A CASE STUDY OF

FINANCIAL PERFROMANCE OF
KUMARI BANK LIMITED

A Project Work Report proposal

Submitted By:
Subash Khadka
T.U. Reg. No: 7-2-280-92-2019
Exam Roll no: 702800082
Baneswor Multiple Campus
Group: Finance

Submitted To
The Faculty of Management
Tribhuvan University
Kathmandu, Nepal

In partial fulfillment of the requirements of the

Degree of bachelors of business studies

Kathmandu, Nepal
april, 2024
Background of the study

A financial institution (FI) is a company engaged in the business of dealing with financial and
money transaction such as deposits, loans, investment and currency exchange. Financial
institution encompass a broad range of business operations with the financial services sector
including banks, trust companies, insurance companies, brokerage firms and investment dealers.
Virtually everyone living in a developed economy has ongoing or at least periodic need for the
services for the financial institutions. The most common type of financial institutions include
commercial banks, investment banks, brokerage firms, insurance companies and management
funds. Other types include credit unions and finance firms.

A commercial bank is a type of financial institution that accepts deposits, offers checking account
services, makes various loans and offers basic products like certificate of deposits (CDs) and
savings accounts to individuals and small businesses. A commercial bank is where most people do
their banking, as opposed to an investment bank. Commercial banks make money by providing
loans and earning interest income from those loans. The types of a loan commercial bank can issue
vary and may include mortgages, auto loans, business loans and personal loans. A commercial
bank may specialize in just one or a few types of a loan.

Credit management is another basic function of banks as like deposit extraction. Managing credit
operations is the crying need for any bank. The basic objective of credit management is to
maximize the performing asset and the minimization of non-performing asset as well

as ensuring the optimal point of loan and advances and their efficient management. The credit
department mobilized all the surplus units’ money to the ultimate deficit unit (Borrower). The
success of this department has a great influence on the overall profit of the bank whereas failure
leads to huge losses or even to bankruptcy.

As we know commercial banks act as a catalyst for the growth and development of country, they
also act as intermediation between the surplus units (lender) and deficit unit (borrower) such that
funds are mobilized from the surplus units and made available to the deficits units Samad, (2004).
Credit management policy defined by rules and guidelines established by top management
governs the company’s credit department audit performance in the extension of credit that
maximizes the benefits and minimizes the costs associated with the credit Sinkey, (2002). There
are criteria that the client should meet to qualify for the credit. It recognizes the 5Cs as
measurements parameters in setting credit standards which include character, capacity, capital,
collateral and conditions. They highlights the importance of credit analysis which involves
establishing customer willingness and ability to meet the loan obligations as they fall due. Samad,
(2004) outlines the credit terms like credit period, cash discount that the firm or the banking
institution offers credit to the borrowers that induce the customer to repay the credit obligation
within or less than credit period that ultimately helps in managing the credit efficiently. Chief Risk
Officer, Alden Toevs of Commonwealth Bank of Australia states that a major failure of credit
management highlighted by the global financial crisis was the inability of financial institutions to
view risk on a holistic basis. The global financial crisis exposed, with chilling charity, the dangers
of thinking in silos, particularly where risk management is concerned.

The need and criteria for Lending have been extensively discussed in the literature review. U.B.S
Dictionary of Banking and finance (1981) defined Bank Credit as the ability to borrow Money on
the promise of future repayment. The prudential guidelines(1990) succintly convey a more
comprehensive definition of credit, it defines credit facility as the aggregate of all loans, advances,
overdrafts, commercial papers, bankers acceptances, bill discounted, leases, guarantees and other
loss contingencies connected with a bank´s credit

risks. Also, the definition of credit proposed by the CBN Monetary policy circular (1992) agrees
with the view above. Generally, we could conclude that credit includes all commitments by a bank
that has risk exposure and that may result in financial loss to the bank. Thygerson, (1995)
described credit simply as the right of a lender to receive money in the future in return for his
obligation to transfer the use of funds to another party in the interim. The facility is as old as man,
though in the primitive society it was known as “mutual aid”, because it was based on ancient
customer of ensuring substance of all members of the community. Credit therefore arises out of
the need to bridge the gap between the surplus and deficit economic units such that the highest
level of satisfactory function is performed by the financial institutions notable among which are
the Money deposit banks.

In agreeing with this view, Tsomocos, (2003) stated that credit is a crucial factor in growth process
of any economy and that by lending banks provide a valuable services to the community as they
serve to channel money from those who have idle fund to those who put the money in to
constructive use.

Profile of the organization

Kumari Bank Limited (KBL), came into existence as the 15th commercial bank of Nepal,
starting its banking operation from Chaitra 21, 2057 B.S (April 03, 2001) with an
objective of providing competitive modern banking services in the Nepalese financial
market. The Bank has paid up capital of NPR 13.87 billion.
Kumari Bank Limited provides a wide-range of modern banking services through 246
points of representation located in various urban, semi-urban and rural parts of the
country, with 196 branches, 14 extension counters and 36 Branchless Banking Units.
The Bank has pioneered in providing modern banking services like Internet Banking and
Mobile Banking. With the implementation of Core Banking Software, FINACLE (version
10), and the Bank is confident that it will provide a robust, ultra-modern banking platform
for all customers throughout the country.
The Bank has been offering both Domestic and International Visa Debit and Credit Card,
accessible in all VISA linked ATMs in Nepal and India. It serves through 177 ATMs and
- POS terminals across the country. Along with this, the Bank offers latest digital banking
services such as Mobile, Internet, and Viber Banking and QR payments. The Bank is
recognized as an innovative and fast-growing institution that always strives towards
customer satisfaction. It has transparent business practices, professional management,
corporate governance, and Total Quality Management as the organizational mission.
The Bank acquired Kasthamandap Development Bank Ltd., Paschimanchal Finance Co.
Ltd., Mahakali Bikash Bank Ltd. and Kankrebihar Bikash Bank Ltd. on Asadh 2074; with
an objective to fulfill the directive forwarded by Nepal Rastra Bank to attain the paid-up
capital of NPR 8 billion. Further to that, the Bank acquired Deva Bikas Bank Limited and
joint operation was started from Asadh 28, 2077. Post this acquisition, the Bank's branch
network reached 203 branches, 138 ATMs, Bank's loan investment to NPR 112 billion
and deposit-base to NPR 124 billion.
The Bank focuses on meeting dynamic needs of its customers via modern technology
driven banking products/services, thereby solidifying its reputation as an organization
committed towards enhancing stakeholders' experience.

Statement of the problem

A sound banking system with wide spread branch throughout the country with varieties of
banking service to fulfills commerce, trade industry and agriculture needs of the country is
of crucial importance for Nepal. It can be visualized that the banking development in
Nepal is in its infant’s stage.
In Nepal, private commercial banks have shown a good financial performance, people
believe that the productivity and profitability position of commercial banks are strong. In
these circumstances, it is highly useful to make the study on Kumari Bank Ltd. This study
enables us to see clear picture of the status of the bank.
The real evaluation has not been made to judge the performance of Kumar Bank Ltd. Its
profitability position and stock prices are generally considered to the yard sticks of its
better performance but one can raise the question whether it is enough to reflect the
performance of Kumari Bank Limited.
The main problematic of the study is to inquire into the financial performance of the
Kumari Bank Ltd. This study has aimed to find out to the following questions:
∙ Kumari Bank Limited is considered to be operationally efficient. But how far it is
efficient?
∙ What is the financial performance of Kumari Bank Limited?
∙ Do Kumari Bank Limited utilize its assets efficiently?
∙ Does the overall financial statement analyze the financial position indicating any special
strength and weakness of the Bank?
∙ Are they maintaining sufficient liquidity position?
In this context, the main purpose of the study is analyzing the financial performance of the
Kumari Bank Limited in terms of profitability, liquidity, turnover, and efficiency in
operation as well as other related dimensions.

Objectives of the Study

The main objective of the study is to analyze the financial performance of Kumari Bank
Limited (KBL). The other specifics of the study are as follows:-
∙ To analyze the Financial performance of the Kumari bank LTD.
∙ To analyze the result performed by the KBL as provided in the source. ∙ To identify the
various ratios of Kumari Bank limited.
Rationale of the Study
The main intention of this research is to know the financial performance of Kumari Bank
Limited with respect to total deposits and total loans and advances. The topic of this
research is “A Case Study of Financial Performance of Kumari Bank Limited”. The basic
objectives of every business organization either banking or financial institution is profit
maximization. Efficient deposit mobilization and effective handling of credit helps to
maximize the profit. The bank’s financial performance and growth objectivity depends on
the credit department, how they mobilize the funds and how they collect those loans
within credit period. The major commercial banks of Nepal are facing the problem of
poor customer base, low capital base, stiff competition and high banking concentration in
major cities only, liquidity crunch problem, poor lending, etc. So, we seek to find out the
deviation between deposit and lending of the bank during 2075/2078 of the financial year
of the bank. So, based on this topic we only focus to try to generate as many problems
associated with the deposit and lending as well as derive many alternative solutions to
mitigate those deviations and preparing the fact based report based on the problems
identified and alternatives generated.
The following questions are attempted to answer:
∙ How the credit management is done in the Kumari bank?
∙ How the total deposit and lending affect the financial position of the Kumari bank? ∙ How
the credit risk assessment is done in the Kumari bank?

Review
This chapter deals with the evidence and findings from the past related studies from the
various researchers. The studies and the evidences were relevant for the further
investigator regarding the credit management system of other financial institutions.
Authors like Poudel Subash, (2015), “Financial Management”. The objective of the study
was to identify the formula about the ratio and analysis. The result analysis was also
concluded according to the guidelines provided by that book. The formula in this book has
been used in throughout the report.
Khan, M.Y. and Jain P.K. (1992), "Financial Management". The objective of the study
was the approach for identifying as well as stressing risk concentrations in credit portfolio.
The approach to stressing sector concentration uses economic downturn scenarios or
market shocks as a starting point and detects concentrations in distinct but highly
correlated sectors.
Ivaskeviciute, Macerinskiene and Laura (2008), researched on “The evaluation model of a
commercial bank loan portfolio” has suggested that, the loan portfolio should be
distributed into sub-portfolios according to activity segments of the bank: large scale
projects, corporate and private clients to get more comprehensive results and loan porolio
evaluation.
Afroz (2013) researched on “Credit portfolio Management of Bangladesh Krishi Bank”
and has found that, Bangladesh Krishi Bank, was concentrating its lending to primary
agriculture to serve to poor people in rural area. Later on it has diversified its activities to
secondary agriculture. After diversification, the financial position of the bank become
more transparent and expected for better result soon.
Tabak, Fazio and Cajueiro (2010), “The effects of loan portfolio concentration on
Brazilian banks' return and risk” had studied 96 Brazilian banks and found that, the loan
portfolio of Brazilian banks was average, moderate concentrated. He concluded that, loan
portfolio concentration seems to improve the performance of Brazilian banks in both
return and risk of default. The concentration indices were found to be positively related to
returns and negatively related to risks.
According to Richard, Chijoriga and Kaijage, Peterson and Bohman (2008).on their
research “Credit risk management system of a commercial bank in Tanzania” credit risk
identification is the means of establishing the likely risk factors associated with a
borrower or investment decision. This credit risk management practice enables financial
institution to identify the possible risks that are associated with its customer’s segment vis
-á-vis its corporate or individual clients. The Basel II Accord reiterates that under this
practice the bank ought to identify all the risks inherent in their organization’s products
and services. This presupposes that banks operations and services are not in any way
similar hence each individual bank should strive to identify risks peculiar to its markets
and products. Also, the Basel II Accord expects financial institutions to assess and
identify all forms of risks that can be associated to its new products and activities before a
bank finally decides to roll them out or add them to its pool of packages.
Brown and Moles (2014), on “Credit Risk Management” studied that credit risk
management practices is credit assessment held that with credit assessment. The emphasis
is on whether there is a possibility that a borrower may default in full, or in part on its
obligation. According to Richard. (2008) the credit risk assessment can be done either by
the use of qualitative or quantitative approach. The quantitative assessment tools use
numerically ratings to establish which factors will be vital in explaining default risk,
evaluate the relative degree of importance of the factors and use them to calculate any
reserve needed to meet expected future loan losses (Chijoriga, 1997). Nonetheless, the
qualitative assessment tools rely on the personal rating of the credit officer and largely
based on one’s intuition and experience to make the eventual decision about who is likely
to default on his or her payment.

Research Methodology
Research methodology refers to the various segmental steps along with the rationale of
each step to be adopted by a researcher in studying a problem with certain objectives in
view. In other words research methodology describes the methods and process applied in
the entire aspects of the study.
The basic objectives of this study is to analyze the financial performance of Kumari Bank
Limited. An appropriate research methodology has to be followed to achieve the desired
objectives of the study. It would be appropriate to mention here that research study is not
meaningful to any unless they are sequential in order which will be determined by the
particular problem at hand. This project focuses and deals with the following parts of
methodology.
1. Data collection
2 Data analysis
3. Data analysis tools
Data Collection
The annual report of Kumar Bank Limited was obtained from the Bank itself. Moreover,
monthly and economic bulletin banking and financial statistics, economic report etc. have
been collected. The data collection of primary and secondary sources.
Data Analysis
Data analysis are done by the various formulas. The data analysis is carried out for the
purpose of obtaining material and relevant information for necessary information to
ascertain the financial strength and weakness of an enterprises and it’s necessary to
analyze the data deficit in the financial statement. The main tools are Ratio Analysis and
Cash flow and Fund Flow Analysis
Ratio Analysis is the process of identifying the financial strength and weakness of the
enterprises by logically establishing relationship between the item of balance sheet or
Income statement or both and interpreting the results there in order to derive meaningful
conclusion
The Types of Ratios are:
∙ Liquidity ratio
∙ Capital Structure/ Leverage ratio
∙ Assets Management Ratio/ Activity ratio
∙ Profitability Ratio
∙ Operating Ratio
∙ Market Based Ratios
By the help of these Ratio the data of the Kumari Bank Limited has been analyzed through
the years (2073/74 to 2077/78 B.S.). All the results are based on the Ratio Analysis of the
data provided by the bank to the public through various means and majors.
Data Analysis tools
The collected data is the presented in the tabular form as well as the data are presented in
different charts and figures for analysis and interpretation. It uses total deposit to total
lending ratio, net profit to total deposit ratio as a tool for analysis.
Organization of study
Research report can be prepared in various different ways. This research report has been
conducted in 3 phases and I have distributed this 3 phases into 3 chapter. The way that this
research report has been conducted is as follows:
I. Introductions: This is the first chapter of this research which includes general
background, organizational profile, and statement of the problem, objective of the
problem, rationale of the study, review, research methodologies, organizational study and
limitation of the study.
II. Result analysis and Major findings: This is the second chapter in which the report’s
findings is based on and provides the evidence to the conclusion about the financial
performance of the KBL. This chapter includes formulas, calculation, charts and
description about their financial performance. In this research the major findings are also
included in this chapter, the difficulties to search the data and their presentation for the
conclusion is provided here.
III. Summary and Conclusion : This is the Third and last chapter of this report. This
chapter includes the conclusion based on the ratio and analysis provided in the chapter -2.
In this chapter recommendation to the bank has also been provided, which was suggested
according to the view and ratio and analysis in the chapter -2.

Limitations of the study

The main limitations of the study about the financial performance of Kumari Bank
Limited are outlined as follows:
∙ This study is focused on financial performance of a specific commercial bank i.e.
Kumari bank limited.
∙ Kumari Bank has been taken for the study.
∙ The report is based on the secondary sources of data provided by the bank.
∙ Study is limited on the basis of the data taken from the financial statement provided by
the bank in their website, not by physical visit and one to one communication with the
bank staff and manager.
∙ Large no of sample is not taken because of the time and cost constraints. ∙ The study is
limited on the data from 2073/2074 to 2077/78 B.S i.e. FS of 5 years. ∙ There was
confusion about the data that the bank had provided in their financial
statement i.e. there was different ratios in different financial statement but still I managed
it by taking only one data as base therefore the ratio may differ if compared to others.

BIBLIOGRAPHY

Books:
Poudel Subash, 2015 “Financial Management”, Kathmandu, Nepal.

J. Fred Weston1983, Thomas E. Copeland, "Managerial Finance”, Addison Wesley

1983.

Khan, M.Y. and Jain P.K. (1992), "Financial Management" Tata MC Graw-Hill, India.
Panta P.R. (1998), Fieldwork Assignment and Report Writing, Veena Academic
Enterprises, Ktm.
Khadka S.J and Singh H.B (2056), “Banking and Principles, Legislation and Practice”,
Nabin Prakashan, Bhotahity, Ktm.

Paul A. Samuelson Economic (New York M.C. Graw-Hill Company) Website:

www.kumaribankltd.com.np

REFERENCES

 The Nepal Commercial Bank Act 2031 B.S.

 Tiwari Netra, "A Comparative Study of Financial Performance of Commercial

Banks Unpublish" (Thesis of MBA)
 3. Shrestha M.K. "Commercial Banks Comparative Performance
Evaluation" Kosh, Ktm, Karmachari Sanchaya Kosh Publication, Year 16,
2047.