded.). Kathmandu: Dhaulagiri Books & Stationery.
Bajracharya, B.S. (1991). Monetary Policy & Deposit Mobilization in Nepal.
Kathmandu, Rajatjayanti Smarika, RBB.
Besis, J. (1998). Risk Management in banking. Chichster, John Wiley & Sons Ltd.
Bhattacharya, Hrishikes (1998). Banking Strategy, credit Appraisal and Lending
Policy Decision (1st ed.). Delhi: Oxford University Press.
Boot, A.W.A. and Milbourn, T.T. (2001). Credit Ratings as Coordination
Mechanisms. Amsterdam: Bookman International B.V.
Dahal, B. and Dahal, S. (2002). A Hand book to Banking. Kathmandu: Ashmita Books
and Stationery.
Dufee, G.R. (1999). Estimating the Price of Default Risk. Copenhagen: Copenhagen
Publishing House.
Elton, C.J.; Gruber, M.J. (2001). Modern Portfolio Theory & Investment Analysis.
Sigapore: John Willy.
Gupta, S.C. (1998). Fundamentals of Statistics. New Delhi: Sultan Chand and Sons.
Gupton, G.M. (2000). Bank Loan Loss Given Default. London: Banipal Publishing.
John B. Countre, Edward I. Altman & Paul Narayan (1998). Managing Credit Risk.
New York: John Wiley & Sons Ltd.
Joshi, P.R. (2001). Research Methodology. Kathmandu: Buddha Academic Publishers
and Distributions.
Michel Crouhy, Dan Galai & Robert Mark, (2001). Risk Management. New York:
McGraw-Hill.
Pandey, I.M. (1994), Financial Management, New Delhi, Vikas Publishers.
Thomas, L.B. (2002). Money, Banking & financial Market. New York:
Irwin/McGraw-hill.
Tony Van Gestel & Bart Baesens (2009). Credit Risk Management; Oxford University
Press.
Vaidya, S. (2001). Banking and Insurance Management. Kathmandu: Taleju
Prakashan.
Verma, H.L. & Malhotra, A.K. (1993). Funds management in commercial banks. New
Delhi: Deep & Deep Publications.

Journals, Reports and Articles

Everest Bank Limited. (2014). Annual Reports (2009/10-2013/14). Retrieved from
http://www.everestbankltd.com/annual
Joshi, S. (2008). Healthy Banking Sector Fuels Economic Growth. The Himalayan
Times.
Mhonde, C., Mapetere, D. & Mavhiki S. (2012). An Analysis of the Challenges
Faced by Banks in Managing Credit in Zimbabwe. European Journal of
Business and Management, 4 (1), 38-46.
Nepal SBI Bank Limited. (2014). Annual Reports (2009/10-2013/14). Retrieved from
http://nepalsbi.com.np/content/annual-reports.cfm
Rana, S. B. (2013, June). Risk Management in Banks: Tough and Challenging. The
Himalayan Times, volume(168), 7-8.
Shrestha, S. (1998). Lending operations of commercial bank of Nepal and its impact
on GDP. The business voice of Nepal.
Standard Chartered Bank Nepal. (2014). Annual Reports (2009/10-2013/14).
Retrieved from https://www.sc.com/np/investor_relations/annual-reports/en/
Taiwo, A. M. & Abayomi, S.T. (2010). An Empirical Evidence on Impact of Credit
Management and Liquidity Position on Profitability of Nigerian Banking
Sector. Management and Administrative Sciences Review, 2 (3), 233-242.
Taiwo, A. M. & Abayomi, S.T. (2013). Credit Management Spur Higher
Profitability? Evidence from Nigerian Banking Sector. Journal of Applied
Economics and Business, 1 (2), 46-53.

Acts, Laws and Regulations

Bank and Financial Intuition Act (2006/2063).
NRB Unified Directives (2071).
Theses
Adhikari, I.P. (2008). Credit Management of Everest Bank Limited. Unpublished MBS
dissertation, Lumbini Banijya Campus, Tribhuvan University.
Karki, A. (2008). A Study on Credit Management and Analysis of Commercial Bank.
Unpublished MBS dissertation, Shanker Dev Campus, Tribhuvan
University.
Sing, (2008). Credit Management of Bank of Kathmandu and Nepal Investment Bank
Limited. Unpublished MBS dissertation, Prithvi Narayan Campus,
Tribhuvan University.
Dumre, K. (2009). Credit Management of Everest Bank Limited. Unpublished MBS
dissertation, Shanker Dev Campus, Tribhuvan University.
Kasaju, N.(2010). Credit Management in Joint Venture Banks In Nepal. Unpublished
MBS dissertation, Global College of Management, Tribhuvan University.
Hosna, A., Manzura, B. & Juanjuan, S. (2009). Credit Risk Management and
Profitability in Commercial Banks in Sweden. Unpublished MSA dissertation,
School of Business, Economics and Law, Goteborg University.
Chamling(2011). Credit Risk Management of Joint Venture Banks. Unpublished
MBS dissertation, Shanker Dev Campus, Tribhuvan University.
Neupane, N. (2011). Credit Management of Commercial Banks of Nepal.
Unpublished MBS dissertation, Shanker Dev Campus, Tribhuvan
University.

Websites
Credit management.(n.d.).investorwords.com. Retrieved Mar 15, 2015 from
http://www.investorwords.com/19044/credit_management.html
Everest Bank Limited (n.d.).Retrieved from 2013, July 1 from
http://www.everestbankltd.com
Nepal SBI Bank Limited (n.d.). Retrieved from 2013, July 1 from
https://www.nepalsbi.com.np
Standard Chartered Bank Nepal Limited (n.d.). Retrieved from 2013, July 1 from
https://www.sc.com/np/
Nepal Rastra Bank (n.d.). Retrieved from 2013, July 1 from
http://www.nrb.org.np
 Appendix I

Calculation of Mean, Standard Deviation and Coefficient of Variation (CV)

x 1+ x 2+ x 3+...+ xn Σ x
Mean: x= =
n n
Where
Σx = sum of observations
n = number of observations

Standard Deviation

.
σ =
√ ∑ ( x− x́ )2
n−1

σ
Coefficient of Variance: CV =
x́
Here, σ =standard deviation , x́=Mean ,CV =Coefficient of Variation
For eg., Loan and Advances to Total Deposit for Everest Bank Limited
2009/0 2010/0 2011/0 2012/0 2013/0
Company 10 11 12 13 14
EBL 74.61 75.51 71.81 75.18 76.60

Loan and Advances to

(x-x̅) (x-xx)2
Total Deposit Ratio (x)
74.61 -0.13 0.02
75.51 0.77 0.59
71.81 -2.93 8.60
75.18 0.44 0.19
76.6 1.86 3.45

x = 373.71 x-xx = 12.85
373.71
x̅ = .= 74.74
5

σ =
√ ∑ ( x− x́ )2 =
n−1 √ 12.85 = 1.79
5−1

σ 1.79
CV ¿ x́ ×100= 74.74 × 100=¿ 2.39
 Appendix II

Linear Trend Line

y=mx +c
Where,
y=Dependent variables
n ∑ y−m ∑ x
c=Constant ¿ m=slope of the trend line
n

x
∑¿
¿
¿2
¿ n=time period
2
x −¿
n∑ ¿
n ∑ ( xy )−∑ x ∑ y
¿
¿

For eg., Loan and Advances to Total Deposit for Everest Bank Limited

Calculation Table
L&A to TDR
Time (x) x² xy y = mx+c
(y)
1 74.61 1 98.6 372.98
2 75.51 4 127.4 373.35
3 71.81 9 204.12 373.71
4 75.18 16 302.28 374.08
5 76.6 25 517.8 374.44
x = 15 y = 373.71 x² = 55 xy = 1250.2

5× 1124.78−15× 373.71
m= =0.365
5 ×55−152

5 ×373.71−0.365 ×15
c= =372.615
5

Therefore ,
y=0.365 × x +372.615