CHAPTER-I
INTRODUCTION
1.1Background
Liquidity means the ability to finance the increase in assets and meet liabilities when
they due fall without any unexpected losses, and so the efficient management of
liquidity in the bank help to make sure that the bank is able to meet the incurred cash,
which are usually uncertain and subject to external factors and to the behavior of other
agents. The liquidity management is a vital factor in business operations. For the very
survival of business, the firm should have requisite degree of liquidity. It should be
neither excessive nor inadequate. Excessive liquidity means accumulation of ideal
funds. Which may lead to lower profitability, increase speculation, and unjustified
extension. Whereas inadequate liquidity result in interruptions of business operations.
A proper balance between these two extreme situations therefore should be
maintained for efficient operation of business through skill full liquidity management.
The term liquidity is defined as the ability of a company to meet its financial
obligations as they come due. The liquidity ratio, then, is a computation that is used to
measure a company's ability to pay its short-term debts. There are three common
calculations that fall under the category of liquidity ratios. The current ratio is the
most liberal of the three. It is followed by the acid ratio, and the cash ratio. These
three ratios are often grouped together by financial analysts when attempting to
accurately measure the liquidity of a company (Panta, 2002).
Liquidity ratio expresses a company's ability to repay short-term creditors out of its
total cash. It is the result of dividing the total cash by short-term borrowings. It shows
the number of times short-term liabilities are covered by cash. If the value is greater
than 1.00, it means fully covered. Meanwhile, in determining the firm's liquidity, the
finance manager also need to take into account the firm's working capital
management, which basically means managing the firm's current assets and current
liabilities at satisfactory level. Generally, in a balance sheet, current assets consist of
raw materials, work in progress, finished goods or inventories, account receivables,
cash and bank balances etc. Generally, current liabilities comprise of account payable,
1
accrued wages, taxes and other expenses payable and short-term debt (Banerjee,
2014).
A study on liquidity is of major importance to both the internal and the external
analysts because of its close relationship with day-to-day operations of a business
( Bhunia,2012).
1.2 Profile of Organization
One of the top commercial banks in Nepal, Himalayan Bank Limited offers a variety
of financial services to people, companies, and institutions. Here is a quick
description of the bank:
- Himalayan Bank Limited was founded in 1993 as a joint venture between the
Nepal Investment Bank and the Pakistan-based Habib Bank Limited.
- The bank is jointly held by Pakistan's Habib Bank Limited (32.86%), Nepal
Investment Bank Ltd. (52.44%), and the general public and institutional
shareholders (14.70%).
- Himalayan Bank Limited provides a variety of banking products and services,
such as deposit accounts, loans and advances, trade finance, remittance
services, debit and credit cards, online and mobile banking, and other value-
added services.
- 64 branches, 4 extension counters, and 17 branchless banking units make up
the bank's network, which is dispersed throughout Nepal's major cities and
towns. Additionally, it maintains correspondent financial connections with a
number of foreign banks.
- Awards and recognition: Himalayan Bank Limited has won numerous honors
for its remarkable work in a range of banking-related fields, including
corporate responsibility, client satisfaction, and technological innovation.
Additionally, it has received a rating from the rating agencies as one of
Nepal's safest banks.
- Corporate social responsibility: The bank actively participates in a range of
CSR initiatives in the areas of community development, health, education, and
the environment. To aid with its CSR endeavors, it founded the Himalayan
Bank Foundation.
2
All things considered, Himalayan Bank Limited is a prominent and well-established
commercial bank in Nepal, renowned for its cutting-edge goods and services, client-
centered philosophy, and strict corporate governance standards.
1.3 Objectives of the Study
The objective of the study is to evaluate the financial performance of Himalayan Bank
Limited with the help of ratio analysis and other measuring tools. Besides, the
following objectives are to support the evaluation and comparison of efficiency and
progress of this bank:
i. To analyze liquidity position of the bank.
ii. To identify whether the bank is able to maintain adequate liquid assets or not.
1.4 Significance of the Study
This report is prepared to analyze the liquidity position of Himalayan Bank
Limited. This report comprises the date from 2074/75 to 2078/79.
This would help the bank to observe the trend of the liquidity position hold in
those periods.
this study also evaluates the role of short term obligation and the bank ability
to pay the currently maturity obligation. Moreover, the study will check the
profitability of the bank.
This will help the bank to take the corrective actions if there are any errors on
the past performance and the study aims to recommend correcting the division
if the standard has not been met.
This project will also help to know the financial performance of the
Himalayan Bank Limited.
This study will also helpful as literature for the future study about the relating
topics. A part of this, the institution and firm can allow the suggestion of the
study to make their policy and strategy more practical and scientific.
1.5 Review
This chapter deals with the theoretical aspects of the topic of financial analysis
of Himalayan Bank Limited. in more detail and descriptive manner. For this study,
journals, articles, and some research reports related with this topic have been
reviewed. This study has to refer almost all books related with this topic published.
3
Some of the prior reports by students of BBS regarding this topic have also been
reviewed.
1.5.1 Theoretical Review
The literature review of the study will be emphasis on the related studies on
comparing and analyzing the financial statement to know the liquidity ratio. The basis
of financial planning analyzing and decision making is the financial information.
Shim and Siegel(2000) identified accounting liquidity as the company‘s capacity to
liquidate maturing short-term debt(with in one year).Maintaining adequate liquidity is
much more than corporate goal, it is a condition without which the continuity of a
business is at risk.
Olagunju and Olabode (2011), liquidity is defined as the ability of a bank to guarantee
the availability of funds to meet financial commitments or maturing obligations at a
reasonable price at all-time.
Liquidity management is an inescapable daily task in banking because there are many
examples where the banks are defaulted in such cases. So today banks appoint
liquidity managers for the liquidity management. A bank's liquidity can be viewed
with framework of demand and supply. The bank's net liquidity position is the
difference between supply of liquidity flowing into bank and demand on the bank for
liquidity (Crowther, 1996).
Every stakeholder has interest in the liquidity position of a company. Suppliers of
goods will check the liquidity of the company before selling goods on credit.
Employees should also be concerned about the company’s liquidity to know
whether the company can meet its employee related obligations. Thus, a company
needs to maintain adequate liquidity. (Farris,2002).
1.5.2 Review of Previous Works
Subedi & Neupane (2013) explained that the relationship between liquidity of
selected Nepalese commercial banks and their impact on financial performance. This
study used questionnaire as a primary source and quarterly publication of banks as
4
secondary sources and analyzed through different statistical tools such as descriptive
statistics, correlation, and multiple regressions with variance inflation factor.
Multivariate linear regression model is used and sample covering the period from
2002/03 to 2011/12. The results of regression analysis showed that capital adequacy,
share of non-performing loans in the total volume of loans had negative and
statistically significant impact on banks liquidity whereas loan growth, growth rate of
gross domestic product on the basis price level, liquidity premium paid by borrowers
and short term interest rate had negative and statistically insignificant impact on banks
liquidity.
Ohison (2004) found that the size of inventory directly affects working capital and its
management. Suggested that inventory was the major component of working capital,
and needed to be carefully controlled.
Bhandari (2010) advocated that the liquidity ratio measures the ability of firm to meet
its short-term obligations and select the short-term financial solvency of a firm.
The study found positive relationship of liquid ratio, capital adequacy ratio and firm
size with bank profitability measured in terms of return on assets. (Magar,2016).
1.6 Research Methodology
Research methodology is the procedure of arriving to the solution of the problem
through planned and systematic with the collection, analysis & interpretation of facts
and figure. The research methodology includes the nature and sources of data, its
presentation and analysis technique. How the data is collected and which source the
research use for getting the data is under the research methodology. Research
methodology covers the data analysis tools as well.
1.6.1 Research Design
Research design is defined as a framework of methods and techniques chosen by a
researcher to combine various components of research in a reasonably logical manner
so that the research problem is efficiently handled. It provides insights about “how” to
5
conduct research using a particular methodology. Every researcher has a list of
research questions which need to be assessed – this can be done with research design.
This is an expert factor research design. This is descriptive study on Himalayan Bank
Limited which attempts to see its financial performance over five years. This research
is limited it period of five years that the fiscal year 2074/75to fiscal year 2078/79.
1.6.2 Population and Sample
There are 21 commercial banks operating in Nepal which are taken as population of
the study among them Himalayan Bank has been taken as a sample of the study and
collected data has been analyzed by using various financial tools.
1.6.3 Sources and collection of data
Here secondary data has been used for this study. The main sources of secondary data
are quarterly and annual financial reports, official records, websites, brochures,
prospectus and other relevant publication of Himalayan Bank .From these sources the
relevant historical data are gathered for analysis purpose.
1.6.4 Tools Used
(I) Financial Tools
In this field works study, mainly following ratio analysis tools are applied to measure
the financial efficiency of Himalayan Bank Ltd.
Current Assets
a. Current ratio =
CurrentLiabilities
Cash∧bank balance
b. Cash and bank balance to deposit ratio =
Deposit liabilities
c. Working capital = Current assets−Current liabilities
6
1.7 Limitation of the Study
This study is simply conducted for the partial fulfillment of the requirement for the
degree of the bachelor in business studies (BBS). And only the secondary data is used
and analyzed which could not disclose the actual result. And being the first endeavor,
the report can comprise some mistakes which may cause to misinterpretation of the
results.
The other limitation of the study is listed below:
i. The study has been based on secondary data only.
ii. Data contains mostly of the annuals reports of the bank through fiscal year
2074/75to 2078/2079..
iii. Study has been focused on the financial performance of Himalayan Bank
Limited with the help of financial tools.
iv. it may not cover all the situation of bank.
v. No comparison has been made with other commercial bank.
vi. The conclusion drawn up from this study may or may not be applicable to
other commercial bank in Nepal.
7
CHAPTER-II
RESULT AND ANALYSIS OF DATA
2.1 Data Presentation and Analysis
Finally data shows the actual performance of the bank. Bank performs various
monetary activities which are recorded on daily basis. The main purpose of liquidity
ration analysis is to measure the actual performance of the bank and find various
solutions to meet the expected performance of the bank which the bank promises to
deliver to its customers, NRB and other concern parties. Financial data covers various
financial aspects like bank profit ratio, liquidity ratio, position of share value related
to market shares. We use here five year data i.e. 2074/75to 2075/76 because it is not
possible to take all the past data.
2.1.1 Current ratio
Current ratio is also known as short-term solvency ratio or working capital ratio. The
current ratio is a liquidity ratio that measures a company's ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a
company can maximize the current assets on its balance sheet to satisfy its current
debt and other payables.
Current ratio is calculated by using following formula:
CurrentAssets
Current Ratio =
CurrentLiabilities
Where,
Current Assets = Cash + Balance with NRB + money at call and short notice balance
with bank and financial institution + loan advance and bills publish
Current Liabilities = loans and borrowing + deposit liabilities + bills payable + other
liabilities + due to BFIs
8
Table 2.1
Current ratio of Himalayan Bank Ltd.
(In Rs. Crores)
Fiscal Year Current Assets Current Current Ratio
Liabilities (times)
2074/75 5384.65 5260.09 1.023
2075/76 7067.53 7056.21 1.002
2076/77 9059.86 8841.11 1.025
2077/78 9136.39 8873.07 1.029
2078/79 9376.45 8894.09 1.054
Sources: Annual report of Himalayan Bank Ltd.
Figure 2.1
Simple Bar Diagram on Current Ratio of Himalayan Bank Ltd.
1.06
1.05
1.04
1.03
1.02
Times
1.01
0.99
0.98
0.97
2074/75 2075/76 2076/77 2077/78 2078/79
Fiscal Year
It observe that the current ratio of fiscal year 2078/79 is 1.054 which is highest than
other fiscal year. The current ratio of fiscal year 2074/75is 1.023 which is lowest
among all of the fiscal year. Now the current ratio is 1.029 which is second highest. It
is good sign and result is satisfactory. It means that the bank’s ability to pay their
short-term obligation back with their short-term assets.
9
The current ratio helps to provide insight into a company’s ability to pay their short-
term obligations back with their short-term (liquid) assets (basically, whether the
company has enough cash to pay their immediate debts, if necessary).If a company
has a high ratio (anywhere above 1) then they are capable of paying their short-term
obligations. On the other hand, if the company’s current ratio is below 1, this suggests
that the company is not able to pay off their short-term liabilities with cash. This
indicates poor financial health for a company, but does not necessarily mean they will
unable to succeed. Hence company has sufficient liquidity to pay their short-term
obligation.
2.1.1 Cash and Bank balance to Deposit Ratio
This ratio is pay of liabilities and is also called as cash reserve (as specified by NRB).
This ratio can be calculated by dividing cash and bank balance by deposit liabilities of
the bank. The ratio shows the proportion of cash and bank balance to deposit.
Cash∧bank balance
Cash and bank balance deposit ratio =
Deposit liabilities
Table 2.2
Comparable of cash and bank balance to deposit ratio
(In Rs.'Crores')
Cash and bank
Cash and bank balance to deposit
Year balance Deposit liabilities Ratio
(times)
2074/75 1396.62 5162.82 0.271
2075/76 2367.64 6521.35 0.363
2076/77 2647.81 8081.88 0.328
2077/78 1612.75 8422.73 0.192
2078/79 2267.87 8632.81 0.2627
Sources: Annual report of Himalayan Bank Ltd.
10
Figure 2.2
Trend Line on Cash and bank balance to deposit ratio
0.4
0.35
0.3
0.25
Times
0.2
0.15
0.1
0.05
0
2074/75 2075/76 2076/77 2077/78 2078/79
Fiscal Year
Table 2.2 and shows that the cash and bank balance of Himalayan Bank has always
been inferior to the deposit liabilities for the study period of five year from 2074/75to
2078/79. The bank has highest cash and bank balance to deposit ratio is 0.363 times in
2075/76and lowest cash and bank balance to deposit ratio is 0.192 times in 2077/78.
2.1.4 Net Working Capital
Working capital, also known as net working capital (NWC), is the difference
between a company’s current assets, such as cash, accounts receivable (customers’
unpaid bills) and inventories of raw materials and finished goods, and its current
liabilities, such as accounts payable. Working capital is a measure of a
company's liquidity, operational efficiency and its short-term financial health. If a
company has substantial working capital, then it should have the potential to invest
and grow. If a company's current assets do not exceed its current liabilities, then it
may have trouble growing or paying back creditors, or even go bankrupt.
Net working capital = Current assets−Current liabilities
Table 2.3
11
Status of Net Working Capital
(In Rs. Crores)
Fiscal Year Current Assets Current Net Working
Liabilities Capital
2074/75 5384.65 5260.09 124.56
2075/76 7067.53 7056.21 11.32
2076/77 9059.86 8841.11 218.75
2077/78 9136.39 8873.07 263.27
2078/79 9376.45 8894.09 482.36
Sources: Annual report of Himalayan Bank Ltd.
Figure 2.3
Simple Bar Diagram of Net Working Capital
Chart Title
600
500
400
300 Series1
Rs
200
100
0
Fiscal 2074/75 2075/76 2076/77 2077/78 2078/79
Year
Fiscal year
It observe that the Working Capital of Himalayan Bank Limited Nepal was lower in
fiscal year 2075/76and highest in fiscal year 2078/79 which is 482.36, and now the
working capital which is satisfactory. The working capital ratio is a measure of
liquidity, revealing whether a business can pay its obligations. The ratio is the
relative proportion of an entity's current assets to its current liabilities, and shows
the ability of a business to pay for its current liabilities with its current assets. A
working capital ratio of less than 1.0 is a strong indicator that there will be
12
liquidity problems in the future, while a ratio in the vicinity of 2.0 is considered to
represent good short-term liquidity.
2.2Finding of the Study
1) Liquidity ratio of the firm is good liquidity position in over the five years.
It shows that the firm has sufficient liquid assets
2) Himalayan Bank was able to maintain the standard current ratio.
3) We observe that the current ratio of fiscal year 2078/79 is 1.054 which is
highest than other fiscal year. The current ratio of fiscal year 2074/75is
1.002 which is lowest among all of the fiscal year.
4) From the study the highest amount of current assets is in fiscal year
2078/79 with Rs.9376.45
5) According to the figure the highest current liabilities is in fiscal year
2078/79 with Rs.8894.09
6) The bank has highest cash and bank balance to deposit ratio is 0.2627
times in 2078/79 and lowest cash and bank balance to deposit ratio is
0.192 times in 2077/78.
7) Working Capital of Himalayan Bank Limited Nepal was lower in fiscal
year 2075/76which is Rs.11.32 (In Crores) and highest in fiscal year
2078/79which is 482.36, and now the working capital which is
satisfactory.
13
CHAPTER-III
SUMMARY AND CONCLUSION
3.1 Summary
The project work report on Himalayan Bank Limited has been written to fulfill the
partial fulfillment of the requirements for the degree of Bachelor of Business Studies
(BBS).
The objectives of the study are to analyze liquidity position of the Himalayan Bank
and to find out whether the bank is able to maintain adequate liquid assets or not. The
study is mostly based on secondary data and required data have been collected by
using various sources. There are 21 commercial banks operating in Nepal which are
taken as population of the study among them Himalayan Bank has been taken as a
sample of the study and collected data has been analyzed by using various financial
tools.
Himalayan Bank has been committed to meet customer expectations in all areas of its
business through continuous improvement for overall benefit of the economy.
Liquidity ratio as the industry standard liquidity ratio is 1:1. The liquidity ratio of
Himalayan Bank Limited was higher than standard liquidity ratio so that Himalayan
Bank Limited Nepal Limited was any time to pay the current liabilities.
In current assets, we use cash balance, balance with bank, loans and advance and
other assets whereas in current liabilities we use bills payable and other liabilities.
The current ratio is high on 2078/79 i.e. 1.054 which indicates that the bank has more
liquid to pay all the debts whereas the current ratio is low in 2075/76i.e. 1.002. The
ratio is good compare to all other fiscal years and the bank has good liquidity.
At last Himalayan Bank Limited has strong current ratio. All fiscal year current ratio
is almost more than standard ratio, so that, Himalayan Bank Limited try to
mobilization the current assets. In other hand liquidity ratio is strong position of
Himalayan Bank Limited. It is show the ability to pay current liabilities immediately.
14
3.2 Conclusions
With growing banking habits among people, introduction of new technologies and
services by commercial banks, stability on political frontier and government
commitment to continuously support the policy of liberalization, privatization and
globalization of national economy, it can be expected that the commercial banks will
continue to have bright future.
The study is done to know the ratio of financial statement of Himalayan Bank
Limited, which considers 5 year data for the study. Banking service is the most
prominent and the most influential of all the factors that contributes in one’s basis of
selecting bank and the least contributing factor seem to be the location. Thus the
service of the bank plays a major role for the customers to choose a particular
institution.
On the basis of analysis, one came to conclude that the bank successfully provides
good services and facilities by launching new technology and software. By this its
performance will go on uplift in future. The liquidity of the bank is in good position
which is above one.
Therefore, it can be expected that Himalayan Bank Limited overall performance with
its valid mission for customer service and effective financial and marketing strategies
will improve future in years to come.
15
REFERENCES
Banerjee B. (2014). Corporate Liquidity and Profitability. New Delhi: Tat Megraw
Hill.
Bhandari, M. (2010). A Comparative Financial Performance Analysis of Himalayan
Bank Ltd. And Everest Bank Ltd. An unpublished Master's thesis, submitted to
faculty of management, T.U; Kathmandu.
Bhunia, A. (2012). The impact of liquidity on profitability: A case study of FMCG
companiesinIndia.ResearchandSocialpracticesinSocialSciences,7(2),44-58
C.R., Crowther (1996). The Theory of Financial Management. Columbia University.
Kerlinger, F.N. (1983). Foundation of Behavioral Research. New Delhi: Surjeet
Publlication.
Farris,M.
(2002).Thenewsupplychainmanagementmetric.InternationalJournalofPhysicalDistri
bution&LogisticsManagement,32(4),288-298
Ohison, J. A. (2004). The Role of Financial Decision Making on Investment Decision.
European Journal of Business, Economics and Accountancy, (P. 15)
Olagunju, A., O. D. Adeyanju, & O. S. Olabode(2011). Liquidity management and
commercialbanks’profitabilityinNigeria.ResearchJournalofFinanceandAccounting,2(
7),24-38
Panta P.R. (2002), Liquidity Analysis of Management New Delhi: Vikash Publishing
House Pvt. Ltd.
Shim,J.K.&J.G.Siegel(2000).Budgeting.BudgetingBasicsandBeyond,3(1),13-23
16
APPENDICES
Appendix I
Balance Sheet of Himalayan Bank Limited F.Y 2074/75to 2078/79
(In Rs. Crores)
Capital & Liabilities F.Y. F.Y. F.Y. F.Y. F.Y.
2074/75 2075/76 2076/77 2077/78 2078/79
Share capital 305.81 388.37 692.49 804.69 876.42
Reserve and Surplus 174.04 207.11 246.99 315.37 402.23
Debenture and Bonds 100.00 100.00 100.00 100.00 100.00
Deposit Liabilities 5126.82 6521.35 8081.88 8422.73 8632.81
Due to BFIs - 418.47 615.54 270.96 261.28
Other Liabilities
Total Capital & 5930.40 7874.19 9995.09 10253.87 10587.83
Liabilities
Assets F.Y. F.Y. F.Y. F.Y. F.Y.
2074/75 2075/76 2076/77 2077/78 2078/79
Cash in hand 377.33 396.18 880.35 1048.02 1087.92
Balance with NRB 466.24 642.80 731.30 564.73 603.87
Balance with other banks 553.05 1328.66 1036.16 - -
and financial institution
Investments 385.18 615.13 783.71 864.61 925.75
Loan, Advance and Bills 3868.89 4547.50 6182.20 7236.37 7684.66
Purchase
Fixed Assets 62.04 62.25 73.95 84.40 96.73
Current tax assets 3.80 11.24 17.18 21.95 23.34
Other Assets 80.01 101.64 38.15 101.56 109.85
Total Assets 5930.40 7874.19 9995.09 10253.87 10532.12
17
18
