LIQUIDITY POSITION OF NMB BANK LIMITED

A Project Work Report

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

A bank is institution which accepts money in form of deposit & lends money in form credit. A
bank is considered as major pillar of economy. it has great role in capital formation of nation
which is essential to alleviate poverty and pool of funds for investment. In a economy the bank is
regarded as one of the economy backbone of the country for its development. Bank is a financial
institution that deals in money. The basic function of bank is collecting deposit and granting the
loans. It involves in creation deposit and loan. In the economy, the banks collects small saving of
generals people, accumulative it and lands the productive sectors of the society for the overall
economic development.

Nepal bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of modern
banking of the country. Nepal bank marks the beginning of a new era in the history of the
modern banking in Nepal. This has established in 1937 A.D Nepal bank has been inaugurated by
King Tribhuvan Bir Bikran Shah on 30th Kartik 1994 B.S Nepal bank was established as a semi
government bank with the authorized capital of Rs. 10 million and the paid –up capital of Rs.
892 thausand. Until mind-1940s, only metallic coins were used as medium of exchange. So the
Nepal Government (His Majesty Government on that time) felt the need of separate institution or
body to issue national currencies and promote financial organization in the country. Nepal Bank
Ltd. remained the only financial institution of the country until the foundation of Nepal Rastra
Bank is 1956 A.D Due to the absence of the central bank, Nepal Bank has to play the role of
central bank and operate the function of central bank. Hence, the Nepal Rastra Bank Act 1955
was formulated, which was approved by Nepal Government accordingly, the Nepal Rastra Bank
was established in 1956 A.D as the central bank of Nepal. Nepal Rastra Bank makes various
guidelines for the banking sector of the country. A sound banking system is important for

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smooth development of banking system. It can play a key role in the economy. It gathers saving
from all over the country and provides liquidity for industry and trade. In 1957 A.D. As the
agriculture is the basic occupation of major Nepalese, the Development of this sector plays in the
prime role in the economy. So, separate Agricultural Development Bank was established in 1968
A.D. This is the first institution in agricultural financing. For more than two decades, no more
banks have been established in the country. After declaring free economy and privatization
policy, the banking sector is more liberalized and modernized and systematic managed. There
are various types of the working in modern banking system in Nepal. It includes central,
development, commercial, financial, co-operative and Micro Credit (Grameen) banks.
Technology is changing day by day. And changed technology affects the traditional method of
the service of bank.
Banking software, ATM E-Banking, Mobile Banking, Debit Card, Credit Card, Prepaid Card
etc. Service are available in banking system in Nepal. It helps both customer and banks to
operate and conduct activities more efficiently and effectively. For the development of banking
system in Nepal, NRB refresh and change in financial sector policies, regulations and
institutional developments in 1980 A.D. Government emphasized the role of the private sector
for the investment in the financial sector. These policies opened the doors for foreigners to enter
into banking sector in Nepal under joint venture.

Liquidity is the status and part of the assets which can be used to meet the obligation liquidity
can be viewed in term of liquidity available through purchased fund. The degree of liquidity
depends upon the relationship between cash assets plus those assets which can be quickly turned
into cash and liability awaiting payment. Liquidity is an important aspect of the study of
furmenty management therefore the researcher has been chosen this topic for the research work.

One of the sensitive factor or element in the bank is liquidity. Liquidity refers to the
convertibility assets into cash. It means how fast the assets can be change into cash. There are
many assets which are easily converted into cash by the bank, such as cash in hand, cash at bank,
cash at central bank, investment in government securities. But some assets are difficult to get
converted into cash as line and fixed deposit. Liquidity is also defined as the position or
capability of a bank to meet the current obligation of customers such as payment of chaque
payment of demand draft, disbursement of approved loan etc.
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1.2 Introduction to NMB Bank Nepal

NMB Bank Limited licensed as “A” class financial institution by Nepal Rastra Bank in May 2008 has
been operating in the Nepalese Financial market for over twenty years and is one of the leading
commercial banks in the banking industry.

The Bank has a Joint Venture Agreement with Nederlandse Financierings-Maatschappij voor
Ontwikkelingslanden (FMO), wherein FMO holds 13.69% of the Bank’s shares and is the largest
shareholder of the Bank. In September 2016, the Bank signed a Joint Venture Agreement with
Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO), the Dutch development
bank following which FMO became the single largest share holder of the Bank. The alliance with
FMO positions NMB Bank in becoming the market leader in managing environmental & social risks
and the leading player in renewable energy and agribusiness.

NMB Bank was awarded 'Bank of the Year 2017', 'Bank of the Year 2018', 'Bank of the Year 2020',
and 'Bank of the Year 2021'. In the same year, for the first time in the history of Nepal, the bank was
awarded the title of 'Bank of the Year 2021 Asia' by The Banker, Financial Times, London.

Vision Mission and Values

Vision

 Building communities through responsible banking, preferred by all stakeholders, enabling

customers and clients achieve their financial goals thus contributing towards prosperous
Nepal.

Mission

 Helping clients and customers to achieve financial security.

 Strengthening and promoting sustainable socio economic development by working actively
with local and international stakeholders.
 Being responsible for bringing about positive environmental and social impacts.

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  Promoting self reliance through financial products for real economy.
 Creating an innovative climate within the organization, utilizing the skills and potential of
staff.
 Delivering banking products and services to create delightful customer experience 5Bs of
Our Success.

Values

 Be innovative with the changing time

 Be a team player and deliver results together
 Be responsible to our actions
 Be prudent for sustainable and consistent growth
 Be committed to deliver service excellence.

1.3 Objective of the study

The main objective of the study is to analyze the Global IME Bank liquidity needs and its
management for the current year. The specific objectives can be listed below:

a) To measure the liquidity, current, saving and fixed deposit ratio with total deposit of NMB Bank.

b) To analyze the deposit of NMB Bank.

1.4 Rationale of the study

The present study deserves some significant of it's own kind in this field. The study will be
concise practically usable and valuable to the major parties interested in the performance of
NMB Bank. People concerned with banking, teacher, teacher and students of the subject
particularly from management faculty, chartered Accountancy and institution of finance would
also find it useful. The study concipious its importance as explained under:

i. This report can be sources of the secondary data for researcher.

ii. NMB Bank may acuire important suggestion as mention in the study.

iii. The BBS level would remain incomplete without this part of study.

iv. This document can be kept as valuable assets in the library.

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v. The study can broaden the banking knowledge.

vi. This study will help to locate the area of investment.

vii. This study will help the bank to take corrective actions if errors are found.

viii. This study pertains to research report writing which is mandatory for the BBS final year
students of TU.

1.5 Review of Literature

This chapter deals with the theoretical aspects of the topic of liquidity analysis of NMB Bank
Limited in more details and descriptive manner. For this study, journal articles, and more
research reports related with this topic have been reviewed. This study has to refer almost all
books related with this topic published. Some of the prior reports by students of BBS regarding
this topic have also been reviewed.

1.5.1 Conceptual review

One of the sensitive factor or element in the blank is liquidity . Liquidity refers to the
convertibility assets into cash .It means how fast the a change into cash. There are many assets
which are easily converted into cash by the bank. Such as cash in hand, cash at bank cash at
central bank, investment in marketable security government security, government security. But
some assets are difficult to get converted into cash such as long and fixed assets.

Liquidity is also defined as the position or capability of a bank to meet the current obligation of
customers such as payment of cheque. Payment of demand drafts, disbursement of approved
lone and operation expenses of bank etc. Bank needs to maintain some reasonable level of
liquidity to fulfill different commitment such as provide money to depositors when the demand
administrative expenses, for bank's capacity to granting approved lone. Liquidity is crucial in the
business like banking. Because of the bank his high liquidity, it can no profit and if the bank has
the short fail of the liquidity it cannot satisfy its customers. Inadequate liquidity may lead to
collapse of the banks while excess liquidity is detrimental to bank's profitability. In order to

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remove demerits associated with maintaining inadequate and excess liquidity, banks should
maintain an optimum level of liquidity. This is possible only when bank's liquidity needs is
correctly predicted. Prediction covers in present outflow of liquidity. If prediction shows more
outflows, bank should be prepared to cover the shortfall by borrowing or by liquidating assets. If
inflow greater than outflow, bank should plan where to invest so, that income can be increase.
Banks attach great importance short term and long term predictions. Prediction of liquidity need
should be in the firm of primary and secondary reserves so, that bank generates income and at
the same time does not compromise to liquidity.

1.5.2 Review of previous works

Bank needs to maintain some reasonable amount of liquidity to fulfill different commitments.
Such as provide money to depositors when they demands for administrative expenses, for
maintaining cash reserve ratio in the central bank etc. so, liquidity is define as banks capacity to
pay cash in exchange of deposits. Financial analysis is the process of identifying the financial
strength and weakness of the concerned bank. It is the process of finding strength and weakness
of the concerned bank. It is the process of finding details accounting information given in the
financial statement. It is performed to determine the liquidity, solvency, efficiency and
profitability position of an organization. The function or the performance of finance can be
broken down into three major decisions i.e. the investment decision, the financing decision, and
the dividend decisions. an optional combination of the three decisions will be maximum value.
Nepal's first commercial bank, the Nepal Bank Limited, was established in 1937. The
government owned 51 percent of the shares in the bank and controlled its operations to a large
extent. Nepal Bank Limited was headquartered in Kathmandu and had branches in other parts of
the country. There were other government banking institutions.
Liquidity needs of Development bank are unique because in no other types of business there will
be such large portion of deposits payable on demand. Inadequate liquidity does damage credits
standing of other organization as will but banks fails to pay the deposits on demands, the bank
loose the faith of the public. Bank may maintain the liquidity in the form of:

a. Cash and bank balance

b. placement money at short calls or short notice

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c. Investments in gov. securities and other securities convertible into cash.

1.5.3 Review of article

International federation of Accounts conducted a research on liquidity management of the bank.

The study has been focused on the conditions of liquidity, liquidity management strategies major
finding/outcomes/conclusion of that study was liquidity of a bank is strictly based on cash and
liquid sets interbank deposits these two tools can help bank to maintain effective balance
between high liquidity position & law liquidity position.

Financial analysis is the process of identifying the financial strength and weakness of the
concerned bank. It is the process of finding strength and weakness of the concerned bank. It is
the process of finding details accounting information given in the financial statement. It is
performed to determine the liquidity, solvency, efficiency and profitability position of an
organization. The function or the performance of finance can be broken down into three major
decisions i.e. the investment decision, the financing decision, and the dividend decisions. An
optional combination of the three decisions will maximize the value of the firm.

According to Prof. Dr Silvia Petrescu, "the author of the book the financial accounting analysis
and diagnosis, second edition issued at CECCAR publishing house, busuresti 2008, the liquidity
measures the ability of the company to facto the short term obligations and it reflects capacity to
rapidly transform the current assets in cash."-(Prof.Dr. Silvia Petrescu)

A company is considered liquid when the resources issued by the current operations of the
exercise supplies enough cash in order to face the short term payment setting day and the
liquidity degree expresses the quality of the financial balance of the company on short term. The
tools used for analysis are

a. Current ratio

b. saving ratio

c. saving deposit to total deposit ratio

d. fixed deposit to total deposit ratio

1.5.4 Research gap

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Although some previous, studies have conducted in the similar topic the present research has
selected, there is fundamental difference between those and the present on the previous
researcher focused only on the liquidity and saving deposit to total deposit ratio accept of
selected development bank from investors prospective this research has further tried to identify
the fixed deposit to total deposit ratio of the development bank under study which play signifies
role in financial performance which is done by previous researcher. This report based on the
specified analytical tools for analysis of data. Therefore come research gap also raised for the
new researches these different are estimate action of average.

1.6 Method of the Study

Research methodology refers to the various sequential steps adopted by a researcher in studying
a problem with certain objectives in view. It is way to solve research problem systematically.
Research methodology is the overall framework for how contract, process, analyze and present
data on table and diagram to find answer of the research problem question/objective. It may be
understood as a science of studying how research is done scientifically. The basic objective of
this study is to highlight the liquidity position of NMB.

Research methodology describes the methods or process applied in the entire study. This
research is concerned with secondary data. For the purpose of achieving the objectives the
following methodology has been purposed. This include research design, population and
sample, source of data, data collection technique and data analysis tools. After the collection,
data analysis is performed for the purpose of data ending, coding, tabulating. The researcher
makes descriptive and statistical tool are used to make the analysis more effective, reliable and
authentic. To evaluate the financial condition and solving the problem of the analytical tools
researcher used.

1.6.1 Research design

The present study is mainly based on two types of research design i.e. descripted and analytical
Descriptive research design describes the general pattern of the Nepalese investor s, business
structure, problem of investment policy etc. The analytical research design makes analysis of the

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gathered facts and information and makes a critical evaluation of it.

Finally research design in the plan, structure and strategy of investigation conceived so as to
obtained answer to research question and to control variance. To achieve the study descriptive
and analytical research design have been used.

1.6.2 Population and sampling

Population refers to the entire group of people events or things of interest that a researcher has to
study. The population of this study consists of the entire development bank. All the development
banks have to adequate liquidity position for smooth operation of NMB Bank Limited has been
taken as a sample for the study. The liquidity position of the NMB Bank Limited is studies and
analyzed as a sample in report.

1.6.3 Type of data

A research design is the arrangement condition, for the collection and analysis of data in manner
that aims to combined relevance to research purpose with economy in procedures. This study
aims on the financial analysis of the NMB Bank Limited. This study is mainly based on
secondary data. Collected directly from the question answer, direct interview with customer and
office staff. The secondary data are collected form respective annual respects especially from
the NMB Bank Limited office, web sites and various other journals and from security bond
Nepal.

1.6.4 Data collection procedure

This study is based on secondary data secondary are collected from their respective annual report
other publication and journals of the related banks, Nepal Rastra Bank, Nepal Stock exchange
and other related magazines.

Research went to the branch office of NMB Bank Limited. Get the important information.
Research collected the main annual reports of this bank directly from the web site. And other
various articles and journals from various publication and some others from the SUBO, PEPSE
and previous field reports are also taken into account.

1.6.5 Data analysis techniques

Data analysis tools means which tools the research used for present and analyzed the data. The
main tools of analysis are mathematical and statistical tools. In this reports statistical and
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financial ratio tools is used for data analysis. Mean and correlation is calculated for analysis of
data as statistical tools. The first work of research is data collection second work is to
arrangement present the data in a logical order. After managing the data in report, data were
analyzed using financial tools to draw the conclusion.

i) Ratios

 Current Ratio
 Quick Ratio
 Saving deposit to total deposit ratio
 Fixed deposit to total deposit ratio
ii) Statistical tools

 Tables
 Simple bar diagram
 Trend line analysis

1.7 Limitation of the Study

This study focused on backing sector of the country. The proposed study will try to identify the
status of liquidity of NMB Bank Limited and there by studying its impact on the bank.

a) The findings of this study will depend solely on the annual reports of NMB Bank
Limited.
b) Primary importance will be given to secondary data.
c) This research will only be about liquidity analysis of NMB Bank Limited.
d) Liquidity analysis well be done by studying liquidity position of NMB Bank
Limited.
e) The main tools used for study are limited.
f) Analysis is based on the ratio and trend lines of the corresponding ratio only.
g) Only five years data will be taken for the study purpose.

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