1

CHAPTER –I
INTRODUCTION

1.1 Background of the study

Financial stability of a firm is associated with its ability to generate profit, increase the value of
invested capital and at the same time repay its short- and long-term liabilities. Assessment of
financial performance is primarily based on various methods of financial analysis. Financial
analysis is structural and logical way to present and analyze overall financial information of a
financial institution.

Performance evaluation is the important approach for enterprises to give incentive and restraint
to their operators and it is an important channel for enterprise stakeholders to get the
performance information (Sun, 2011).

The performance evaluation of a commercial bank is usually related to how well the bank can
use its assets, shareholders‟ equities and liabilities, revenues and manage expenses. In the
practice of financial analysis, financial ratios are mainly used for their simplicity and additional
information value. Financial ratios are the most popular and most widely used methods of
financial analysis also because they can be used as input data of more complex mathematical
models.

Van Horne & WachowiczJr (2005) stated that,” To evaluate a firm‟s financial condition and
performance, the financial analyst needs to perform “check-ups” on various aspects of a firm‟s
financial health. A tool frequently used during these check-ups is a financial ratio, or index,
which relates two pieces of financial data by dividing one quantity by the other”.
One can employ financial ratios to determine a firm‟s liquidity, profitability, solvency, and
adequacy used financial ratios to show the financial position and performance analysis of Bank.
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To assess the results and to predict future financial development of a firm it is necessary to
connect data from financial analysis and other information that the firm itself presents mainly in
its annual report. Annual reports also present company‟s managerial priorities. To calculate this,
quantitative data from bank‟s financial statement and other sources is sought.

(Pandey, 2004) James pointed out that financial ratios are used by bankers, creditors;
shareholders and accountants to evaluate data presented to an entity financial statement.
Depending on the results of the evaluations, bankers and creditors may choose to extend or
retract financing and potential shareholders may adjust the level of commitment in a company.
The evaluation of a firm‟s performance usually employs the financial ratio method, because it
provides a simple description about the firm‟s financial performance in comparison with
previous periods and helps to improve its performance of management (Lin et al., 2005).

With this increase of competition in banking industry, every bank is trying to provide
their customers better services as much as possible to ensure maximum satisfaction
(Uppal,2010). Evaluation of bank‟s performance from time to time helps them to know how
well they are actually satisfying their customers and becoming successful.

If efficiency is gained in the banking sector, it will make the country domestically and
internationally more competitive and capable of generating more income and employment
opportunities. An appropriate evaluation of performance of selected banks requires a range of
financial, operational and economic indicators to be applied (Chowdhury,2002).

With respect to the Performances of Nepalese Banking sector, foreign and national experts
undertook number of studies. All these studies provide a great insight to evaluate bank financial
performance by using ratio, trend, correlation; the easiest way to evaluate the performance of a
firm is to compare its present ratio with the past ratio. It gives an indicator of the direction of
change and reflects whether the firm‟s financial performance has improved, deteriorated or
remained constant overtime.
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1.2 Profile of Standard Chartered Bank

Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987 when it
was initially registered as a joint-venture operation. Today, the Bank is an integral part of
Standard Chartered Group having an ownership of 70.21% in the company with 29.79%
shares owned by the Nepalese public. The Bank enjoys the status of the only international
bank currently operating in Nepal. IT is a leading international banking group with a 160-
year history in some of the world‟s most dynamic markets. Its heritage and values are
expressed in its brand promise, Here for good. Bank says “Our operations reflect our
Purpose”, which is to drive commerce and prosperity through unique diversity. SCB is
present in 60 markets and serve clients in a further 85.
The banks‟ businesses serve four client segments in four regions- Europe & Americas, Africa
and Middle East, Asia & South Asia, Greater China & North Asia. Standard Chartered PLC
is listed on the London and Hong Kong Stock Exchanges as well as the Bombay and
National Stock Exchanges in India. With 15 points of representation, 26 ATMs across the
country and more than 531 local staff, Standard Chartered Bank Nepal Limited is serving its
clients and customers through an extensive domestic network. In addition, the global network
of Standard Chartered Group enables the Bank to provide truly international banking services
in Nepal.

Standard Chartered Bank Nepal Limited offers a full range of banking products and services
to a wide range of clients and customers including individuals, mid-market local corporates,
multinationals, large public-sector companies, government corporations, airlines, hotels as
well as the development organizations segment comprising of embassies, aid agencies,
bilateral entities, multilateral entities, non-government organizations and international non-
government organizations. The Bank has been the pioneer in introducing client-focused
products and services and aspires to continue its leadership. It is the first Bank in Nepal to
implement the Anti- Money Laundering policy and to apply the „Know Your Customer‟
procedure on all the customer accounts.
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The Bank believes in delivering shareholder value in a social, ethical and environmentally
responsible manner. Standard Chartered throughout its long history has played an active role in
supporting those communities in which its customers and staff live.

Board of Directors details of Standard Chartered Bank Nepal:

Ms. Zarin Daruwala Chairperson

Mr. Venugopal Ranganathan - Director
Mr. Avinash Agrawal - Director
Mr. Siddhant Raj Pandey – Director
Mr. Gorakh Rana – Director

Capital Structure

Share Capital and Ownership As on 31 Ashad 2080

Particulars Amount (%)

Domestic ownership 29.79

Particulars Amount (Rs)

Authorized Capital
(90,000,000 Ordinary shares of Rs. 100 each) 9,000,000,000
Issued capital
(80,114,306 Ordinary shares of Rs. 100 each) 8,011,430,667
Subscribed and paid-up capital
(80,114,306 Ordinary shares of Rs. 100 each) 8,011,430,667
Total 8,011,430,667
Nepal Government
"A" class licensed institution
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Other licensed institutions

Other Institutions 2.63
Public 27.16
Other
Foreign ownership 70.21
Total 100

1.3 Objectives of the Study

The general objectives of the study are given below
 To analyze the financial performance with reference to Standard Chartered Bank Nepal
Ltd.
 To evaluate the financial position in terms of profitability, activity, and earnings ratios.

1.4 Statement of Problem

Financial statement analysis can be a very useful tool for understanding a firm‟s performance and
conditions. However, there are certain problems and issues encountered in such analysis which
call for care, circumspection and judgment.
In Nepal, the profitability rate, operating expenses and dividend distribution rate among the
shareholders have been found different in the financial performance of the bank in different
periods of time. The problem of the study will ultimately find out the reasons about difference in
financial performance. A comparative analysis of financial performance of the bank over
different time periods would be highly beneficial for pointing out its strength and weakness.
Although commercial banks are considered efficient, but how far are they efficient? This
question does emerge in banking sector. At present we have twenty-seven commercial banks. In
spite of rapid growth, some indicators show performance is not much encouraging towards the
service coverage. In such a situation, this study tries to analyze the present performance of banks,
which would give the answers to following queries:

a) What is the comparative liquidity, profitability and activity ratio of the bank over different
time periods?

b) Is the trend of different ratios of the bank satisfactory over different time periods?
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1.5 Significance of the Study

Report writing is very significant to students as it helps to broaden their mind by studying
directly without another proper guide. The case of the study is related with the financial
performance of Standard Chartered bank Nepal ltd. The analysis will be helpful to know the
financial strength of the bank. It is hoped that the study will help to improve the performance of
the bank in future. Lastly, it becomes the most suitable literature for future study.

1.6 Review of Related Literature

1.6.1 Conceptual Review

Ahuja (1998), “Financial Performance analysis is a study or relationship among the various
financial factor in business a disclosed by a single set of statement and a study of the trend of
these fact as shown in a series of statements. By establishing a strategic relationship between the
item of a balance sheet and income statements and other operative data, the financial analysis
unveils the meaning and signification of such items.”

Pandey (1997) has defined as “The finance statement provides a summarized view of the
financial operation of the firm. Therefore, something can be learnt about a firm and careful
examination of the financial statements as invaluable documents or performance reports. Thus,
the analysis of financial statement is an important aid to financial analysis or ratio analysis which
is a main tool of financial statement analysis.

According to Metcalf and Tatar (1996), “Financial Performance analysis is a process of

evaluating the relationship between components parts of a financial statement to obtain a better
understanding of a firm‟s position and performance.”

Khan and Jain have defined that (1990) “The ratio analysis is defined as the systematic use of
ratio to interpret the financial performance so that the strength and weakness of firm as well as
its historical performance and current financial condition can be determined.”

In the word of Horne (1994) “Financial ratio can be derived from the balance sheet and the
income statement. They must be analyzed on a comparative basis. Ratio may also be judged in
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comparison with those of similar firms in the same line of business and when appropriate, with
an industry average and we can look to future progress in this regard.”

A comparative study of financial performance is a basic process, which provides information on

profitability, liquidity position, earning capacity, efficiency in operation, sources and use of
capital, financial achievement and status of the companies. This information will help to
determine the extent of efficiency and effectiveness of the company in respect of deploying
financial resources in the profitable manner.

Brigham and Houston (2004) views that financial profitability lies in a firm‟s ability to generate
revenues in excess of its costs: for either long or short term. In the long run, a firm should be able
to maintain the value of invested capital and able to yield a profit, which exceed the opportunity
cost of cost of capital meaning that the yield generated by the firm should exceed the opportunity
cost of capital.
Elumilade et al. (2006) described investment decision as one of the most significant decision
Areas that affect the future profitability either because it might result in an increase in revenue or
because it can cause an increase in efficiency and reduction in costs.

A tool used by individuals to conduct a quantitative analysis of information in a company‟s

financial statements. Ratios are calculated from current year numbers and are then compared to
previous years, other companies, the industry, or even the economy to judge the performance of
the company. Ratio analysis is predominately used by proponents of fundamental analysis
(Investopedia)

1.6.2 Review of Previous Work

Prior to this study, the several researchers have found various studies regarding financial
performance of commercial and joint venture banks. In this study, only relevant subject maters
are reviewed.
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Oberholzer & Van der Westhuizen (2004) investigated the efficiency and profitability of ten
banking regional offices of one of South Africa's larger banks. This study demonstrates how
conventional profitability and efficiency analyses can be used in conjunction with DEA.
Although their study concentrated on banking regions; their findings confirm those of Yeh (1996)
that DEA results as an efficiency measure have a relationship with both profitability and efficiency
ratios. The conclusions were that there are significant relationships between conventional
profitability and efficiency measures and allocative, cost and scale efficiency and no significant
relationship with technical efficiency.

Cronie (2007) who employed the DEA method and a sample of 13 South African banks to provide a
measure of the efficiency of the South African banks. His findings show that out of the 13 banks, the
three largest banks are efficient and serve as a standard for the banks classified as inefficient.

The fourth largest bank showed a slight inefficiency. Overall, seven banks were classified as
inefficient and the article recommends target areas for the banks to improve their efficiencies
with guidelines that bankers in inefficient banks could use to increase their sustainable
profitability.

Traditionally accounting methods primarily based on the use of financial ratios have been
employed for assessing bank performance (Ncube, 2009). However, the limitations of this
method coupled with advances in management sciences have led to the development of alternate
methods such as non-parametric DEA and parametric Stochastic Frontier Approach (hereafters)
(Berger and Humphrey, 1997).

Shrestha (2003) Profitability in future is sound for the commercial banks in Nepal. Since the only
15 years old commercial banks are selected as a sample and weighted interest rate is used as
discounting rate; the result should not be generalized from this study.

In the Samad (2004) investigated the performance of seven locally incorporated commercial
banks during the period 1994-2001. Financial ratios were used to evaluate the credit quality,
profitability, and liquidity performances. The performance of the seven commercial banks was
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compared with the banking industry in Bahrain which was considered a benchmark.

The article applied a Student‟s t-test to measure the statistical significance for the measures of
performance. The results revealed that commercial banks in Bahrain were relatively less
profitable, less liquid and were exposed to higher credit risk than the banking industry, in which
wholesale banks are the main component.

1.7 Research Methodology

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. In fact, the research
design is the conceptual structure within which the research is conduct. General objective of this
research is to examine and evaluate the financial performance of joint venture bank especially
that of Standard Chartered Bank Nepal. In order to achieve this objective, descriptive research
design has been followed. Also, the research is based on historical research design (used of
historical data for analysis).

1.7.2 Population and Sample

The population for this study comprises of 20 commercial banks currently operating in the
country. The sample will consists of one judgmentally selected bank- Standard Chartered Bank
Nepal Ltd.. This unit represents 3.70% of the total population.

1.7.3 Sources of Data

The present study will be based on secondary data. The necessary data will be obtained from
published Annual report containing Statement Of financial position, Statement of
Comprehensive Income and other related statements of the bank. Likewise, other relevant
information‟s are also obtained from various sources such as various publications, business
magazines, journals and newspaper. According to the need and objectives, secondary data are
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compiled, processed and tabulated in time series. In order to judge the reliability of data provided
by the bank and other sources they were complied with the annual reports of the bank. The data
used in this study is mainly based on the annual reports of Standard Chartered Bank Nepal ltd.

1.7.4 Data Collection Strategy

The study will be based on secondary data from annual financial report of SCBNL. It will rely on
both published and unpublished report that relate to this study. The conclusion is based on
financial statement of SCBNL.

1.7.5 Tools of Data Analysis

Data Analysis tools are those, that are used for the analysis and interpretation of financial data.
These tools are fruitful in exploring the strengths and weaknesses of the financial policies and
strategies. In the study various financial tools will be used, which are as follows.

Liquidity Ratios:

 Cash and Bank Balance to Current & Saving Deposit Ratio.

 Fixed Deposit to Total Deposit Ratio

Profitability Ratios:
 Return on Asset
 Return on Net Worth
 Return on Total Deposit

Turnover ratio:
 Loan and Advanced to Total Deposit Ratio
 Investment to Total Deposit Ratio

Other Ratios:

 Capital Adequacy Ratio

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 Earnings Per Share (EPS)

 Price-Earnings Ratio (P/E Ratio)

1.8 Limitations of the Study

The major limitations of the study are as follows:
 Limited variables have been selected.

 This study is based on secondary data.

 It ignores the qualitative aspects.

 Only selected financial and statistical tools and techniques have been used.

 This study covers data of past five years only.

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CHAPTER TWO
RESULT AND ANALYSIS
Results

The report mainly focuses firm with its profitability, liquidity, turnover, capital exposure and PE
ratio. These are important tools used to measure financial performance of an entity. In the
Report, Profitability ratios are used to determine efficiency and performance. Profitability ratio
are two types: margins and return. Only relevant return type is used in our report. It shows
overall efficiency of firm in generating returns for its shareholders. It provides stakeholder a
measure to judge a company‟s ability to make profits and be considered a worthy investment.
Liquidity ratio is used to measure ability of bank to meet its short-term obligations. However,
Higher ratio indicates idle fund with the bank and inefficiency of its utilization. It hurts
profitability and financial performance of the bank. Turnover ratio is used as an indicator of the
efficiency with which the bank is using its assets to generate revenue. The higher turnover ratio,
the more efficient the bank is at generating revenue from its assets. Conversely, if the bank has a
low turnover ratio, it indicates it is not efficiently using its assets to generate revenue. Capital
adequacy is measured in order to see legal compliance with unified directives issued by NRB.
More is the capital adequacy ratio; more is the buffer provided to depositors and creditor from
risk exposure.PE ratio is used in order to analyze whether the bank is expected to perform well in
future or not. It shows expectations of the investors in the market toward the bank. High PE ratio
indicates high expectations and hence high growth potential. Low PE ratio may indicate low
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market expectations or sometimes.it is the case of undervaluation if measured in relative terms

with peer companies.

Liquidity Ratios:

Cash and Bank Balance to Current & Saving Deposit Ratio

The ratio is computed by dividing cash and bank balance by current and saving deposits. It can
be shown with the help of table below:

Table 1
Cash and Bank Balance to Current & Saving Deposit Ratio

Year cash and bank balance current plus saving Ratio

2019/20 15,549,042,772 40,601,638,126 0.38

2020/21 22,397,734,122 29,434,203,611 0.76

2021/22 22,048,328,040 36,128,648,005 0.61

2022/23 12,626,985,439 38,946,538,581 0.32

2023/24 39,244,049,170 47,522,438,603 0.83

Noted from Annual reports of SCBNL

The highest ratio is 0.83(83%) during the year 2023/24. The ratio shows decreasing trend from
2020/21 to 2022/23. The ratio follows increasing trend from 0.32 in 2022/23 to 0.83 in 2023/24.
 14

The increase in the ratio in the first year and final year shows the increase in ability of the bank
to meet short term obligations. However short-term liquidity position is affected in year 2021/22
and 2022/23. Highest ratio in the year 2023/24 indicates idle cash and bank balance with the
bank. Such idle cash and bank hurts profitability and financial performance of the bank.

Cash and bank to Current & Savings deposit

0.90 Ratio
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2019/20 2020/21 2021/22 2022/23 2023/24

Figure 1: Cash and Bank Balance to Current & Saving Deposit Ratio

Fixed Deposit to Total Deposit Ratio

The ratio is computed by dividing fixed deposit by total deposits. It can be shown with the help
of table below:

Table 2
Fixed Deposit to Total Deposit Ratio

Year Fixed Deposit Total deposit Ratio

2019/20 3,214,055,415 55,727,178,456 0.06

2020/21 27,133,198,495 59,694,608,671 0.45
2021/22 24,731,725,866 67,061,046,522 0.37
2022/23 24,068,349,788 75,731,527,432 0.32
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2023/24 24,224,366,515 95,020,841,249 0.25

Noted from Annual reports of SCBNL

The highest ratio is 0.45(45%) during the year 2020/21. The ratio then follows decreasing trend
from 2020/21(0.45) to 2023/24 (0.25). The ratio is lowest in the first year which is 0.06.

The trend indicates the portion of total deposit occupied by fixed deposit is in decreasing trend.
The bank is not able to lock funds in long term profitable investments.

Fixed Deposit to Total Deposit

0.500
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000
2019/20 2020/21 2021/22 2022/23 2023/24

Figure 2 : Fixed Deposit to Total Deposit

Profitability Ratios:
Return on Asset
The ratio is calculated by dividing net profit after tax by total on asset on the bank. It can be
shown with the help of table below:

Table 3 Return on Asset

Year NPAT Total Assets ROA

2019/20 1,264,684,000 65,348,423,874 0.01935

2020/21 1,549,986,963 78,356,012,689 0.01978

2021/22 2,189,898,090 84,031,554,906 0.02606

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2022/23 2,434,664,521 93,264,183,123 0.02611

2023/24 1,987,390,942 116,438,273,521 0.01707

Noted from Annual reports of SCBNL

In the first year, the ROA was 0.01935(1.93%). From 2019/20 to 2021/22 it follows increasing
trend. But in from 2021/22 to 2022/23 it increases slightly and thereafter reaches to
0.0170(1.70%) in the year 2023/24 which is again in decreasing trend.

The trendline in figure 3 show increasing trend up to first four years and thereafter the trend
declines in last year. The decrease in ROA during the year 2023/24 shows inefficiency in
utilization of assets of the bank. Further, the performance of the management is less satisfactory
in the year 2023/24 in comparison to previous four years.

ROA
0.03000
0.02500
0.02000
0.01500
0.01000
0.00500
0.00000
1 2 3 4 5
Figur
e 3 : Return on Assets (ROA)

Return on Net Worth/Return on Equity

The ratio is computed by dividing net profit after tax by net worth. It can be shown with the help
of table below:

Table 4
Return on Net Worth

Year NPAT Net Worth ROE

2019/20 1,264,684,000 7,736,209,000 0.1635

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2020/21 1,549,986,963 12,379,792,867 0.1252

2021/22 2,189,898,090 13,925,502,179 0.1573

2022/23 2,434,664,521 14,927,074,559 0.1631

2023/24 1,987,390,942 15,102,495,274 0.1316
Noted from Annual reports of SCBNL

The return generated by the equity during the year 2019/20 is highest (16.35%) which indicates
better financial performance during the year. The return declined in the next year to 12.52% and
again spiked and followed increasing trend up to year 2022/23 reaching 16.31%. The RONW
again decreased in the year 2023/24.

The highest RONW during year 2019/20 indicates effectiveness of utilization of funds
contributed by equity including cumulative retained earnings. The bank ability to covert equity
funds into net profit (earnings) is found to be higher during the year 2019/20 and from 2020/21
to 2022/23.It shows better financial performance of the bank in terms of profitability during
those years.However,there is decrease in RONW during the year 2020/21 and 2023/24.This
shows volatility in profitability indicating volatility in financial performance of the bank
indicating negative trend in return to shareholder‟s equity.
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RONW
0.1800
0.1600
0.1400
0.1200
0.1000
0.0800
0.0600
0.0400
0.0200
0.0000
2019/20 2020/21 2021/22 2022/23 2023/24
Fig
ure 4 : Return on Net worth (RONW)

Return on Total Deposit

The ratio is computed by dividing net profit after tax by total deposit. It can be shown with the
help of table below:

Table 5
Return on Total Deposit

ROT
Year NPAT Total deposit D

2019/20 1,264,684,000 55,727,178,456 0.023

2020/21 1,549,986,963 59,694,608,671 0.026

2021/22 2,189,898,090 67,061,046,522 0.033
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2022/23 2,434,664,521 75,731,527,432 0.032

2023/24 1,987,390,942 95,020,841,249 0.021
Noted from Annual reports of SCBNL

The highest ratio is 0.033(3.3%) during the year 2021/22. The return generated by Total deposit
follows increasing trend from year 2019/20 to 2021/22. After that, the return on total deposit
follows decreasing trend up to year 2023/24.

The chart in figure 5 shows fluctuating return on total deposit especially during the year 2022/23
and 2023/24. It means the ability of banks total deposit to generate revenue or income is low
during those years. The decrease in the revenue generated by asset is hurting profitability and
hence performance of the bank is in decreasing trend.

ROTD
0.0350
0.0300
0.0250
0.0200
0.0150
0.0100
0.0050
0.0000
2019/20 2020/21 2021/22 2022/23 2023/24
Figu
re 5 : Return on Total Deposit (ROTD)

Turnover ratio:

Loan and Advances to Total Deposit Ratio:

The ratio is computed by dividing total loans and advances by total deposit liabilities. It can be
shown with the help of table below:
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Table 6
Loan and Advances to Total Deposit Ratio

Year Loans and advances Total deposit Ratio

2019/20 50,419,575,666 55,727,178,456 0.90

2020/21 40,044,317,000 59,694,608,671 0.67

2021/22 46,696,179,867 67,061,046,522 0.70

2022/23 55,633,581,545 75,731,527,432 0.73

2023/24 56,935,754,731 95,020,841,249 0.60

Noted from Annual reports of SCBNL

The highest ratio is 0.90(90%) during the year 2019/20. It decreases to 67% in the year 2020/21
and thereafter follows increasing trend up to year 2022/23. The ratio again decreases from year
2022/23 to 2023/24.

The conversion of deposit into loans is decreasing in the first year and it increases up to year
2022/23 and again decreases. The banks‟ ability to attract and retain customer is volatile over
past five years. The bank is earning more from year 2020/21 to 2022/23. In total, the banks‟
ability to cover unexpected withdrawals and loan losses is not compromised.
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Loans&Advances to Total Deposit

1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2019/20 2020/21 2021/22 2022/23 2023/24
Figur
e 6 : Loans and Advances to Total Deposit

Investment to Total Deposit Ratio

The ratio obtained by dividing investment by total deposits collection in the bank. It can be
shown with the help of table below:

Table 7
Investment to Total Deposit Ratio

Year Investment Total deposit Ratio

2019/20 402,477,960 55,727,178,456 0.01

2020/21 4,810,675,143 59,694,608,671 0.08

2021/22 4,660,992,993 67,061,046,522 0.07

2022/23 11,538,225,160 75,731,527,432 0.15

2023/24 13,058,680,842 95,020,841,249 0.14

Noted from Annual reports of SCBNL

The highest ratio is 0.15 during the year 2022/23. The investment to total deposit ratio is lowest
in the first year and it follows increasing trend up to year 2022/23. Thereafter the ratio decreases
from the year 2022/23 to 2023/24.

The bank is utilizing its deposit in the form of investment in different sector in the first 4 years.
However, there is less utilization of deposit in investment activities of the bank during the last
year.
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Investment to Total Deposit

0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
2019/20 2020/21 2021/22 2022/23 2023/24

Figure 7 : Investment to Total Deposit

Other Ratios:
Capital Adequacy Ratio

The capital adequacy ratio (CAR) is a measurement of a bank's available capital expressed as a
percentage of a bank's risk-weighted credit exposures. It can be shown with the help of table
below:

Table 8
Capital Adequacy Ratio

Year 2023/24 2022/23 2021/22 2020/21 2019/20

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83,299,506,13 76,051,928,65 60,838,819,52 56,801,993,00 47,485,471,00

Total RWE(B) 3 0 4 0 0
RWE due to 74,924,511,75 68,087,413,28 54,179,644,26 50,192,675,00 41,402,347,00
credit risk 4 5 2 0 0
RWE due to
market risk 1,378,548,499 1,536,868,035 1,380,549,380 1,330,724,000 1,155,729,000
RWE due to
operational 6,048,974,948 5,491,535,583 4,598,925,881 4,598,926,000 4,350,273,000
risk
Capital
Core Capital 14,033,589,28 13,926,067,63 13,034,300,35 11,119,338,00
(Tier 1) 1 9 7 0 6,684,918,000
Paid up Equity
Share Capital 8,011,430,667 8,011,430,667 8,011,430,667 4,005,715,000 2,812,426,000
Proposed
Bonus
Equity 0 0 4,005,715,000 937,475,000
0
Share
Share 0 0 0 0 0
Premium
Statutory
General 4,504,238,725 4,106,847,847 3,619,827,633 3,181,848,000 2,897,529,000
Reserve
s
Retaine
d 1,517,919,889 1,807,876,436 1,403,042,058 9,786,000 115,368,000
Earning
s
Un-audited
current year 0 0 0 0 0
Other
Free 0 0 0 0 0
Reserve
Less:
Deferred Tax 0 0 0 83,726,000 77,880,000
Assets
less: Fictitious
Assets 0 0 0 0 0
Supplementar
y Capital (Tier
2) 1,388,345,459 1,044,922,315 952,545,226 855,763,000 1,094,490,000
General loan
loss provision 852,161,527 549,599,930 486,039,696 411,953,000 333,114,000
Exchange
Equalization
Reserve 536,183,931 495,322,385 466,505,530 438,422,000 413,839,000
Subordinated
Term Debts 0 0 0 0 0
Deductions
from capital 0 0 0 0
 24

investme
nt
adjustme 0 0 0 5,388,000 347,537,000
nt reserve
Total
Qualifying 15,421,934,73 14,970,989,95 13,986,845,58 11,975,101,00
Capital (A) 9 4 3 0 7,779,409,000
 25

Capital Adequacy
Ratio
Total capital to
Total risk
exposure 18.51% 19.69% 22.99% 21.08% 16.38%
Tier 1 to
Total risk 16.85% 18.31% 21.42% 19.58% 14.08%
exposure
Noted from Annual reports of SCBNL

As per Unified directives issued by Nepal Rastra Bank, Banks shall maintain a minimum total
capital (MTC) of 8.5% of total risk weighted assets (RWAs) i.e., Total capital to risk weighted
exposure and 6% of Tier 1 to Total risk exposure.

The adequacy of capital provides buffer to risk exposure and protects depositors, creditors as
well as helps to increase public confidence in the banking system. Table 8 above shows adequate
compliance of the bank towards capital adequacy ratio over past five years.

Earnings Per Share (EPS)

It is obtained by dividing earning available to common shareholders by number of equities shares
out-standing. It can be shown with the help of table below:

Table 9
Earnings Per Share (EPS)

Year EAE No of Shares EPS

2019/20 1,264,684,862 23,130,903 45.96

2020/21 1,549,986,963 34,031,848 35.49

2021/22 2,189,898,090 80,114,307 27.33

2022/23 2,434,664,521 80,114,307 30.39

2023/24 1,987,390,942 80,114,307 24.81

Noted from Annual reports of SCBNL

 26

During the study of EPS, it is found that the EPS is in peak in the initial year i.e.,
2019/20.Afterward, it is continually decreasing during the next two years. However, the trend is
increasing from 2021/22 and thereafter EPS again follows decreasing trend from year 2022/23 to
2023/24.

By the analysis of the figure 8, it is seen that EPS is continually decreasing. It reaches to RS
24.81 in 2023/24 from Rs 30.39 in the year 2022/23 which shows EPS to be in decreasing
trend. The earnings of each shares of the bank is in decreasing trend. Since, EPS in its
absolute term reflects very less about financial performance it is better suited and used with
PE ratio as shown in the next section.

Earnings Per Share

50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2019/20 2020/21 2021/22 2022/23 2023/24

Figure 8 : Earnings per Share (EPS)

Price-Earnings Ratio (P/E Ratio)

It is computed by dividing market price per share by earnings per share. It can be shown with the
help of table below:

Table 10
Price-Earnings Ratio (P/E Ratio)

Year EPS MPS PE ratio

2019/20 45.96 3600 78.33
2020/21 35.49 2295 64.67
2021/22 27.33 755 27.63
2022/23 30.39 682 22.44
 27

2023/24 24.81 645 26.00

Noted from Annual reports of SCBNL

The PE ratio is highest during the year 2019/20. The ratio decreases to 22.44 times in the year
2022/23.After that, PE ratio increases to 26 times in the year 2023/24.

The expectation of the market towards the bank is in decreasing trend during the first four years.
People are willing to pay less every year up to 2022/23 for each rupee value of the stock.
However, the expectation of market increases in the final year (2023/24). It shows growth
potential of the bank and expectations of the market.

PE Ratio
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2019/20 2020/21 2021/22 2022/23 2023/24

Figure 9 : PE Ratio (Price to Earnings Ratio)

Major Findings of the Study

The major findings of the study have been summarized below:

 The Liquidity ratio (cash and bank to current & savings deposit ratio) is 0.83(83%)
during the year 2023/24. The ratio shows decreasing trend from 2020/21 to 2022/23. The
ratio follows increasing trend from 0.32 in 2022/23 to 0.83 in 2023/24. Also, the fixed
deposit to total deposit ratio shows decreasing trend from 2020/21(0.45) to 2023/24
(0.25). Therefore, this fluctuation shows idle cash and bank balance not properly utilized.
It hurts financial performance.
 28

 The ROA of bank from year 2021/22 to 2022/23 increases slightly and thereafter reaches
to 0.0170(1.70%) in the year 2023/24 which is again in decreasing trend. The decrease in
ROA during the year 2023/24 shows inefficiency in utilization of assets of the bank. The
performance of the management is less satisfactory in the year 2023/24 in comparison to
previous four years.

 The ROE showing the banks‟ ability to covert equity funds into net profit(earnings) is
found to be higher during the year 2019/20 and from 2020/21 to 2022/23. It shows better
financial performance of the bank in terms of profitability during those years. However,
there is decrease in ROE during the year 2020/21 and 2023/24.This shows volatility in
profitability indicating volatility in financial performance of the bank indicating negative
trend in return to shareholder‟s equity.

 The return generated by Total deposit follows increasing trend from year 2019/20 to
2021/22. After that, the return on total deposit follows decreasing trend up to year
2023/24. The decrease in the revenue generated by asset is hurting profitability and hence
performance of the bank is in decreasing trend.

 Loans and advances to Total deposit ratio shows decreasing trend in the first year and
increasing trend up to year 2022/23 and again it shows increasing trend. The banks‟
ability to attract and retain customer is volatile over past five years. In total, the banks‟
ability to cover unexpected withdrawals and loan losses is not compromised.

 Investment to Deposit ratio follows increasing trend up to year 2022/23. Thereafter the
ratio decreases from the year 2022/23 to 2023/24. This shows volatility in utilisation of
deposit for investing activities over past years.

 Capital adequacy ratio shows adequate compliance of the bank towards capital adequacy
requirement issued by NRB over past five years.

 It is seen that EPS is continually decreasing. It reaches to Rs 24.81 in 2023/24 from Rs

30.39 in the year 2022/23 which shows EPS to be in decreasing trend. Therefore, the
earnings of each shares of the bank are in decreasing trend.
 29

 By analysis of PE ratio, the expectation of the market towards the bank is in decreasing
trend during the first four years. People are willing to pay less every year up to 2022/23
for each rupee value of the stock. However, the expectation of market increases in the
final year (2023/24). It shows growth potential of the bank and expectations of the market
to be rising.
 30

CHAPTER THREE
SUMMARY AND CONCLUSION

3.1 Summary

The research work entitled financial performance analysis of Standard Chartered Bank Nepal
Limited. The research work should have reached the destiny where we satisfy with the queries of
research problems which were specified in the statement of the problem in introductory chapter.
To conduct the research work, the researcher consulted mainly the secondary sources of data
such as documents published by concerned bank. Before presenting and analysing the data, there
was also need to review of related books, prior research on the topic, Obviously, it helped the
researcher to construct conceptual framework and to analyse and interpret the secondary data
according to objective set forth previously. Then the research work was analysed and interpreted
by financial tools such as profitability ratios, turnover ratios, liquidity ratios, capital adequacy
ratios, EPS and PE ratio. In this way, the researcher analysed and presented the second chapter
which was the main body of the research work.

On the basis of data analysis and presentation, the researcher extracted some major findings. It
has been explained along with the data analysis and presentation. So, on the basis of major
findings the researcher reached in the conclusions keeping in the previously set objectives in
mind. To know the real performance of the bank, the researcher observed and analysed the
performance analysis of the bank for five years period. It is hoped that the financial performance
analysis of the bank will give a rational result and represent the overall banking scenario in terms
of performance analysis.

3.2 Conclusion

 By analysing the liquidity ratio of SCBNL, we can see that it is in fluctuating trend. The bank
is not maintaining stable liquidity position. It indicates short term liquidity risk to meet short
term obligations, which in turn hurts profitability. Therefore, the performance of bank in
terms of liquidity is not satisfactory over different periods.
 31

 The decrease in ROA over past five years indicates that the company is not making enough
income from the use of its assets. It may be due to low-income efficiency and poor
management. The bank is not using its total asset to generate maximum revenue. The rate of
ROA indicated inefficient management at using its assets to generate earnings. Therefore, the
performance of bank in terms of ROA is not satisfactory over different periods.

 By analysing ROE, we can see that it is fluctuating over past five years. It means the
management team is not managing the equity properly that the shareholders have contributed
to the company. Therefore, the performance of bank in terms of ROE is not satisfactory over
different periods.

 By analysis of Loans and advances to Total deposit ratio, we can see that it is volatile over
past five years. This may hurt the banks‟ ability to attract and retain customer over long
period of time. Therefore, the performance of bank is not satisfactory over different periods.

 By analysis of Compliance of the bank towards capital adequacy requirement issued by

NRB, we can say bank is maintaining proper buffer for overall risk exposures.

 The EPS is gradually decreasing. However, the number of outstanding shares is relatively
similar over five years but there is fluctuation in net income of the bank. It shows the
company has to reduce fixed expenses to increase the net profit.

 By analysis of PE ratio, we can see that people are willing to pay less every year up to
2022/23 for each rupee value of the stock. However, the expectation of market increases in
the final year (2023/24). It shows growth potential of the bank and expectations of the market
to be rising. Therefore, the performance of bank is expected to rise in future.

 Report writing is very useful for reader to know about the financial state of Standard
Chartered Bank Nepal limited. The case of the study is related with the profitability position
and the capital structure of the bank. The analysis of the presented data will be helpful to
know the financial strength of Standard Chartered Bank Nepal limited. It is hope that it will
become the most suitable literature for future study.
 32

 If in future same research is conducted, the researcher shall consider more ratios which
indicate the financial performance of bank.
 Through the current research, the investor can take decision about investment on commercial
bank.
 By above analysis, the shareholders will know about the current position of SCBNL in terms
of profitability, liquidity, Turnover and PE ratio.
 The above research can be a reference to stakeholders to know about the current condition of
other commercial banks also.
 33

Bibliography

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India: Tata McGraw Hill.

Fabozzi, F., & Modigliani, F. (2013). Foundation of Financial Market and Institutions (4th
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Van Horne, J.C. (2000). Financial Management Policy (11th edition). New Delhi: Patience-Hall
of India Private Limited.

Adhikari, D. R & Pandey, D.L. (2012). Business research methods. Kathmandu: AsmitaBooks
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Horne, V. J. C., & Wachowicz, J.M. (2005). Financial statement analysis (11th edition).

Khan, M.Y. and Jain P.K. (1997). Management Accountancy, New Delhi: Mc Graw- Hill
Publishing company Ltd

Pandey, I. M. (2004). Financial statement analysis (9th edition). New Delhi, India: Vikas
Publishing House Pvt Limited.

Weston, J. F., & Brigham, Eugene F. (1972). Managerial Finance, New York, Holt Saunders,
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Saunders, A., & Cornett, M.M. (2019). Financial Markets and Institutions (7th edition). New
York, USA: McGraw Hill.
 34

Websites:

https://www.sc.com/np/
www.nrb.org.np
https://www.simplilearn.com/financial-performance-rar21-article
https://www.investopedia.com
 35

APPENDICES
Organizational chart
 36

Head Global Banking &

Commercial Banking:
Gorakh Rana

Head Transaction
Banking:Michael Siddhi

Head Human Resource: Rajan

Udas
Chief Executive
Officer:Anirvan Ghosh
Dastidar
Chief Financial Officer:Vidya
Kumar
Board of Directors

Head of Conduct, Financial

Crime & Compliance (CFCC)
and Country Chief Risk
Officer:Sanjay Pant

Chief Operating Officer:Sujit

Shrestha

Head, Legal & Company

Secretary : Bimal Singh

Head of Financial Markets and

Head Treasury Markets:Nidhi
Rana