LIQUIDITY

ANALYSIS OF NEPAL
INVESTMENT BANK
LIMITED
(NIBL)
By
Pukar Shrestha
T.U. Reg. No.: 7-2-538-
66-2017
Canvas International
College
Submitted to
The Faculty of
Management
Tribhuvan University
Kathmandu
In Partial Fulfillment of
the Requirements for the
Degree of
BACHELOR OF
BUSINESS STUDIES
(BBS)
Kathmandu, Nepal
February, 2022
LIQUIDITY
ANALYSIS OF NEPAL
INVESTMENT BANK
LIMITED
(NIBL)
By
Pukar Shrestha
T.U. Reg. No.: 7-2-538-
66-2017
Canvas International
College
Submitted to
The Faculty of
Management
Tribhuvan University
Kathmandu
In Partial Fulfillment of
the Requirements for the
Degree of
BACHELOR OF
BUSINESS STUDIES
(BBS)
Kathmandu, Nepal
February, 2022
LIQUIDITY
ANALYSIS OF NEPAL
INVESTMENT BANK
LIMITED
(NIBL)
By
Pukar Shrestha
T.U. Reg. No.: 7-2-538-
66-2017
Canvas International
College
Submitted to
The Faculty of
Management
Tribhuvan University
Kathmandu
In Partial Fulfillment of
the Requirements for the
Degree of
BACHELOR OF
BUSINESS STUDIES
(BBS)
Kathmandu, Nepal
February, 2022
LIQUIDITY
ANALYSIS OF NEPAL
INVESTMENT BANK
LIMITED
(NIBL)
By
Pukar Shrestha
T.U. Reg. No.: 7-2-538-
66-2017
Canvas International
College
Submitted to
The Faculty of
Management
Tribhuvan University
Kathmandu
In Partial Fulfillment of
the Requirements for the
Degree of
BACHELOR OF
BUSINESS STUDIES
(BBS)
Kathmandu, Nepal
February, 2022
LIQUIDITY ANALYSIS OF NEPAL INVESTMENT BANK LIMITED

(NIBL)
By
Pukar Shrestha
T. Reg. No.: 7-2-538-66-
Canvas International College

Submitted to
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES
(BBS)
Kathmandu, Nepal
February, 2022

DECLARATION

I hereby declare that the project work entitled LIQUIDITY ANALYSIS OF NEPAL
INVESTMENT BANK LIMITED (NIBL) submitted to the Faculty of Management,
Tribhuvan University, Kathmandu is an original piece of work under the supervision of
Mr. Sabin Shrestha, Member of Research Committee, Canvas International College,
Basundhara, Kathmandu, and is submitted in partial fulfillment of the requirements for
the degree of Bachelor of Business Studies (BBS). This project work report has not been
submitted to any other university or institution for the award of any degree or diploma.

Pukar Shrestha
February, 2022

ENDORSEMENT

We hereby endorse the project work report entitled LIQUIDITY ANALYSIS OF NEPAL
INVESTMENT BANK LIMITED (NIBL) submitted by Pukar Shrestha of Canvas
International College, Basundhara, Kathmandu, in partial fulfillment of the requirements
for the degree of the Bachelor of Business Studies (BBS) for external evaluation.

Sabin Shrestha (Supervisor)

Krishna Prasad Paudel (Principal)
February, 2022
ACKNOWLEDGMENTS

I would like to express my sincere gratitude to several individuals and organizations for
supporting me throughout my research study. First, I wish to express my sincere gratitude
to my supervisor, Sabin Shrestha, for his enthusiasm, patience, insightful comments,
helpful information, practical advice, and unceasing ideas that have helped me
tremendously at all times in my research and writing of this report.

I would also thank my friends for helping me throughout the study with their guidance
and support.

Pukar Shrestha
TU Reg. No.: 7-2-538-66-

SUMMARY AND CONCLUSIONS

1. Summary of the Study

2. Conclusion from the Study

LIST OF TABLES

1. Calculation of current ratio

2. Calculation of quick ratio
3. Calculation of cash ratio
4. Calculation of capital adequacy ratio
5. Calculation of mean/average
6. Calculation of standard deviation

ABBREVIATIONS

 ALCO: Assets and Liabilities Committee

 BBS: Bachelor of Business Studies
 CD: Certificate of Deposit
 LC: Letter of Credit
 LCR: Liquidity Coverage Ratio
 NRB: Nepal Rastra Bank
 RBI: Reserve Bank of India
 TU: Tribhuwan University

CHAPTER I: INTRODUCTION
1. Background of the Study

In the business world, we frequently face events that affect the business adversely. Risk
can be understood as a possible event which could have adverse financial consequences.
Risk management is a constant challenge to all financial institutions. Banks need to
consistently develop and improve their operational and technical practices. Risk
management is the identification of the possible events that could have adverse financial
consequences and taking measures to prevent or minimize financial losses (Rajan B.
Paudel, 2016). In any financial institution, there are various types of risks, including
interest rate risk, market risk, credit risk, liquidity risk, insolvency risk, etc. All financial
institutions face the risk that their liability holders will seek to cash in their claims. The
holders of a checking account can always walk into the bank and ask for the balance in
cash. This risk of sudden demand for liquid funds is called liquidity risk (Kiran Thapa,
2016). Liquidity is a bank's capacity to fund increases in assets and meet both expected
and unexpected cash and collateral obligations at reasonable cost and without incurring
unacceptable losses.

Liquidity risk is the inability of a bank to meet such obligations as they become due,
without adversely affecting the bank’s financial condition. Effective liquidity risk
management helps ensure a bank’s ability to meet its obligations as they fall due and
reduces the probability of an adverse situation developing. For banks using liability-based
or off-balance sheet liquidity strategies, traditional measures of liquidity, such as the ratio
of loans to deposits or non-core funding dependency, may not provide an accurate view
of the institution’s true liquidity position. Such institutions should augment traditional
liquidity risk measures with pro forma cash flow and scenario analysis, and should have
realistic contingency funding plans that are responsive to changes in liquidity risk
exposure. The liquidity risk of banks arises from funding of long-term assets by short-
term liabilities, thereby making the liabilities subject to rollover, or refinancing risk.
Liquidity risk is usually of an individual nature, but in certain situations may compromise
the modern banking system in Nepal. As per the list issued by NRB as of October 2019,
the modern banking sector includes 27 Commercial Banks, 20 Development Banks, 22
Finance Companies, and 85 Micro Credit Development Banks.

1.1 Meaning of Commercial Bank

A commercial bank is a financial institution which performs the functions of accepting

deposits from the general public and giving loans for investment with the aim of earning
profit. Commercial banks are typically concerned with managing withdrawals and
receiving deposits as well as supplying short-term loans to individuals and small
businesses. Consumers primarily use these banks for basic checking and savings
accounts, certificates of deposit (CDs), and home mortgages. Examples of commercial
banks include JPMorgan Chase & Co. and Bank of America Corp.
1.2 Commercial Banks in Nepal

Commercial banks are Class ‘A’ type Financial Institutions. Nepal Bank Limited
(established in 1937AD) is the first commercial bank in Nepal. Commercial banks
perform all kinds of banking business. The primary function of commercial banks is
receiving deposits and lending to others. Functions of the commercial banks are:
accepting deposits; advancing loans; letter of credit; guarantee; remittance; e-banking;
bills, etc.

These banks provide banking facilities to customers through bank branches, branchless
banking service, mobile banking, internet banking, ATMs, debit cards, credit cards, etc.
As per the latest data from Nepal Rastra Bank, at present, there are a total of 27
Commercial Banks in Nepal. So far, a total of 3884 branches of commercial banks have
been established across the nation.

1.3 Profile of Organisation

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indoseuz Bank Ltd., was
established in 1986 as a joint venture between Nepali and French partners. The French
partner (holding 50% of the capital) was Credit Agricola Indoseuz, a subsidiary of one of
the largest banking groups in the world. When Credit Agricole Indoseuz decided to
divest, a group of companies comprising of bankers, professionals, industrialists, and
businessmen acquired 50% of the holdings of Credit Agricole Indoseuz in Nepal
Indoseuz Bank in April 2002. The name of the bank was changed to Nepal Investment
Bank Ltd. upon approval of the Bank’s Annual General Meeting, Nepal Rastra Bank, and
Company Registrar’s office.

NIBL is one of the top lenders having the highest growth rate among banks in Nepal. It is
the largest taxpayer in Nepal. The vision of NIBL is to be the most preferred provider of
financial services in Nepal. They aspire to be the leading Nepali bank, delivering world-
class service through a blend 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. We are committed to fulfilling this
mission while ensuring the highest level of ethical standards, professional integrity,
corporate governance, and regulatory compliance.

1.4 Statement of the Problem

Liquidity risk is one of the challenges faced by banks at present. In today’s competitive
world, a bank is responsible for the sound management of liquidity risk. A bank should
establish a robust liquidity risk management framework that ensures it maintains
sufficient liquidity and clearly articulate a liquidity risk tolerance that is appropriate for
its business strategy and its role in the financial system. Liquidity costs, benefits, and
risks in the internal pricing, performance measurement, and new product approval
process should also be incorporated for all significant business activities (both on- and
off-balance sheet). Moreover, a bank should have a sound process for identifying,
measuring, monitoring, and controlling liquidity risk. Based on the above discussions,
this study aims to identify the management of liquidity in one of the leading banks of
Nepal. Within this context, the study deals with the following issues:

 Why should a bank be responsible for sound management of liquidity risk and articulate
a liquidity risk tolerance?

1.5 Sources of Data

Secondary data is the data that has already been collected through primary sources and
made readily available for researchers to use for their own research. It is a type of data
that has already been collected in the past. A researcher may have collected the data for a
particular project, then made it available to be used by another researcher. The data may
also have been collected for general use with no specific research purpose like in the case
of the national census.

All the data collected to analyze in the study are conducted on the basis of secondary
data. The study is based on the facts collected from the annual report of NIBL Bank.

1.6 Data Collection Procedure

Data or information can be collected by using either primary or secondary sources. Since
my study is based on secondary sources of data, I have used such information that was
already gathered by other people. The sources are published sources and computerized
databases. I collected data with the help of the published annual report of Nepal
Investment Bank Limited. Moreover, I took help from computerized databases by
searching for information through different websites, pages, etc., on the internet.

1.7 Tools and Techniques

The collected data were processed for analysis. Various tables and calculations have been
shown in the study in order to come to reliable conclusions. Findings and results are
compared and interpreted.

While processing data in the table and charts, the following tools were used:

 Liquidity Ratio
 Profitability Ratio
 Activity/Turnover Ratio
 Capital structured or Leverage Ratio
 Other Ratios
1.8 Limitations of the Study

This study is simply conducted for the partial fulfillment of the requirement for the
degree of the Bachelor in Business Studies (BBS). While preparing this project, many
problems showed up. As we know, there are positive and negative factors in everything.
The limitations of this project report are given below:

 This project report is based on secondary sources of data which could not disclose
actual results.
 Data contains mostly the annual reports of the bank from 2016 to 2020 only.
 Only annual data is used due to time and cost constraints.
 The only aim is to fulfill the partial requirement for the degree so Bachelor in Business
Studies, so it cannot cover all the dimensions of all subject matters.

CHAPTER II

LITERATURE REVIEW

Liquidity risk is one of the challenges faced by banks at present days. In today’s
competitive world, a bank is responsible for the sound management of liquidity risk. A
bank should establish a robust liquidity risk management framework that ensures it
maintains sufficient liquidity and clearly articulate a liquidity risk tolerance that is
appropriate for its business strategy and its role in the financial system. Liquidity costs,
benefits, and risks in the internal pricing, performance measurement, and new product
approval process should also be incorporated for all significant business activities (both
on- and off-balance sheet) moreover, a bank should have a sound process for identifying,
measuring, monitoring, and controlling liquidity risk. Based on the above discussions,
this study aims to identify the management of liquidity in one of the leading banks of
Nepal. Within the context, the study deals with the following issues:

 Why should a bank be responsible for the sound management of liquidity risk and
articulate a liquidity risk tolerance?

Liquidity risk is usually of an individual nature, but in certain situations, it may

compromise the modern banking system in Nepal. As per the list issued by NRB as of
October 2019, the modern banking sector includes 27 Commercial Banks, 20
Development Banks, 22 Finance Companies, and 85 Micro Credit Development Banks.

2.1 Meaning of Commercial Bank

A commercial bank is a financial institution that performs the functions of accepting

deposits from the general public and giving loans for investment with the aim of earning
profit. In fact, commercial banks, as their name suggests, are profit-seeking institutions,
i.e., they do banking business to earn profit. Commercial banks are typically concerned
with managing withdrawals and receiving deposits as well as supplying short-term loans
to individuals and small businesses. Consumers primarily use these banks for basic
checking and savings accounts, certificates of deposit (CDs), and home mortgages.
Examples of commercial banks include JPMorgan Chase & Co. and Bank of America
Corp.

2.2 Commercial Banks in Nepal

Commercial banks are Class ‘A’ type Financial Institutions. Nepal Bank Limited
(established in 1937AD) is the first commercial bank in Nepal. Commercial banks
perform all kinds of banking business. The primary function of commercial banks is
receiving deposits and lending to others. Functions of the commercial banks are;
accepting deposits; advancing loans, letter of credit, guarantee, remittance, e-banking,
bills, etc.

These banks provide banking facility to the customer through bank branches, branchless
banking service, mobile banking, internet banking, ATMs, debit cards, credit cards, etc.
As per the latest data from Nepal Rastra Bank, at present, there are a total of 27
Commercial Banks in Nepal. So far, a total of 3884 branches of commercial banks have
been established across the nation.

2.3 Profile of Organisation

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indoseuz bank Ltd., was
established in 1986 as a joint venture between Nepali and French partners. The French
partner (holding 50% of the capital) was Credit Agricola Indoseuz, a subsidiary of one of
the largest banking groups in the world. When Credit Agricole Indoseuz decided to
divest, a group of companies comprising of bankers, professionals, industrialists, and
businessmen acquired 50% of the holdings of Credit Agricole Indoseuz in Nepal
Indoseuz Bank in April 2002. The name of the bank was changed to Nepal Investment
Bank Ltd. upon approval of the Bank’s Annual General Meeting, Nepal Rastra Bank, and
Company Registrar’s office.

NIBL is one of the top lenders having the highest growth rate among banks in Nepal. It is
the largest among taxpayers in Nepal. The vision of NIBL is to be the most preferred
provider of financial services in Nepal. They aspire to be the leading Nepali bank,
delivering world-class service through a blend 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. We are
committed to fulfilling this mission while ensuring the highest level of ethical standards,
professional integrity, corporate governance, and regulatory compliance.

2.4 Statement of the Problem

Liquidity risk is one of the challenges faced by banks at present days. In today’s
competitive world, a bank is responsible for the sound management of liquidity risk. A
bank should establish a robust liquidity risk management framework that ensures it
maintains sufficient liquidity and clearly articulates a liquidity risk tolerance that is
appropriate for its business strategy and its role in the financial system. Liquidity costs,
benefits, and risks in the internal pricing, performance measurement, and new product
approval process should also be incorporated for all significant business activities (both
on- and off-balance sheet) moreover, a bank should have a sound process for identifying,
measuring, monitoring, and controlling liquidity risk. Based on the above discussions,
this study aims to identify the management of liquidity in one of the leading banks of
Nepal. Within the context, the study deals with the following issues:

 Why should a bank be responsible for the sound management of liquidity risk and
articulate a liquidity risk tolerance?

2.5 Sources of Data

Secondary data is the data that has already been collected through primary sources and
made readily available for researchers to use for their own research. It is a type of data
that has already been collected in the past. A researcher may have collected the data for a
particular project, and then made it available to be used by another researcher. The data
may also have been collected for general use with no specific research purpose like in the
case of the national census.

All the data collected to analyze in the study are conducted on the basis of secondary
data. The study is based on the facts collected from the annual report of NIBL Bank.

2.6 Data Collection Procedure

Data or information can be collected by using either primary or secondary sources. Since
my study is based on secondary sources of data, I have used such information which was
already gathered by other people. The sources are published sources and computerized
databases. I collected data with the help of the published annual report of Nepal
Investment Bank Limited. Moreover, I took help from computerized databases by
searching for information through different websites, pages, etc. on the internet.

2.7 Tools and Techniques

The collected data were processed for analysis. Various tables and calculations have been
shown in the study in order to come to reliable conclusions. Findings and results are
compared and interpreted.

While processing data in the tables and charts the following tools were used:

 Liquidity Ratio
 Profitability Ratio
 Activity/Turnover Ratio
 Capital structure or Leverage Ratio.
 Other Ratios.
2.8 Limitations of the Study

This study is simply conducted for the partial fulfillment of the requirement for the
degree of a bachelor in business studies (BBS). While preparing this project, many
problems showed up. As we know, there are positive and negative factors in everything.
The limitations of this project report are given below:

 This project report is based on secondary sources of data which could not disclose
actual results.
 Data contains mostly the annual reports of the bank from 2016 to 2020 only.
 Only annual data is used due to time and cost constraints.
 The only aim is to fulfill the partial requirement for the degree of bachelor in business
studies so it cannot cover all the dimensions of all subject matter.