CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The financial statement analysis is concerned with collecting classifying and grouping
of figures, contained in the financial statement with specific tool and purpose so that a
user can get the required information such as survival, productivity, stability,
profitability and growth prospect of the company. It involves forming a meaningful
relationship between two financial statements that includes profit and loss account and
balance sheet.

Financial analysis also involves the evaluation of viability, stability and profitability of
a business units and projects. An organization can also determine its financial strength
and weakness by establishing relationship between accounting items of the balance
sheet and the profit and loss account.

The study aims to analyze the financial performance of the NBL. This study is done
using recent data’s which will be helpful not only to the shareholders but also to the
customers and management.

Private sector and public sector both can play the vital role for the growth of the
economy of any country. Integrated and speedily development of the country is possible
only when competitive Banking service reaches nook and corners of the country.
Commercial Banks occupy an important place in the framework of every economy
because they provide capital for the development of industry, trade, business and other
remotes deficit sectors by investing the saving collected as deposits. All the economic
activities of each and every country are greatly influenced by the commercial Banking
business of the country. Thus, this study attempts to show the clear picture of the
profitability, productivity, growth. (Poudel, 2012).

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1.2 Profile of the Nabil Bank Ltd.
27 years ago, Nabil pioneered professionalism in the Banking industry in Nepal giving
it a drive. Doubtless, there were Banks in Nepal, but a customer focused approach and
philosophy commenced with Nabil. It set up a marketing department establishing an
example that it cares for its customers. Till then the practice was that the customers had
to satisfy Bankers and with Nabil’s advent in the industry it took a new turnaround. The
Banker has to delight the customer first, not the other way around. That is how Nabil
pillared its corporate culture over two and half decades ago. Now it proceeds with the
same culture, and now it is called as Nab Culture. Nab Culture stands for Nabil’s core
values. Nabil’s core values dri2e all its stakeholders to team up and work to co-create
values through collaborative endeavors in the common interests of all. Nabil
commenced operation in Nepal on the 12th of July 1984 partnering with Dubai Bank
Ltd., through a Technical Service Agreement. Looking back upon a long stretch of time
it has had a series of achievements to glory in.

To be the leading Nepali Bank, delivering world class service through the blending of
state-of-the-art technology and visionary management in partnership with competent
and committed staff, to achieve sound financial health with sustainable value addition
to all our stakeholders. We are committed to do this mission while ensuring the highest
levels of ethical standards, professional integrity, corporate governance and regulatory
compliance.

1.3 Statement of the Problem

Profitability analysis is the essence of commercial banking; consequently, the
formulation and implementation of second analysis policies are among the most
important responsibilities of directors and management. Well-conceived lending
policies and careful analysis practices are essential if a bank is to perform its credit.
Profitability analysis effects on the company’s profitability and liquidity so it is one of
the crucial decisions for the commercial banks.

Thus, the present research raised the following questions:

• What is the profitability, liquidity and activity of Nabil Bank?

• What is the ability of an Organization of Nabil Bank?

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 • What is the trend of achievements?
•
1.4 Objective of the Study
The basic objective of this research is to make analysis of financial performance of NBL
by using financial and statistical tools and to recommend the suitable suggestion for
improvement of those Banks to the management team owners. Analysis of financial
statements helps to examine the efficiency and performance of an organization.
Financial statements show the financial strength and weakness of the firm. Specific
Objectives of the study:

• To measure the profitability, liquidity and activity of Nabil Bank Ltd.

• To measure the ability of an organization.
• To measure the trend of achievements

1.5 Rationale of Study

There are many commercial Banks in Nepal. Among which NABIL Bank Ltd is one of
them. Performance of NABIL Bank Ltd is to be evaluated in order to find out whether
it's performing well, equal and below the industrial average. So, this study is carried out
to measure the status of current performance of NABIL. Such study is considered
necessary, and this study aims to fulfill this demand of the time. A study convening all
these issues becomes and expected to be very significant both from the practical
viewpoints to the best of knowledge of the researcher.

1.6 Literature of Review

Review of literature means reviewing research studies or other relevant preposition in
the related areas of the study so that their all-past studies, their conclusion and
deficiencies may be known, and future research can be conducted. This chapter
highlights upon the literature that have already been conducted by some of them, as are
supposed to be relevant for this study purpose.

1.6.1 Conceptual Review

Concepts and review of literatures comprises upon the existing literature and Research
related to the present study with a view to find out what had already been studied. The
modern financial evaluation has greatly affected the role and importance of financial

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performance. The basis of financial planning analysis and decision making is financial
information as statements. Financial statements are necessary to Predict, compare and
evaluate a firm’s earning ability. It also entails to aid in economic Decision-making
investment and financial decision making. The use of financial Statement analysis in
investing and other decision making has been addressed by a series of authors.

Liquidity Management in Business

Investors, lenders and managers all look to a company's financial statements, using
liquidity measurement ratios to evaluate liquidity risk. This is usually done by
comparing liquid assets and short-term liabilities. Companies that are over-leveraged
must take steps to reduce the gap between their cash on hand and their debt obligations.

All companies and governments that have debt obligations face liquidity risk, but the
liquidity of major Banks is especially scrutinized. These organizations are subjected to
heavy regulation and stress tests to assess their liquidity management because they are
considered economically vital institutions. Here, liquidity risk management uses
accounting techniques to assess the need for cash or collateral to meet financial
obligations.

Liquidity Management in Investing

Investors still use liquidity ratios to evaluate the value of a company's stocks or bonds,
but they also care about a different kind of liquidity management. Those who trade
assets on the stock market can't just buy or sell any asset at any time; the buyers need a
seller, and the sellers need a buyer.

When a buyer cannot find a seller at the current price, he or she must usually raise his
or her bid to entice someone to part with the asset. The opposite is true for sellers, who
must reduce their ask prices to entice buyers. Assets that cannot be exchanged at a
current price are considered illiquid.

Investors and traders manage liquidity risk by not leaving too much of their portfolios
in illiquid markets. In general, high-volume traders in particular want liquid markets,
such as the forex currency market.

If the liquidity is kept at high level under the fear of not being capable of meeting
financial requirements in time and the funds available are not invested is sure to count
on losses for no returns on the funds available.

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In case all the funds available are invested without care for even minimum requirement
of liquidity/cash, in case of urgent need the financial commitments made may not meet
the deadline and may also result in losses in form of penalty or very high rate of interest.

Management of Liquidity and Cash by Banks

In case of Banks investments are made out of the cash available with it, deposits
received from public, companies, institutions and all other types of deposits both
demand deposits and term deposits. Additionally, a part of profit earned by the Bank is
also available. The main problem is a fact that every Bank is bound by law that the
deposits held with it are payable according to the obligation terms to depositors.

Demand deposits should always be kept ready by Bank to be able to make immediate
payment in case any demand arises. This very fact requires every Bank to have
sufficient liquidity to meet the contractual obligations as and when they arise without
any delay.

Now the opposite or contrary picture also appears to be true because every Bank wants
to deploy maximum funds in advances and investments in hope of getting maximum
possible returns. If all the funds available with any Bank are lent or invested, there may
be possibility that such funds are not recovered by the Bank immediately and the Bank
is not able to meet its obligations towards its customers.

In order to retain the customer base, the Banks must adopt a liquidity/investment policy
to be able to repay to depositors on demand. Incase Bank deploys its maximum funds
in loans/investment without caring for the requisite amount of liquidity to able to meet
the immediate financial requirements particularly towards demand depositors, it may
tarnish its image which can be a fatal event for any Bank.

If a Bank under the fear of protecting its image to be able to meet all the demand
requirements instantly keeps a large portion of its funds in liquid form either in cash
with itself or deposits with the Central Bank i.e. RBI without earning sufficient returns
or at low level of interest, naturally may face a situation of loss.

Investments by Banks are its assets and demand, and term deposits are liabilities.

Derived from above discussion it may be observed that an investment policy of a

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Bank should be a balanced approach for managing its assets and liabilities. In case of
enhancing or increasing assets without taking into account the proportion of liabilities
may bring more profit or income, but the Bank may likely fail in meeting its obligations.

In reverse position of quantum of liquidity is more than the required limit it may be a
cause of losses. It may please be understood that Profitability and Liquidity stand
against each other and are required to be managed in a planned manner.

Steps in Cash and Liquidity Management:

For cash and liquidity management by Banks following steps are adopted:

Cash: Cash is complete liquidity consisting of cash in handheld by the Bank itself or
deposited with Central Bank (RBI). The quantum of cash to be kept by a Bank is
regulated by statutory requirements known as SLR (Statutory liquidity Ratio) and CRR
(Current Reserve Ratio). In addition to rules and regulations the practical experience of
Bankers also plays a vital role in deciding the quantum of cash to be kept as cash in
hand. Any idle cash kept earns no income.

It is therefore every Bank adopts a system of complete cash management and investment
management in order to measure and manage the liquidity needs. Measuring liquidity
is a ticklish task and mostly gauged by Assets and Liability management system.

Investments: Investment by Banks is largely regulated by specific guidelines as

discussed above in portfolio management. Likewise, cash management is also subject
to SLR and CRR norms.

Loans and Advances: Commercial Banks function as financial intermediaries. They

mobilize funds through various deposit schemes and a large portion of these funds are
deployed as Bank credit in various sectors of economy. In a way Banks also function
like trustee of savings and idle funds of the society.
The quality of the credit portfolio decides their efficiency of discharging their duty. In
providing loans to different sectors of society is best suited method of managing excess
cash by Banks as this sector is more secure than making investment in capital market.

If the management of cash, liquidity and liabilities are put under one umbrella it would
be seen as a process where all of them are inter linked and no single item can be
managed separately without having look on other items.

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Asset and Liability Management:

It is a process of effectively managing a Bank portfolio mix of assets, liabilities and

when applicable off-balance sheet contracts. This process involves two primary
financial risks, interest rate and foreign exchange, and directly relates to sound over all
liquidity management.

Interest Rate Risk:

It is the process of the exposure of a Bank’s financial condition to adverse movements

in interest rates. Changes in interest rates can have significant impact on a Bank’s
earnings as well as the underlying economic value of a Bank assets, liabilities and off-
balance sheet items.

Liquidity:

The ability to fund all contractual obligations of the Bank. Notably lending and
investment commitments and deposit withdrawals and liability maturities, in the normal
course of business, that is the ability to fund increases in assets and meet obligations as
they come due.

Liquidity Management:

It is an on-going process to ensure that cash needs can be met at reasonable cost in order
for a Bank to maintain the required level of reserves with RBI (CRR) and to meet
expected and contingent cash needs. Required CRR/SLR with the RBI should not be
considered to be a routine Source of liquidity.

Good management information systems, analysis of net funding requirements under

alternative scenarios, diversification of funding Sources, and contingency planning are
crucial elements of sound liquidity management.

Liquidity Risk:

It is a risk of loss to a Bank resulting from its liability to meet its needs for cash or from
inadequate liquidity levels, which must be covered by funds, at excess cost.

Net Funding Requirements:

The liquid assets necessary to fund a Bank cash obligations and commitments going
forward determined by performing a cash flow analysis, all cash inflows against all cash
outflows, to identify potential net shortfalls.

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Principles of Liquidity Management:

The Bank for International settlements‟ Basel Committee on Banking Supervision in

its document No. 69 February 2000 has provided principles and details of key elements
for effective management of liquidity.

Banks should formally adopt and implement these principles for use in overall liquidity
management process:

A. Banks must develop a structure for liquidity management:

Each Banks should have an agreed strategy for day-to-day liquidity management. This
strategy should be communicated throughout the organization.

A Bank Governing board should approve the strategy and significant policies related to
liquidity management. The governing board should also ensure that senior management
of the Bank takes the steps necessary to monitor and control liquidity risk. The
Governing Board should be informed regularly of the liquidity situation of the Bank
and immediately if there are any material changes in the Bank current or prospective
liquidity position.

Each Bank should have a management structure in place to effectively execute the
liquidity strategy. This structure should include the on-going involvement of members
of senior management. Senior management must ensure that liquidity is effectively
managed, and that appropriate policies and procedures are established to control and
limit liquidity risk. Banks should set and regularly review limits on the size of their
liquidity positions over particular time horizons.

Banks must have adequate information systems for measuring, monitoring, controlling
and reporting liquidity risks. Reports should be provided on a timely basis to the Banks
governing board, senior management and central Bank. (In case of India Reserve Bank
of India)

Banks must measure and monitor net funding requirements:

• Each Bank should establish a process for the ongoing measurement and
monitoring of net funding requirements.

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 • Banks should analyze liquidity utilizing a variety of scenarios.
• Banks should frequently review the assumptions utilized in managing liquidity
to determine that they continue to be valid.

B. Banks should Manage market access:

Each Banks should periodically review its efforts to establish and maintain relationships
with liquidity holders, to maintain the diversification of liabilities, and aim to ensure its
capacity to sell assets.

C. Banks should have contingency plans:

Banks should have contingency plans in place that address the strategy for handling
liquidity crises, and which include procedures for making up cash flow shortfalls in
emergency situations.

D. Banks should manage their foreign currency Liabilities:

Each Bank should have measurement, monitoring and control system for its liquidity
positions in the major currencies in which it is active. In addition to assessing its
aggregate foreign currency liquidity needs and the acceptable mismatch in combination
with its domestic currency commitments, a Bank should also undertake separate
analysis of its strategy for each currency individually.

Subject to analysis undertaken, a Bank should, where appropriate, set and regularly
review limits on the size of its cash flow mismatches over particular time horizons for
foreign currencies in aggregate and for each significant individual currency in which
the Bank operates.

E. Each Bank must have an adequate system for internal controls over its liquidity
risk management process. A fundamental component of the internal control system
involves regular independent reviews and evaluations of the effectiveness or
enhancements to internal controls are made.

F. Each Bank should have in place a mechanism for ensuring that there is an adequate
level of disclosure of information about the Bank in order to manage public
perception of the organization and its soundness.

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Concept of Bank

There are different opinions on the origin of the Bank. According to one opinion, the
term Bank was originated from Italian word „Banco‟ which meant bench. The money
exchangers at that time kept heap of money on the bench from which came the use of
word „Banko‟. In the opinion of Macleod, since Banko means „heap‟, it deSources the
joint fund contributed by many persons.

The origin of the word „Bank‟ is linked to: German word „Bank‟ means a joint stock
company, Latin word „Bank‟ means a bench, Italian word „Bank‟ means a bench and
French word „banquet‟ means a bench. Moneylenders in the streets of major cities of
Europe used benches for acceptance & payment of valuables & coins. When they are
unable to meet their liabilities, the depositors used to break their benches. Hence the
word „Bankruptcy‟ is derived from there. The term Bank was first used in Italy in 1157
A.D. in 12𝑡ℎ centuries. The first Bank was set up in Venice, Italy as a public Bank, by
the name „Bank of Venice‟. Subsequently, „Bank of Barcelona‟ in 1401 A.D. & „Bank
of Geneva‟ in 1407 A.D. were established. In 1609 A.D, “Bank of Amerterdam‟, a
famous Bank was established. In reality, the history of modern Banking had started
from „Bank of England‟ in 1694 A.D. But the modern joint stock Banks were
established in England only in 1833 A.D. In 1844 A.D., „Bank of England‟ was
established as a first central Bank in the world. The „Banque De France‟ was
established in France in 1807 A.D. Later, the Banks were established in other parts of
the world.

Resources of Nepalese Commercial Bank

Commercial Banks have mainly three Sources for their advancing. They are as follows:

Capital: - As far as the capital fund is concerned, it is only a nominal Source. Therefore,
it can be used for investment purposes. This capital fund consists of two elements; paid
up capital & general reserve.

Deposits: - Deposits are the main re-Source of the Banks for advancing loans. It is
received from different forms & accounts. There are mainly three types of deposits viz.
saving, current, & fixed. In a developing country like Nepal where the majority of

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people are still poor, saving deposits has played a significant role in the development of
a country. Therefore, the main Source of raising capital is deposits. Sudharsanam (1976)
rightly says, “The deposit function of the Bank is important because it has to aggregate
small sums of money lying scattered here & there like twenties, fifties, & hundreds.
Singling these sums has no economic efficiency what so ever but they can accomplish
herculean tasks when they are aggregated & employed by the Banker” (Sudharsanam,
1976: 20).

Internal & External Borrowing: - Internal & external borrowing are very important for
a developing country like Nepal. Commercial Banks alone cannot fulfill the necessity
of the society. Therefore, they are allowed to borrow from two Sources, external &
internal. Generally, external borrowing means the borrowing from foreign Bank,
foreign government, IBRD, IMF, etc. Internally, the Banks can borrow from only one
Source, i.e. from NRB.

1.6.2 Related of Study

This may be an attempt to summarize or comment on what is already known about the
particular topic. By collecting different Sources together, synthesizing and analyzing
critically, it essentially creates new knowledge or perspectives. There are number of
different forms a literature review might take.

For the purpose of this study relevant thesis work and reports regarding several aspects
of Banking sectors conducted by different intellectuals and student of BBS are
analyzed.

Poudel R. (2012) “The impact of credit risk management on financial performance of

commercial Banks in Nepal “This study tries to explore various parameters pertinent to
credit risk management as it affects Banks‟ financial performance. Such parameters
covered in the study were default rate, cost per loan assets and capital adequacy ratio.
Financial report of 31 Banks was used to analyze for eleven years (2001-2011)
comparing the profitability ratio to default rate, cost of per loan assets and capital
adequacy ratio which was presented in descriptive, correlation and regression was used
to analyze the data. The study revealed that all these parameters have an inverse impact
on Banks‟ financial performance; however, the default rate is the most predictor of
Bank financial performance. The recommendation is to advice Banks to design and

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formulate strategies that will not only minimize the exposure of the Banks to credit risk
but will enhance profitable.

Ongore V. (2015) “Determinants of Financial Performance of Commercial Banks in

Kenya” Studies on moderating effect of ownership structure on Bank performance is
scanty. To fill this glaring gap in this vital area of study, the authors used linear multiple
regression model and Generalized Least Square on panel data to estimate the
parameters. The findings showed that Bank specific factors significantly affect the
performance of commercial Banks in Kenya, except for liquidity variable. But the
overall effect of macroeconomic variables was inconclusive at 5% significance level.
The moderating role of ownership identity on the financial performance of commercial
Banks was insignificant. Thus, it can be concluded that the financial performance of
commercial Banks in Kenya is driven mainly by board and management decisions,
while macroeconomic factors have insignificant contribution.

Ganesh S. (2013) “Financial Performance of Private Commercial Banks In India:

Multiple Regression Analysis” Banks have significance role in the economic growth of
every country especially private Banks. Therefore, the present study is concerned about
the performance of major three private sector Banks, listed on both the National Stock
exchange (NSE) and Bombay stock exchange (BSE). Financial ratios are used for the
statistical analysis on Banks performance. Three important indicators namely, Return
on Assets (ROA) which measures Internal-based performance, Tobin's Q model
(price/Book ratio) which measures market-based performance and Return on equity
(ROE) which is a key profitability ratio that investors use to measure of the amount of
a Bank's income that is returned as shareholder equity have been used to measure
financial performance of the selected private Banks. The data has been selected for the
period 2006 to 2017 of the selected Banks. Multiple regression technique has been used
to find the financial performance measured by the three indicators based on independent
variables, Banks size, credit risk, asset management, operational efficiency and debt
ratio. Results indicate that all the selected ratios have impact on financial performance
of Private commercial Banks.

Shakya M. (2017) in his study entitles “The study in Financial Performance of Nepal
SBI Bank Limited and Everest Bank Limited.” analyzed different ratio of NSBIBL and
EBL for the period of five years till fiscal year 2008. Here, in some cases the liquidity

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position of EBL is slightly stronger whereas in some cases the ratio of NSBIBL is
higher. It concludes that liquidity position of these two Bank is sound. NBBL has better
utilization of re-Sources in income generating activity than EBL. They are on
decreasing trends while interest earned to total assets and return, or net worth ratio of
EBL is better than NSBIBL.it seems overall profitability position of EBL better than
NSBIBL and both are highly leveraged.”

Jha S. and Hui X. (2018) in their study entitled “A comparison of financial performance
of commercial Banks in Nepal” have compared the financial performance of different
ownership structured commercial Banks in Nepal based on their financial
characteristics and identify the determinants of performance exposed by the financial
ratios, which were based on CAMEL Model. Eighteen commercial Banks for the period
2005 to 2010 were financially analyzed. In addition, econometric model (multivariate
regression analysis) by formulating two regression models was used to estimate the
impact of capital adequacy ratio, non-performing loan ratio, interest expenses to total
loan, net interest margin ratio and credit to deposit ratio on the financial profitability
namely return on assets and return on equity of these Banks. The results show that
public sector Banks are significantly less efficient than their counterpart are; however
domestic private Banks are equally efficient to foreign owned (joint venture) Banks.

Ally Z. (2013) in her study entitled “Comparative Analysis of Financial Performance

of Commercial Banks in Tanzania” has analyzed the financial performance of
commercial Banking sector in Tanzania for the period of 7 years from 2006 to 2012.
Financial ratios were employed to measure the profitability and liquidity of Banks; in
addition, Analysis of Variance (ANOVA) was used to test the significance differences
of profitability means among peer Banks groups. The study found that overall Bank
financial performance increased considerably in the first two years of the analysis. A
significant change in trend is noticed at the onset of the global financial crisis from 2008
to 2009. However, Tanzania Banking sector remained stable; Banks are adequately
capitalized and profitable and remained in a sound position. The study found that, there
is no a significant means difference of profitability among of peer Banks groups in term
of ROA, however, a significance differences among Banks group is existed in term of
ROE and NIM.

Kattel I.K. (2021) in his study entitled “Evaluating the Financial Solvency of Selected

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Commercial Banks in Nepal” has explained that Banking industry of Nepal is moving
towards the goal of integrated financial service because of competition, frequently
changes in technology, and customers' expectations. Financial system is reflected
through sound solvency position in the Banking sector. Therefore, the aim of this study
is to evaluate the financial soundness of joint venture Banks and private sector Banks
in Nepal by using Bank meter model for the period covering 2007- 2012. The study has
found that all the private and joint venture Banks are in sound financial position. The
finding of the study reveals that private sector Banks are financially sounder in
comparison to joint venture Banks. The study concludes that Bankometer model will
help the Bank's internal management to mitigate the insolvency risk within proper
control and supervision at the operational level.

1.7 Research Methods

Research methods refer to the various sequential steps to be adopted by a researcher in
studying a problem with certain objective in view. It is a systematic way of solving the
research problem. It may be understood as a science of studying how research is done
scientifically. It includes the various steps those are generally adopted by a researcher
while studying his/her research problem along with the logic behind them. It would be
appropriate to mention here that research project is not meaningful to anyone unless
they are in sequential order which will be determined by research methodology at hand.
Therefore, this study also follows certain methods for analyzing and interpreting
financial performance of Nabil Bank Ltd during last five years.

1.7.1 Research Design

Research design is the task of defining the research problem. In other words, "A research
design is the arrangement of conditions, for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure”.
Descriptive research design method helps in gathering information about the existing
status of the phenomena in order to describe what exists in respect to variables. I would
be using descriptive research design for this study.

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1.7.2 Population and Sampling

There are 21 commercial Banks, in the country. Among the total population only
Nabil Bank taken as sample or random basis similarly due to unavailability of data
from all the sector, only commercial Banks will be chosen for this study.

Since, this study is focused on the Banks, thus, here the population encompasses all the
21 commercial Banks functioning its operation within the country. Since, study of
whole population may not be possible due to several factors, thus, sampling becomes
essential to draw inference for the population. So, among 21 Banks, one Bank i.e.
Nabil Bank would be selected by using convenient sampling methods.

1.7.3 Types of Data

I will be using secondary data to accomplish the purpose of the study. Secondary data
are those data which are originally collected by one researcher and used by another
researcher due to similarity or coincidence of the study. They may be published reports,
articles, Journals, annual reports, magazines, newspaper, published surveys, internet
surfing etc.

1.7.4 Data Collection Procedure

The data collected cannot be directly use for the study as it need to be checked,
classified, simplified and convert into systematic form to accomplish the objective of
the study. The data collected should be reliable and adequate to find out the relevant
answers to the questions of our study. So, the data will be managed in such way that it
could be easily used in understandable and simple manner.

The secondary data for the study will be extracted from various Sources such as NRB
data base, annual report of Nabil Bank Ltd, published and unpublished articles, journals,
and website of Banks. These data will be refined and interpreted with help of Excel
sheet as master data base file.

1.7.5 Data Analysis Tools

Financial ratios are the major tools used for the descriptive analysis of the study. In
addition to the financial tools, simple statistical tools are also used. Financial Ratio
Analysis tools are used to determine the performance of the Banks in the framework
components. These ratios are categorized in accordance with the components.
Following category of key ratios are used to analysis the relevant components in terms:

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1.7.5.1 Financial Tools

Tools used for the analysis and interpretation of financial data are financial tools. These
tools can be used to get precise knowledge about Banks which are fruitful in exploring
the strength and weakness of financial policies and strategies. In this study, financial
analysis tools like ratio analysis and financial statement analysis have been used.

Ratio Analysis

Ratio is a mathematical relationship between two quantities. In financial statement

analysis, ratios are used to evaluate the overall financial condition of a company. Ratio
analysis can be used prior to making investment decisions, to measure how a company's
performance stacks up against industry standards. A single ratio is not sufficient to
identify the true picture. The main profitability ratios that will be taken in this study are
described below:

Time Interest Earned Ratio(TIE)

Time interest earned ratio measures the extent to which interest on debt capital is
covered by EBIT (Earnings before interest and tax). Time interest earned ratio is
calculated as EBIT divided by the interest charges. It can be calculated as:
𝐸𝐵𝐼𝑇
Time Interest Earned Ratio=𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒

Return on Assets (ROA)

Return on assets (ROA) is a ratio between net profit and total assets. In American
literature the ratio is known as Return on Total Assets or Return on Investment (Halpern,
1998) and measure the profitability of the invested capital in Bank or the efficiency of
the assets management.
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Return on Assets=𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Return on Equity (ROE)

Return on equity is the bottom-line measure for shareholders measuring profit earned
by the funds the funds invested in the firm. It can be calculated as:

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 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Return on Equity 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

Cash Coverage Ratio

Cash coverage ratio is the measure of interest payment capacity out of firm’s cash. The
amount of EBIT excludes depreciation. So, this ratio includes both EBIT and
depreciation. It can be calculated as:
𝐸𝐵𝐼𝑇+𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
Cash Coverage Ratio 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

Operating Ratio

The operating ratio can be used to determine the efficiency of a company's management
by comparing operating expenses to net sales. It is calculated by dividing the operating
expenses by the net sales. The smaller the ratio, the greater the organization's ability to
generate profit. It can be calculated as:
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
Operating Ratio = 𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠

1.8 Limitations of the Study

The project aims to gain exact outcome with the data and information used but however,
there are some limitations of this study. Some of the limitations of this study are as
follows:
• The analysis is done being based on Nabil Bank.
• The study is limited to the data extracted from the concerned Bank only due to
lack of time.
• Data is based on past five years (2075/76 to 2079/80).
• Most of the data are based on annual report published by Nabil Bank.

17
 CHAPTER - II

RESULTS AND ANALYSIS

2.1 Data Presentation and Analysis

Financial analysis is done by applying various financial tools in order to clear picture
on the viability of the project. The financial analysis is done to ascertain the liquidity,
profitability, leverage, debt servicing and interest servicing ability of the firm. The
concept of financial statement analysis has been already discussed in previous chapter.
Here, we study and analyze the data by using accounting tools.

Ratio Analysis

Ratio is the relationship between two figures. They provide two important fact about
the management: the return on investment and the soundness of the company’s financial
position. A single ratio will not depict a true picture of the unit. Hence, a combination
of ratios must be analyzed to drive a true picture. Ratio analysis has been already
discussed in previous chapter. Here, different ratios of NABIL Bank will be calculated,
analyzed and interpreted.

A. Liquidity Ratio

Liquidity refers to the ability of a firm to meet its short- term or current obligations. So,
liquidity ratios are used to measure the ability of a firm to meet its short-term
obligations. Inadequate liquidity can lead to unexpected cash short falls that must be
covered at excessive costs reducing profitability. In the worst case, inadequate liquidity
can lead to the liquidity insolvency of the institution. To find - out the ability of the
Bank to meet their short-term obligations, which are likely to mature in the short period,
the following ratios are developed under the liquidity ratios to identify the liquidity
position.

18
i) Cash and Bank Balance to Investment Ratio

This shows the ratio between cash & Bank balance to Investment. Cash and Bank
balance is the outcome of deposit of customers plus other income and reserves of the
Bank. Bank is liable to customer to pay out upon demand of customers, so we are trying
to find the comparative study between them.
𝐶𝑎𝑠ℎ & 𝐵𝑎𝑛𝑘 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
Cash & Bank Balance to Total Investment= 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

Table 1: Cash and Bank Balance to Investment Ratio (in Billions)

Cash and Bank

Fiscal Year Total Investment Ratio
Balance

2075/76 16.227 36.54 0.44

2076/77 24.821 44.02 0.56
2077/78 15.310 49.91 0.31
2078/79 24.089 71.7 0.34
2079/80 32.426 91.76 0.35
Mean 0.40
Source: Annual Report of NABIL Bank

A table 1 show that the Cash and Bank balance to total investment ratio of NABIL
BANK is 0.44, 0.56, 0.31, 0.34 and 0.35 times respectively from the first year to last
year of the research period. The average is 0.40 times, which means consistency in this
ratio during the research period. Cash and Bank balance should be sufficient to meet
the demand of current depositors otherwise; the bank would lose its image from the
viewpoints of customers. In the case of NABIL Bank, the cash and Bank balance may
be called as enough to meet the demand of customers because the average ratio is
0.40 times.

19
 Ratio
0.6

0.5

0.4

0.3

0.2

0.1

0
1 2 3 4 5

Fig 1: Cash and Bank Balance to Total Investment Ratio

ii) Cash and Bank Balance to Total Deposit Ratio:

This cash & Bank balance to total deposit ratio shows that percentage relation between
them. It means the liquid balance available in respect to total deposit of the Bank
whereas the difference between the cash & Bank balance to total deposit is said as the
investment of the Bank. The reserve requirement below 10% of deposit liabilities is
Sourced as fully liberalized, 10%-15% as largely liberalized, 15%-25% as partially
repressed and above 25% as completely expressed, it is ranked by 3, 2, 1& 0
respectively.
𝐶𝑎𝑠ℎ & 𝐵𝑎𝑛𝑘 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
Cash & Bank Balance to Total Deposit= 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑝𝑜𝑠𝑖𝑡

Table 2: Cash and Bank Balance to Total Deposit Ratio (Rs. Millions)

Fiscal Year Cash and Bank Balance Total Deposit Ratio

2075/76 16.227 164.37 0.099

2076/77 24.821 193.04 0.129

2077/78 15.310 227.98 0.067

2078/79 24.089 329.58 0.073

2079/80 32.426 403.12 0.080

Mean 0.448
Source: Annual Report of NABIL Bank

20
Table 2 shows that the cash and Bank balance to total deposit ratio of NABIL Bank is
in a fluctuating trend. The highest ratio is 0.129 times in year 2076/77 and the lowest
ratio 0.067 times in year 2077/78. The mean ratio is 0.448 times in the study period.
This means that the Bank is maintaining the ratio in the good liquidity position of the
Bank. Ratio is 0.080 times in year 2079/80. Therefore, it shows good utilization of re-
Source. Cash & Bank balance to total deposit ratio is shown in the following figure. It
still shows the need for further utilization of rotes.

Ratio
0.14

0.12

0.1

0.08

0.06

0.04

0.02

0
2075/76 2076/77 2077/78 2078/79 2079/80

Fig 2: Cash and Bank Balance to Total Deposit Ratio

iii) Cash and Bank Balance to Total Assets Ratio:

The ratio of cash and Bank balance to total assets measures the ability to meet its sudden
outflow of total assets.
𝐶𝑎𝑠ℎ & 𝐵𝑎𝑛𝑘 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
Cost and Bank Balance= 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

21
Table 3: Cash and Bank balance to Total Assets Ratio (in. Billions)

Total
Fiscal Year Cash and Bank Balance Ratio
Assets
2075/76 16.227 201.575 0.08

2076/77 24.821 237.680 0.10

2077/78 15.310 291.239 0.05

2078/79 24.089 419.818 0.06

2079/80 32.426 481.204 0.07

Mean 0.36
Source: Annual report of NABIL Bank

Table 3 shows that the cash and Bank balance to total assets ratio of NABIL Bank is in
fluctuating trend. The mean ratio is 0.036 times. This means that the Bank is able to
maintain this ratio in satisfactory financial condition. The highest ratio is 0.10 in the
year 2076/77 and lowest ratio of 0.05 in the year 2077/78. In year, 2078/79 this Bank
mobilized deposits 0.06 times and it maintained good financial condition. Therefore,
cash management neither is in good position of the NABIL Bank. Cash and Bank
balance to total assets are presented in figure in as follows:

Ratio

0.1

0.05

0
2075/76
2076/77 Ratio
2077/78
2078/79
2079/80

Fig 3: Cash and Bank Balance to Total Assets Ratio

22
B. Profitability Ratio:

Profitability ratios are related to profit. These ratios are designed to highlight the result
of business activities. The operating efficiency of a firm and its ability to ensure
adequate return to its shareholders depends ultimately on the profits earned by it. In this
regard, profitability ratios are the measure of efficiency and the search for. These ratios
measure the overall effectiveness of management. It provides an incentive to achieve
efficiency. In this report, the following profitability ratios are used:

i. Net Profit Margin

Net profit margin is the ratio of net profits to revenue for a company or business
segment. Typically expressed as a percentage, net profit margins show how much of
each dollar collected by a company as revenue translates into profit. The equation to
calculate net profit margin is:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Net margin =𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Table no.4: Net Profit Margin (in millions)

Fiscal Year Net Profit Sales Revenue NPM Ratio(%)

2075/76 4239 17478 24.25

2076/77 3463 18667 18.55

2077/78 4528 21024 21.54

2078/79 4256 26359 16.15

2079/80 6405 50649 12.65

Mean 0.19

Source: Annual report of NABIL Bank

From the above table no.4, the net profit is highly fluctuating ups and down whereas,
sales revenue is in increasing module. The net profit margin of fiscal year 2075/76,
76/77, 77/78, 78/79 and 2079/80 are 24.25, 18.55, 21.54, 16.15 and 12.65%
respectively. In fiscal year 2077/78, the net profit margin is highest and the lowest in
2079/80. The trend of decreasing over last three year is not show good solvency of bank.
The figure of net profit margin is given below:

23
 Net Profit Margin Ratio(%)
30

25

20

15

10

0
2075/76 2076/77 2077/78 2078/79 2079/80

Fig. 4: Net Profit Margin

ii. Return on Assets

Return on assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings.

Calculated by dividing a company's annual earnings by its total assets, ROA is

displayed as a percentage. Sometimes this is referred to as "return on investment".
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Assets =𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Table no.5: Return on Assets(in billions)

F/Y Net Income Total Assets ROA

2075/76 4239 201.575 21.03

2076/77 3463 237.680 14.57

2077/78 4528 291.239 15.55

2078/79 4256 419.818 10.14

2079/80 6405 481.204 13.31

Mean 0.15

Source: Annual report of NABIL Bank

24
From the given table, the return on assets is decreasing than fiscal year 2075/76 but in
last year it has seen slightly increased than year 2078/79. The highest return is on
2075/76 by 21.03 whereas 10.14 is the lowest on fiscal year 2078/79. After ratio
increase in fiscal year 2079/80, it depicts that organization will earn good profit in next
coming year. The following figure presents the Return on Assets of the Bank from
2075/76-79/80.

ROA
25
20
15
10
5
0
2075/76 2076/77 2077/78 2078/79 2079/80

Fig. 5: Return on Assets

iii. Return on Shareholder’s Equity

Return on assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. The formula for return on assets is:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Shareholder’s Equity =𝑇𝑜𝑙𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦

Table no.6: Return on Shareholder’s Equity(in billions)

Fiscal Year Net Income Shareholder’s Equity ROE

2075/76 4239 4238 0.51

2076/77 3463 10097 0.35

2077/78 4528 13844 0.33

2078/79 4256 22833 0.19

2079/80 6405 27057 0.24

Mean 0.324

Fig. 6: Return on Shareholder’s Equity

25
The Return on Equity (ROE) for the company fluctuated over the years, ranging from
a low of 2.49% to a high of 34.31%. This variability suggests varying levels of
profitability relative to shareholder investment. Higher ROE in certain years indicates
more efficient use of equity to generate profits, while lower ROE years may reflect
challenges or changes in financial performance. Overall, monitoring ROE helps gauge
how effectively the company is generating profit from shareholder investments across
different fiscal periods. The bar graph is given below:

ROE
0.6

0.5

0.4

0.3

0.2

0.1

0
1 2 3 4 5

Fig. 7: ROE
C Growth Ratio

The growth ratio represents how well the NABIL Bank is maintaining their economic
and financial position. To calculate, check and analyze the expansion and growth of the
Bank the following growth ratio are calculated.

Table 7: Growth Rate of Total Deposits (in billion)

Fiscal Year Total Deposits

2075/76 2880.9

2076/77 3490.1

2077/78 4204.91

2078/79 4545.16

2079/80 5086.24
Source: Annual Report of NABIL Bank

26
The table presented above shows that NABIL Bank has fluctuating trend. In FY 2079/80
it has highest growth ration 25% whereas 14% in 2075/76. The growth ratio of NABIL
Bank reveals that it has good deposit situation. It depicts that deposits are increasing
year by year. Growth ratio of total deposit also shown in the following chart.:

Total Deposits

14% 2075/76
25%
2076/77
17%
2077/78
2078/79
23%
21% 2079/80

Fig 7: Growth Ratio of Total Deposit

Table 8: Growth Ratio of Total Investment (in Billion)

Fiscal Year Total Investment

2075/76
36.54
2076/77
44.02
2077/78
49.91
2078/79
71.70
2079/80
91.76
Source: Annual Report of NABIL Bank

The above table shows that NABIL Bank has the fluctuating growth rate during the
study year. The highest growth rate 91.76 was on fiscal year 2079/80 and lowest on
2075/76 as 36.54. It can also be presented with the help of line chart as following.

27
 Total Investment

100
80
60
40
20
0
2075/76 2076/77 Total Investment
2077/78
2078/79
2079/80

Fig 8: Growth Ratio of Total Investment

No- 9: Growth Ratio of Net Profit

Fiscal Year Net profit Growth Ratio

2075/76 4239 -

2076/77 3463 -18%

2077/78 4528 31%

2078/79 4256 -6%

2079/80 6405 50%
Source: Annual Report of NABIL Bank

The above table describes the growth ratio of net profit of NABIL Bank is in fluctuating
trend order under five-year study period. The table shows 6405 million net profits in
fiscal year 2079/80 which is highest all over this given profit. However, the lowest net
profit in 2076/77 as 3463 million. Growth ratio of net profit also shown in the following
line chart

Growth Ratio -

2076/77 2077/78 2078/79 2079/80

Fig 9: Growth Ratio of
Net Profit

28
2.2 Statistical Analysis
A) Trend Analysis:

Here, trend analysis of total deposits and loan and advances is projected for the five
years. The measure of trend analysis shows the behavior of given variables in series of
time. This trend analysis is carried out to see average performance of the Banks for next
five years.

All the other things will remain unchanged, The Bank will run in present condition, The
economy will remain in present stage, N.R.B. will not change its guidelines to
commercial Banks. Trend analysis is based on some assumptions:

a) Trend Analysis of Total Deposit:

Deposits are the important part in Banking sector hence its trend for next five years will
be forecasted for future analysis. This is calculated by the least square method.

Y= a+ bx,
Where,
Y= dependent variable,
a=Y-intercept,
b=slope of trend line or annual growth rate,
X= deviation from some convenient time periods.
Table 10: Trend of Total Deposit (in billion)

Year Total Deposit

2075/76
2880.9
2076/77
3490.1
2077/78
4204.91
2078/79
4545.16
2079/80
5086.24
Source: Annual Report of NABIL Bank

29
The total deposits in the company showed steady growth over the five-year period,
increasing from 2880.9 in 2075/76 to 5086.24 by 2079/80. This upward trend indicates
increasing confidence from depositors and potentially reflects the company's expanding
customer base or improved financial offerings. The consistent rise in deposits suggests
effective management of customer relations and competitive positioning within the
financial market. Monitoring deposit trends helps assess the company's ability to attract
and retain funds crucial for its operations and growth. The following graph helps to
show the trend lines of total deposit for the projected five years in increasing trend.

Total Deposit
6000

5000

4000

3000

2000

1000

0
2075/76 2076/77 2077/78 2078/79 2079/80

Fig 10: Trend of Total Deposit

30
 2.3 Major Finding of the Study
A. Liquidity Ratio:

Cash and Bank balance to Investment Ratio of the Bank shows the fluctuating trend
during the study period. The mean ratio is 0.40 times in the study period. The cash and
Bank balance to total deposit of the Bank shows the fluctuating trend during the study
period. The mean ratio is 0.448 times in the study period. This means that the Bank is
able to be maintained in the good liquidity position of the Bank. Therefore, that credit
management is in good position of the NABIL Bank. Cash and Bank balance to Total
Asset Ratio of NABIL Bank is also in fluctuating trend. The mean ratio is 0.36 times.
This means that the Bank is able to maintain in satisfactory financial condition.

B. Profitability Ratio:

Net profit margin of NABIL Bank is Fluctuating trend. The mean of net profit margin
is 0.19. Return on assets ratio of NABIL Bank is also in a fluctuating trend. The mean
ratio is 0.15 times in the study period. So, study shows that all of the year the Bank has
not met the NRB requirement, or it’s utilized its deposit to provide loan. This means
that assets and equity holder’s management of NABIL Bank is in good position.

C. Growth Ratio

Growth ratio of total deposit, total investment and net profit all are in fluctuating trend
over the study period. So, NABIL Bank has to follow the consistency and NRB
directives for its further progress.

31
 CHAPTER - III

SUMMARY AND CONCLUSION

3.1 Summary
The study is mainly based on secondary Sources. All data are taken from Nabil Bank's
annual report, literature publication, balance sheet, profit and loss account, previous
thesis report, different website, related books and booklets, journals and articles, After
collecting data from different Sources, it is analyzed by using financial and statistical
tools viz. Findings are drawn by applying various financial tools viz. Profitability ratio
and growth ratio.

In an attempt to fulfill the objectives of the research work, all secondary data are
compiled, processed and tabulated as per necessity and figures, diagrams and different
types of charts are also used.

This study suffers from different Limitation; it considers study of only NABIL Bank
because of time and re-Source are the constraints of the study. Therefore, the study may
not be generalized in all cases and accuracy depends upon the data collected and
provided by the organization.

3.2 Conclusion
Cash and Bank balance to Investment Ratio of the Nabil Bank shows the fluctuating
trend during the study period. The mean ratio is 0.57 times in the study period. The cash
and Bank balance to total deposit of the Bank shows the fluctuating trend during the
study period. The mean ratio is 0.16 times in the study period. This means that the Bank
is able to be maintained in the good liquidity position of the Bank. Therefore, that credit
management is in good position of the NABIL Bank. Cash and Bank balance to Total
Asset Ratio of NABIL BANK is also in fluctuating trend. The mean ratio is 0.15 times.
This means that the Bank is able to maintain in satisfactory financial condition.

Loan and advance to fixed deposit ratio of NABIL Bank is Fluctuating trend. The mean
ratio is 0.87 times in the study period. Loan and advances to total deposit ratio of
NABIL Bank is also in a fluctuating trend. The mean ratio is 0.05 times in the study
period. So, study shows that all of the year the Bank has not met the NRB requirement

32
or its utilized its deposit to provide loan. This means that loan and advance management
of NABIL Bank is not in good position.

The fluctuating ratio of loan and advances with mean ratio 4.70 indicates the high
inconsistency in the utilization of assets in the form of loan and advances but it is
satisfactory because the fluctuation in the ratio is minimal.

Growth ratio of total deposit, total investment and net profit all are in fluctuating trend
over the study period. So, NABIL Bank has to follow the consistency and NRB
directives for its further progress.

In statistical analysis, trend analysis of total deposit has been calculated. Trend analysis
for total deposit is calculated to see future deposit trend of the Bank which found
increasing trend.

These findings may be useful for them who are concerned directly or indirectly with the
credit policy of the Bank. On the basis of above analysis and findings of the study,
following implication can be drawn out.

Cash and Bank balance to total deposit, investment and assets ratio is in fluctuation
position over the study period. It indicates that Banks efficiency should be increased to
satisfy the demand of depositor at low level of cash and Bank balance does not provide
return to the Bank. Therefore, some percentage of the cash and Bank balance should be
invested in profitable sectors.

Loan and advances to total fixed deposit, total deposit and assets deposit all are in
fluctuating trend during the study period. This is high intervals fluctuation during the
study period. So, NABIL Bank should avoid extending loans merely based on
information.

Bank is suggested to make policy to ensure rapid identification of delinquent loans.

Bank should make immediate follow-up of loan until it is recovered. The recovery of
loan is very challenging as well as important part of the Bank. Therefore, Bank must be
careful to strengthen financial performance.

33