CHAPTER I

INTRODUCTION

1.1 Background of the Study

While discussing about the history of banking development, we can't forget the Bank of Casa
de San Giorgio in Genoa, which was established in 1128; Bank of Vee was established in
1157 and the Bank of Genoa was established in 1128. In 1201, the Bank of Barcelona was
established in Barcelona. In fact modern bank started to take rapid speed in forming &
functioning from 17th century. During this period Bank of Milan, Bank of Florence and
Bank of St. George were established in Genoa. In 1609, the Bank of Amsterdam was
established in Holland, like wise in 1610, Bank of Hamburg was established in Germany and
the Bank of England was established in England (Bhandary, 2003,)
Enough capital is required for the development of any country. It is the backbone for the
development of the nation. Nepal lacks the adequate capital for its development planning.
Due to this reason many development planning are pending. If there is enough capital
available, it can be invested into profitable projects and contribute to the National GDP.
Investment promotes economic growth and contributes to a nation’s wealth. When people
deposit money in a saving account in a bank for example, the bank must invest by lending the
funds for various business companies. These firms in return, may invest the money in new
factories and equipment’s to increase their production. In addition to this borrowing from the
banks, it must issue stocks and bonds that they sell to investors to raise capital needed for
business expansion. Government also issue bonds to obtain funds to invest in capital
incentive project, as the construction of dams, roads and schools. All such investments by
individuals, business and government involve a presto sacrifice of income to get and expected
future benefits. As a result, investment raises a nation’s standard of living (The World Bank;
1966:).

1
Banks today have gained paramount trust of the public. They hold the deposit of millions of
persons, government and business units. They make funds available through their lending and
investing activities to borrowers, individuals, business firms and government. Thus, their task
is to provide a collecting point for saving of relatively small average amount from a large
number of individual sources and invest them into a productive and needed sector of the
country, so as to develop the nation. The importance of commercial banks may be measured
in a number of ways. Banks are still the principal means of making payments, through the
checking accounts, credit cards and electro transfer services they offer. In the same way
commercial banks are important because of their ability to create money from excess reserves
made available from the public’s deposits.
There are currently 27commercial banks. The stock market is in infancy stage in terms of
number of the companies listed and the ratios of market capitalization and turnover to GDP.

1.2 Introduction of NIC ASIA BANK

NIC ASIA BANK has its antecedents in NIC ASIA BANK which was established on 21 st
July 1998. The Bank was rechristened as NIC ASIA BANK after the merger of bank with
bank of Asia Nepal on 30th June 2013. This was a historic merger in the annals of Nepalese
financial landscape as the first of its kind merged between two successful commercial banks
in Nepal.
During the post-merger integration phase, NIC ASIA BANK managed the transition very
smoothly receiving accolades from the regulators as well as the stockholders, paving the way
for other mergers and consolidation in the Nepalese financial sector. After the merger, NIC
ASIA was recognized as “Bank of the year 2013-Nepal " by the Banker, financial Times UK.
This is the second time that Bank was recognized with this prestigious award, 2007.
NIC ASIA BANK is now, of the largest private sector commercial banks in the country in
terms of capital base, balance-start size, number of branches, ATM network and customer
base. The Bank has 293 branches, 55 extension counters, 41 branches less banking and
319ATMs across Nepal with a network covering all major financial centers of the country.
The Bank strongly believes in meritocracy, Transparency, professionalism, Term spirit and
service Excellence. These core values are internalized by all functions within the Bank and
are reflected in all actions the bank takes during the course of its business.
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1.3 Statement of problem
Banks mobilize deposits by making finances and investing in various financial markets.
Basically deposit mobilization is related to the creation of credits. Acceptenace of deposits
primary function of commercial banks. As such, deposit mobilization is one of the basic
innovations in current Nepalese Banking activity. Hence, in this paper, an attempt 15 made to
evaluate the trend and growth in deposit mobilization of commercial banks of Nepal. A
financial institution will typically conduct its own deposit mobilization policy. Banks and
financial institution are taking huge competition and lots of challenges regarding liquidity
risk, credit risk, initiation risk, operational risk and interest rate risk. Banks should be very
careful while mobilizing deposits.
 What is the trend of deposit mobilization of selected commercial bank in Nepal?
 What is the relationship among deposit, loan and advances and investment of the
selected commercial banks?
 What is the liquidity and profitability position of selected commercial Bank in Nepal?
 What is the trend of deposit, loan and advances and investment of selected
commercial bank in Nepal?

1.4 Objective of the Study

The main objectives of this thesis are to analyze the trend of deposit collection and
mobilization of NIC ASIA Bank Limited. Some other objectives of this research are as
follows:
 To find out the relationship between deposits collection and distribution with trend.
 To identify the financial position of ASIA Bank Limited.
 To identify trend of deposit, loan and advances and investment of selected commercial
bank in Nepal.

1.5 Significance of the study

The study has been does ok in reference of the periodical performance of NIC ASIA BANK
LIMITED. The study has done already that the research focuses only on the deposit
mobilization of NIC ASIA BANK LIMITED. The study has following significance

3
This study explains the shareholders deposit mobilization of the bank. The study also
compels the management of bank for self-assessment of what they have done in the past and
guides them in their future plan and programs. Help to identify the trend of deposits and the
lending areas of commercial banks in Nepal analyze the deposit mobilization areas of
selected commercial banks in Nepal. To analyze the investment sectors commercial banks in
Nepal.

1.6 Limitation of the study

The following are the limitations of the present study
 This study is based on secondary data.
 This study has analyzed and evaluated the data to the lasted five years period.
 In this study only selected financial and statistical tools and techniques are used large
number of sample is not taken because of time and cost constraints.
 It has taken into account only certain factors affecting the investment decision.

1.7 organisation of the study

The report is divided into three chapters, each deals with some important factor of deposit
mobilizations analysis of ASIA BANK LIMITED. To make bette understanding of topics
and helps to meet objectives of the study.
Chapter-I
The first chapter introduction includes general background, introduction of the bank,
objectives of the study and significance of the study. It is oriented for readers for reporting
giving them the perspective they need 10 understand the detailed information about the study.
This chapter describes literature review. This study assures readers that they are similar with
important research than has been carried out in similar area. Research methodology refers to
the various sequential steps to be adopted by a researcher in studding a problem with certain
objectives in procedures of data with research method focuses on research design, methods
and collection gathering. The research design will be descriptive and analytical. Secondary
data will be used.

4
Chapter-II
The second chapter includes data analysis of the result and major findings of the study drow
findings data to meet the research objectives, analysis, and presorted of cone and research
conclusion.
Chapter-II
Basically the topic comprises summary, conclusion of the study and a valuing and
interpreting the trending and results. Thus, this chapter sending of research and provides
recommendation and helps to meet objectives of the project.

1.8 Review of Literature

1.8.1. Conceptual Review
This part of research includes the review of previous related studies and articles which gives
the certain guidance to the researcher. Literature review incorporates the aspects and
significance of the published research and gives the clear vision and provides the foundation
to the study.
Previous study materials, books and research reports related to current research issues are
considered as literature. Study of previous research works and books with the purpose of
knowing the research issue in detail and finding appropriate methodology is known as
literature review. Review of previous studies is very important in academic research and it
helps to complete the research work. It helps to obtain in depth knowledge about the research
issue or subject.
This chapter is basically concerned with review of literature relevant to the financial
institution and financial performance of ASIA BANK. So every possible effort has been
made to grasp knowledge and information that is available from libraries, documents
collections and ASIA Bank, reviewing and studying process has helped to analyze the
financial performance of ASIA BANK and fulfill the objective of this study. In this chapter
we study the following topics.

5
1.8.2 Review of Previous Report
Review of previous works plays Vitol role in research work. It helps to researcher to
understand the present research topic in better way, which automatically helps to achieve the
objective of research work. This research report also written after the study the previous
research works, articles, thesis. In this report, mainly the research works which are related to
this topic financial performance of bank are reviewed.
Lama.S (2015) in her study "A study on financial performance of Bank of Kathmandu &
NIC ASIA Bank" is related to this study somehow. This study is about analysis of financial
performance of Bank of Kathmandu and NIC ASIA Bank, data from 2066/67-2070/71. In
this study, she uses the comparative research design to analyze the financial performance of
both banks. The main objective of this research work is "To evaluate liquidity, leverage,
capital adequacy, and turnover and profitability ratio of both banks, which is somehow
similar to the present research topic.Lama. S (2015) in her research, major findings are;

Current ratio of both banks is lower than the conventional standard in all the years. But is has
met the standard of 1:1 and is higher also. In conclusion this shows satisfactory condition.
The liquidity position of NIC is higher than BOK, which is not good because higher liquidity
position shows the greater amount of idle money, which cannot generate the revenue.
In both the banks the proportion of total debt is very high than equity ratio. The higher debt
generate the higher EPS, which is quite good from the view of organization, both Banks are
in risky. In conclusion, NIC ASIA BANK can generate more profit in comparison of BOK
because it can turnover more of its deposit than BOK.

Subedi K.P. (2005) conducted a research title “Financial Performance of NIC ASIA Bank
Limited” states that deposit is the part of balance sheet which always remains the biggest in
amount. It is the sensitive liability among all items. As like total liabilities and capital deposit
also increase until 2057/58 and starts to fall down. The increment rate is satisfactory in first
and second changing years, and then it has changed by negative digits therefore in two
subsequent year’s. The business is in peak where the value was Rs. 15839.0077 millions.

6
In this study, the proportion of debt over the total liabilities and capital is 83.35% in average.
Fixed deposit is taken as a long-term debt in the banking business; it is key department factor
to capital structure. The bank could collect the deposit is Rs.7667.8459 million. In two
subsequent years, it decreases and becomes Rs.2252.5464 million in the final study years.
This items changes by in highly decreasing trend. The average change rate is 5.89 percent.
The proportion over total liabilities and capital is 26.32 percent in average. The composition
of paid up capital, reserve and surplus other reserves and undistributed profit is known as
shareholders equity. Unlike other items mentioned above, shareholders equity is regularly
increasing. The yearly change rate is in fluctuating trend varied from 8.97 percent to 24.63

Chhetri (2010), made a study on "Profitability Position of NIC ASIA Bank" for the purpose
of fulfillment of BBS. A comparative case study between NIC ASIA bank and SCB bank has
point out to evaluate the trend of deposit and loan and advance of NIC ASIA BANK and
SCB, to evaluate the liquidity, profitability, capital structure, activity and capital adequacy
position of NIC ASIA BANKand SCB and to study the strength and weakness of NIC ASIA
BANK and SCB.

1.9 Research Methodology

In the previous chapter, the role of commercial banks and its functions for the economic
development of a nation has been discussed and the review of literature with possible review
of relevant books, articles and thesis, and research findings has been done along with the
function of commercial banks and types of deposits. This has equipped the researcher to
make choice of research methodology to support the study in realistic terms with sound
empirical analysis. “Research methodology refers to the various sequential steps to be
adopted by a researcher in studying a problem with certain objectives in view”. In other word
research methodology describes the method and process applied in the entire subject of the
study. This topic deals with the research design, nature of data collection, processing of data
and statistical tools used

.
7
1.9.1 Types of Research
Research Design: Research design is the plan, structure and strategy of investigation
conceived so as to obtain answer to research question and control variance. To achieve the
objectives of the study, descriptive as well as analytical research design have been used. This
study is based on secondary data. Some samples such as statistical tools such as Mean, C.V.,
P.E., Trend line and Correlation analysis has been applied to examine the facts of data. Not
only data but also recommendations and suggestions are also derived from the study by
taking the NIC ASIA BANK as a sample. So that all concerned can be achieved something
from the study.

Quantitative Research: Quantitative tools and data will be taken as per the research base
such as using different accounting and financial statements and formulas to develop a theory
and a proper result.

1.9.2 Population and Sample

In this study the deposit mobilization procedures of NIC ASIA Bank Limited is studied. 27
commercial banks are taken as the population and NIC ASIA BANK is chosen as the sample
to find out the condition of deposit mobilization.

1.9.3 Source and Nature of Data

The study is conducted on the basis of secondary data. The data relating to the investment,
deposit, loan and advances, assets and profits are directly obtained from the Balance Sheet
and Profit and Loss account of the concerned bank’s annual reports.
Supplementary data and information are collected from number of institution and
authoritative sources like NRB, NEPSE, SEBON, web sites etc.

1.9.4 Data Collection Procedures

Data is mainly collected from secondary source like financial statements, papers notices and
annual reports from the concerned banks. The collected data are then reviewed and analyzed.
Therefore, no detailed procedures are taken. Data collection was mostly taken out from the
past reviews and public data.
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1.9.5 Tools For analysis
After collection of data, data should be analyzed by using various tools. Tools for analysis
mean the basis of data presentation. Without using different tools for analysis, the collect data
cannot be presented. There are various tools for analysis of data such as financial tools,
statistical tools arithmetic tools & so on.

1.9.5.1 Financial Tools

For the sake of analysis, various financial tools are used. The basic tools used are ratio
analysis. Ratio analysis is used to compare firm’s financial performance and status to that of
other firm’s overtime. The financial tools used are listed below:

1.9.5.1.1Ratio Analysis
It may be defined as the mathematical expression of the relationship between two accounting
figures. To evaluate the different performances of figures of different accounts is termed as
ratio analysis. In short, ratio analysis can be defined as analysis of financial statements with
the help of ratios.

A) LiquidityRatio:
Liquidity Ratio is a class of financial metrics that is used to determine a company’s ability to
pay off its short-terms debts obligations. Generally, higher the value of the ratio, the larger is
the margin of safety that the company possesses to cover short-terms debts. Liquidity ratio
Measure Company’s ability to turn into cash to cover debts is the utmost importance when
creditors are seeking payment. Following ratio are evaluated under liquidity ratios.

B) Assets Management Ratio

The assets management ratios, measures how effectively the firm is managing its assets.
These ratios are designed to answer this question: does the total amount of each type of asset
as reported on the balance sheets seem reasonable or not. If a firm has excessive investment
in assets then its capital costs will be unduly high and its stock price will suffer. In this study

9
this ratio is used to indicate how efficient the selected banks have arranged and invested their
limited resources.

C)Profitability Ratio
Profit is only appeared when there is positive difference between total revenues and total cost
over a certain period of time. Profitability ratios show the combined effects of liquidity,
assets management, and debt on operating results. Profitability ratio measures the overall
banking operation of the company in regards to the profit. Profitability ratio is determined by
the financial institution to find out their profit earning capacity on various kinds of funds they
employed. Profit indicates the efficiency of the bank. A bank can make the profit through the
sound lending policy and the quality of service it provides. Higher is the profit ratio higher
will be the efficiency of the bank. Following are the some profitability ratio studied in this
report.

1.9.5.2 Statistical Tool

Some of the statistical tools which show the highlight of ASIA Bank Limited are used to
achieve objective of the study. The main statistical tools used in this research are:

i) Arithmetic Mean
Arithmetic means of given set of observation is their sum divided by the number of
observation. It represents the entire data by a single value. Out of the various central
tendencies a mean is one of the useful tools to find out the average of the given data. It is
calculated in the following way;

∑X
X=
N

Where,
X = Arithmetic Mean
N = Number of Observation
∑ X = Sum of Observation

10
ii) Standard deviation
Standard deviation is a measure of the dispersion of a set of a data from its mean .It is
calculated as the square root of variance by determines the variation between each data point
relative to the mean. It is denoted by

σ=
√
Where,
∑ ( X−X )2
N −1

σ =Standard deviation
X =Distribution
X= Mean (X/N)
N = Number of year

iii) Coefficient of variation (CV)

Coefficient of variation is a statistical measure of the dispersion of data points in a data series
around the mean. It is used to measure the risk of return. Coefficient of variation is calculated
by dividing standard deviation by mean. It is denoted by

σ
Coefficient of variation =
X

CHAPTER II

11
 RESULTS AND FINDING

This chapter deals with the presentation, analysis and interpretation of statistics, evidence
and facts to clarify the research works. Hence the study presents the collected data for various
purposes of analysis. The data are analyzed using financial and statistical tools to get values
of different variables. The analyzed data and results are presented clearly and simultaneously
using tables and graphs. Lastly, each of the results is interpreted in each topics and sub topics.

2.1 Ratio Analysis

Ratio analysis has been adapted to evaluate the financial health, operating result and growth
of the sampled banks. In order to analyze and interpret the tabled data, the following ratios
have been used.
- Liquidity ratio
- Turnover ratio/assets management ratio
- Profitability ratio

2.1.1 Liquidity position

Liquidity position of the banks can be analyzed by the level of liquid funds banks are
maintaining. Liquidity ratios are applied to measure the ability of the firm's to meet short
term obligations. It measures the speed of firm's to covert the firm's assets into cash to meet
deposit withdraws and other current obligations. This is quick measure of the liquidity and
financial strength of the firm.
a) Cash and Bank Balance to Total Deposit Position
Cash and Bank Balance to Total Deposit helps to identify the total cash balance a bank has
with it and in other bank. It indentifies the liquidity position of the bank. Cash and Bank
balance to total deposit position can be obtained calculation cash and bank balance to total
ratio. This ratio is computed dividing the amount of cash and bank balance by the total
deposits. The ratio are shown below.

Cash and Bank Balance to Total Deposit

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The main objectives of a commercial bank are to safe guard the money of depositors and
deposit mobilizations. The following table shows the situations of commercial banks with
relation to deposit collection.

Current Year Deposit− previous year deposit

Percentage Change in deposit = Previous Year Deposit
36932.31−33322.95
For 2015/16, Percentage change =
33322.95

Table – 1
Deposit collection of NIC (Rs. in millions)
Years Total deposit Percentage Change
2015/16 33322.95 -
2016/17 36932.31 10.00
2017/18 41127.91 11.00
2018/19 50006.10 21.00
2019/20 57720.2 15.00
Source: - Annual Report of NIC 2015/16 – 2019/20

The above data can be presented with the help of following graph:

Figure-1

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 Deposit Collection and mobilization of NIC

65000
60000 57720.2
55000
50006.1
50000
45000
41127.91
40000 36932.31
35000 33322.95
Total deposit
30000 PercentageChange
25000
20000
15000
10000
5000
0 10 11 21 15
0
2015/16 2016/17 2017/18 2018/19 2019/20

2.1.2 Investment
Subtracting previous year investment from current year investment and dividing the result by
previous year investment calculate the percentage change.

Current Year investment− previous year investment

Percentage Change in investment =
Previous Year Investment
5928.28−5061.20
For 2015/16, Percentage change =
5061.20

This evaluates the trend of the investment. So there should be the increasing trend of
investment to earn more profit.

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Table - 2
Investment of ASIA BANK (Rs. in Millions)
Year Investment Percentage Change
2015/16 5061.20 -
2016/17 5928.28 17.53
2017/18 5008.31 -15.51
2018/19 7723.90 54.22
2019/20 7863.60 1.80
Source: - Annual Report of NIC ASIA BANK 2015/16 – 2019/20

The above data can also be presented in following graph below:

Figure-2
Investment of NIC ASIA BANK
8500
8000 7723.9 7863.6
7500
7000
6500
5928.28
6000
5500 5061.2 5008.31
5000
4500
Investment
4000
Percentage Change
3500
3000
2500
2000
1500
1000
500 17.53 54.22
0 1.8
0
-500 2015/16 2016/17 -15.51
2017/18 2018/19 2019/20

The investment of NIC ASIA BANK in table and figure 2 is not consistent every year. This
shows that the investment is fluctuating upward and downward direction compared to
concerned preceding year. Even though the investment is increasing every year investment is
drastically decreased in 2016/17 due to the lack of safe investment sector in Nepal and banks
15
do not want to take the unnecessary risk due to political instability and after the year 2016/17
bank start to invest its ideal fund to maximize the profit.

2.1.3: Loan and advance:

Loan and advance is a financial facility provided by the banks to help their customers in
financial need. Percentage of loan and advance is calculated by:

Current Year loan∧advance− previous year loan∧advance

Percentage Change =
Previous Year loan∧advance
27556.36−23882.67
For 2015/16, Percentage change = .
23882.67

Table-3
Loan and Advance of NIC ASIA BANK (Rs. in Millions)
Year Loan and Advances Percentage Change
2015/16 23882.67 -
2016/17 27556.36 15.37
2017/18 31057.69 12.71
2018/19 35910.97 15.63
2019/20 43393.19 20.82
Source: - Annual Report of ASIA BANK 2015/16 – 2019/20
The above data presented in graph below:

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Figure -3
Loan and Advance of NIC ASIA BANK
50000

45000 43393.19

40000
35910.97
35000
31057.69
30000 27556.36
25000 23882.67 Loan and advances
Percentage change
20000

15000

10000

5000
0 15.37 12.71 15.63 20.82
0
2015/16 2016/17 2017/18 2018/19 2019/20

The table and figure 3 shows that the loan and advance of NIC ASIA BANK, which is in
fluctuating trend as compared to preceding year. The minimum increasing percentage of NIC
ASIA BANK is 12 percent whereas the maximum increase percentage is 20.82 percent. Since
loan and advances is the major source of income to the bank; the bank is increasing their
loans and advances.

2.2 Ratio Analysis

Ratio analysis is the process of knowing the financial strengths and weaknesses of the banks
by establishing relationship between various variables of Balance Sheet, Profit and Loss
account and other financial statements. It is a technique and interpretation of financial
statement through mathematical expression. It may be defined as the mathematical expression
of the relationship between two accounting figures. To evaluate the different performances of
figures of different accounts is termed as ratio analysis. In short, ratio analysis can be defined
as analysis of financial statements with the help of ratios.

17
Ratio analysis is an important technique of financial analysis. The data given in financial
statements are meaningless and they are unable to commuate anything from the analytic
viewpoint. One has to work very hard in digging out the required information. (Dangol,
R.M.: Accounting for financial analysis and planning).

“In Financial analysis, a ratio is used as index or yardstick for evaluating the financial
position of a firm” (Pandey, 1993)

“Ratio analysis is such a powerful tool of financial analysis that through it economic and
financial position of a business unit can be fully x-rayed” (Kothari, 1986).

2.2.1 Liquidity Ratio Analysis

Liquidity ratios measure the ability to meet short term and maturing obligations. This is also
called solvency ratio or working capital ratio. It is the relative proportion of current assets to
current liabilities. Under liquidity ratios, the following ratios are examined.

2.2.1.1 NRB Balance to Total Deposit

NRB has the commercial banks to deposit certain fund of the commercial bank in the central
bank which change time to time as the demand of the time. The ratio is calculated as under:
NRB Balance
NRB balance to total deposit ratio of NIC ASIA BANK =
Total deposit
Table – 4
NRB balance to total deposit
(Rs. in Millions)
Year(n) NRB Deposit Total Deposit Ratio(x)
2015/16 4787.16 33322.95 14.36
2016/17 5625.11 36932.31 15.23
2017/18 4706.32 41127.91 11.44
2018/19 8159.75 50006.10 16.32
2019/20 8205.09 57720.4 14.22
Mean ¿ n(X) 14.31

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 S.D. (σ ) 1.81
C.V. 12.66
Source: - Annual Report of NIC 2015/16 – 2019/20

The table 4 helps us to analyze the short term obligation capacity of the firm. It reveals that
the average ratio of the balance with NRB to total deposit of NIC ASIA BANK is 14.31
percent indicate the amount blocked or deposited in NRB. The maximum NRB balance of the
bank is 16.32 percent in the year 2016/17 and the minimum NRB balance of NIC ASIA
BANK is 11.44 percent in the year 2015/16. The CV of NIC ASIA BANK is 12.66 percent. It
indicates that the ratio with NRB to total deposits of the bank had inconsistent i.e. fluctuating
over the study period.

The above NRB balance to total deposit ratio can also be presented with the help of following
figures below:

Figure -4
NRB balance to total deposit ratio
18
16.32
16 15.23
14.36 14.22
14

12 11.44

10
Ratio
8

0
2015/16 2016/17 2017/18 2018/19 2019/20

19
In the above figure 4 , it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17 . It is decreased in year 2017/18. But , in year 2018/19 it has been
increased i.e. 16.32 percent .and in year 2019/20 it is decreased.

2.2.1.2 NRB Balance to Current and Saving Deposit

The NRB of Nepal has directed to the commercial bank to keep minimum 6% of the total
saving and current deposit amount in NRB balance. It is for the purpose of the liquidity to
meet the demand of the customer.
It is calculated as under:
NRB Balance
NRB balance to current and saving deposit ratio =
Current∧saving deposit

Table – 5
NRB balance to current and saving ratio
(Rs. in Millions)
Years (n) NRB Deposit Current + Saving Deposit ratio (x)
2015/16 4787.16 22854.73 20.94
2016/17 5625.11 17533.35 32.08
2017/18 4706.32 17830.31 26.40
2018/19 8159.75 23367.54 34.92
2019/20 8205.09 29166.54 28.13
Mean ¿ n(X) 28.29
S.D. (σ ) 4.85
C.V. 17. 15

Source: - Annual Report of NIC ASIA BANK 2015/16 – 2019/20

The short term obligation capacity of the firm is analyzed through this table. It reveals that
the average ratio of the balance with NRB to current and saving deposits of NIC ASIA

20
BANK is 28.29. NIC ASIA BANK has the highest ratio of 34.92 percent in the year 2018/19
and the minimum NRB balance of NIC ASIA BANK is 20.94 percent in the year 2015/16.
The CV of NIC ASIA BANK is 17.15 percent. It indicates that bank had higher fluctuation in
NRB balance over the study period. The above data shows NIC ASIA BANK is good enough
in maintaining minimum of 6 percent of total saving and current deposit as directed by NRB.

The above NRB balance to current and saving ratio ratio is presented in following figures
below

Figure – 5
NRB balance to current and saving ratio
40
34.92
35
32.08
30 28.13
26.4
25
20.94 Ratio
20

15

10

0
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 5, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2017/18. But , in year 2018/19 it has been
increase i.e. 34.92 percent .and in year 2019/20 it is decreased.

2.2.1.3 NRB Balance to Fixed Deposit

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Fixed deposit refers to the deposit of fixed amount, earning fixed interest rate and for fixed
term. It is an account of amounts deposited in a bank for certain period of time. The
customers can renew the fixed deposit period after the expiry of the fixed time. The rate of
interest in the fixed deposit is higher than that of other deposit. For this deposit NRB has
directed to the commercial banks to keep 6 percent of fixed deposit in the NRB balance for
the purpose of the liquidity.

NRB Balance
NRB balance to fixed deposit ratio = Deposit ¿
Total ¿

Table – 6
NRB balance to fixed deposit of NIC ASIA BANK
(Rs. in Millions)
Fiscal Year(n) NRB Deposit Fixed Deposit Ratio(x)
2015/16 4787.16 7049.97 67.90
2016/17 5625.11 10440.27 53.88
2017/18 4706.32 15061.94 31.25
2018/19 8159.75 13007.48 62.73
2019/20 8205.09 14104.78 58.17
Mean ¿ n(X) 54.78

S.D. (σ ) 14.15

C.V. 25.83

Source: - Annual Report of NIC ASIA BANK 2015/16 – 2019/20

The table 6 shows the ratio of NRB balance to fixed deposits is in fluctuating trend. Even if
ratio had fluctuating trend, they are able to maintain 6 percent of their fixed deposit as
directed by NRB. This shows that the bank had tied up their fund in excess deposit in NRB
which ultimately affects the probability of negativity. The average ratio of NIC ASIA BANK
is 54.78 percent. which indicates the stronger liquidity position of NIC ASIA BANK. The
22
maximum NRB balance of NIC is 67.90 percent in the year 2015/16 and the minimum
balance is 31.25 percent in the year 2017/18.The CV of the bank is 25.83 percent which
indicate the less consistency in the NRB balance to Fixed Deposit Ratio.

The above NRB balance to fixed deposit ratio can also be presented with the help of
following figures:

Figure – 6
NRB balance to fixed deposit of ASIA BANK
80

70 67.9
62.73
60 58.17
53.88
50

40
Ratio
31.25
30

20

10

0
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 6, it can be seen that the ratio has been in decreasing trend since year
2015/16 to 2016/17 . It is increased in year 2017/18. But, in year 2019/20 it has been
decreased i.e. 58.17 percent.

2.2.2Activity Ratio

23
Activity ratio is also called assets management ratio. It measures the efficiency of the bank to
manage its assets in profitable and satisfactory manner. A commercial bank must manage its
assets in proper way to earn high profit. Under this chapter following ratio has been studied.

2.2.2.1 Credit to Total Deposit

This ratio reflects extend to which the commercial banks are success in mobilizing their
assets on loan and advances for the purpose of income generation. A high ratio indicates
better mobilization of deposit on loan and advances and vice-versa.

Credit = total loan, advances and bills payable.

Loan∧advances
Credit to total deposit ratio =
Total Deposit

Table- 7
Credit to Total Deposit
(Rs. in Millions)
Years (n) Credit Total deposit ratio (x)

2015/16 24469.6 33322.95 73.43

2016/17 28156.4 36932.31 76.24
2017/18 31661.8 41127.91 76.98
2018/19 36616.8 50006.10 73.22
2019/20 44197.76 57720.4 76.57
Mean ¿ nX) 75.29
S.D. (σ ) 1.86
C.V. 2.47
Source: - Annual Report of NIC 2015/16 – 2019/20

24
The table 7 shows the fluctuation in the ratios of credit to total deposits of NIC. The average
ratio of credit to total deposit ratio of NIC is 75.29 percent. NIC has the highest credit ratio of
76.98 percent in the year 2015/16 whereas the minimum in the year 2016/17 of 73.22 percent.
The average ratio is 75.29 percent and only 2.47 percent deviate from it so that C/D ratio
more or less consistent over the study period. C/D ratio directly impact on the profitability.
High C/D ratio may not be beneficial, it hamper to the liquidity and low reduce the
profitability so management required focusing for maintaining optimum C/D ratio.

The above credit to total deposit ratio can also be presented with the help of following
figures:

Figure - 7
Credit to Total deposit Ratio
78

76.98
77
76.57
76.24
76

75

Ratio
74
73.43
73.22
73

72

71
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 7, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2015/16. .But, in year 2017/18 it has been
increased i.e. 76.37 percent.

2.2.2.2 Investment to Total Deposit

25
This ratio measures whether the banks are able to mobilize their deposit on investment in
various securities. A high ratio indicates the success in mobilizing deposit in securities and
vice-versa.
Total Investment
Investment to total deposit ratio =
Total deposit

Table-.8
Investment to Total Deposit Ratio
(Rs. in Millions)
Years (n) Investment Total deposit ratio (x)
2015/16 5948.48 33322.95 17.85
2016/17 5008.31 36932.31 13.56
2017/18 7743.90 41127.91 18.83
2018/19 7863.60 50006.10 15.73
2019/20 9263.86 57720.4 16.05
Mean ¿ 16.20
S.D. (σ ) 2.05
C.V. 2.67
Source: - Annual Report of NIC 2015/16– 2019/20

The table 8 concludes that NIC has mobilized its collected deposits on investment more
effectively and efficiently. The average percentage of Total Investment to deposit of NIC is
16.20 percent. NIC has the lowest ratio of 13.56 percent in the year 2016/17 and highest ratio
of 18.83 percent in the year 2017/18. CV of the investment and total deposit ratio shows that
the average ratio of the bank is less consistent over the period.

The above ratio can also be presented with help of following figures:

26
Figure -8
Investment to Total Deposit Ratio
25

20.4
20 19.31

15.73
14.84
15
13.32

Ratio
10

0
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 9, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2017/18. But, in year 2018/19 to 2019/20 it has
been increased.

2.2.3 Capital Adequacy Ratio

It is used to protect depositors and promote the stability and efficiency of financial systems.
Excess capital decreases the profitable whereas the less capital is the symbol of a weak
capital structure. So banks have to maintain the adequate capital as per the directives given by
NRB. Following ratios are calculated as under: -

2.2.3.1 Total Capital to Total Deposit

27
Capital to total deposit ratio shows the relationship between capital and total deposit. This
ratio measures how much capital has been rowed by the bank in respect to the deposit.
Total Capital
Capital to Total deposit ratio =
Total deposit

Table - 9
Total capital to total deposit
(Rs. in Millions)
Year Total capital Total deposit Ratio (x)
2015/16 1030.46 33322.95 3.09
2016/17 1279.61 36932.31 3.69
2017/18 1391.57 41127.91 3.38
2018/19 1761.13 50006.10 3.52
2019/20 1921.24 57720.4 3.33
Mean ¿ nX) 3.40
S.D. (σ ) 0.201

C.V. 5.91
Source: - Annual Report of NIC 2015/16 – 2019/20

The table 9 shows the fluctuation in the ratios of total capital to total deposits of NIC during
the study period. The average ratio of total capital to total deposit ratio of NIC is 3.40 percent
NIC has the highest total capital ratio of 3.69 percent in the year 2016/17 and lowest ratio of
3.09 percent in the year 2015/16. On the other hand, the CV of the bank is 5.91 that mean the
ratio is more or less consistent over the period
.
The above total capital to total deposits ratio can also be presented with the help of following
figures:

28
Figure-9
Total capital to total deposit Ratio
3.8
3.69

3.6
3.52

3.4 3.38
3.33

3.2
Ratio
3.09

2.8

2.6
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 9, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2017/18. But, in year 2018/19 it has been increase
i.e. 3.52 percent and in year 2019/20 it is decreased.

2.2.3.2 Total Capital to Total Credit

Capital to total credit ratio shows the relationship between total capital and total credit. It
indicates how much capital is raised by the banks in respect to the credit

Total capital fund

Capital to total credit ratio =
Total credit

29
Table – 10
Total Capital to Total Credit
(Rs. in Millions)
Years (n) Total capital Total credit ratio (x)
2015/16 1030.46 24469.6 4.21
2016/17 1279.61 28156.4 4.54
2017/18 1391.57 31661.8 4.40
2018/19 1761.13 36616.8 4.81
2019/20 1921.24 44197.76 4.35
Mean ¿ nX) 4.46
S.D. (σ ) 0.22
C.V. 5.06
Source: - Annual Report of NIC 2015/16– 2019/20

The table 10 shows the fluctuation in the ratios of total capital to total credit of NIC. The
average ratio of total capital to total credit ratio of the bank is 4.46 percent..NIC had raised
lower capital in respect to the credit. The maximum total capital ratio of NIC is 3.69 percent
in the year 2016/17 and lowest ratio of 3.09 percent in the year 2015/16.The CV of the NIC is
5.06 percent indicating the less variation of ratio from the average ratio.

The above total to total credit ratio can also be presented with help of following figures:

30
 Figure - 10
Total capital to Total Credit Ratio
5.1

4.81
4.8

4.54 Ratio
4.5 4.4
4.35
4.21
4.2

3.9
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 10, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2017/18. But , in year 2018/19 it has been increase
i.e. 4.81 percent .and in year 2019/20 it is decreased.

2.2.3.3 Total Capital to Total Assets

Capital to total assets ratio measure the relationship between capital and assets. It is
calculated as follows: -
Total capital
Capital to total assets ratio =
Total Assets

Table-11
Capital to Total Assets
Years (n) Total capital Total assets ratio (x)

2015/16 1030.46 36916.84 2.79

2016/17 1279.61 41382.76 3.09
2017/18 1391.57 46236.21 3.01
2018/19 1761.13 55813.13 3.16
2019/20 1921.24 65741.15 2.92
Mean (X) 7.12
S.D. (σ ) 0.2

31
 C.V. 6.68
There is moderately fluctuating trend in respect to the total assets and total capital that of
NIC. NIC has the highest capital ratio of 3.16 percent in the year 2017/18 and lowest of 2.79
percent in the year 2015/16. Standard deviation shows that the less fluctuating in the capital
to total assets ratio.

The above ratio is presented in following figures below;

Figure - 11
Total Capital to Total Assets Ratio
3.2
3.16

3.1 3.09

3.01
3

2.92
2.9
Ratio

2.8 2.79

2.7

2.6
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 11, it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17. It is decreased in year 2017/18. But, in year 2018/19 it has been increase
i.e. 3.16 percent.and in year 2019/20 it is decreased by 2.92 percent

32
2.2.4 Profitability Ratio
Profitability ratio is related into profit. It measures the overall banking operations of the
company in regards to the profit. Profitability ratio is determined by the financial institution
to find out their profit earning capacity on various kinds of deposits. Profit indicates the
efficiency of the bank. A bank can make the profit through sound lending policy and the
quality of services it provides. If the profit ratio is high, the efficiency of bank will be high.
Following profitability ratios are calculated:

2.2.4.1 Return on Total Working Fund

Hence, Return on working fund measures the relationship between working fund and net
profit. Hence, working fund includes those entire funds which are used for mobilizing to earn
profit.
Net profit
Net profit to total working fund ratio =
Total working fund
Total working fund = Total deposit + borrowings.

Table- 12
Return on Total Working Fund
(Rs. in Millions)
Years (n) Net profit Total working fund ratio (x)
2015/16 451.22 23596.78 1.92
2016/17 638.73 27891.52 2.29
2017/18 831.76 28402.36 2.93
2018/19 931.30 41909.91 2.22
2019/20 1091.56 50006.10 2.18

Mean ¿ anX) 2.30

S.D. (σ ) 0.37
33
 C.V. 16.02
Source: - Annual Report of NIC 2015/16 – 2019/20
The table 12 shows the calculation of Net profit to working fund ratio of NIC. The average
ratio of return of working fund ratio of NIC is 2.30. The maximum return of NIC is 2.18
percent in the year 2019/20 and the lowest is 1.92 percent in the year 2015/16. The CV of the
NIC is 16.02 percent which shows that the earning net profit levels of NIC is less consistent.

The above ratio presented in a graph below:

Figure – 12
Return on total working fund
3.5

3 2.93

2.5 2.29 2.22 2.18

2 1.92

Ratio
1.5

0.5

0
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 12 , it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17 . But , in year 2017/18 to 2018/19 it has been decreased.
The highest ratio is 2.93 percent in 2017/18 and lowest ratio is i.e.1.92 percent in 2015/16.

34
2.2.4.2 Return on loan and advance
Hence , Loan and advance is a financial facility provided by the banks to help their customers
in financial need . It is calculated by :
Net profit
Return on loan and advances ratio =
Loan∧advances

Table - 13
Return on loan and advances
(Rs. in Millions)
Year(n) Net Profit Loan & advances Ratio(x) in (%)
2015/16 638.73 23884.67 2.67
2016/17 831.76 27556.36 3.02
2017/18 931.30 31057.69 3.00
2018/19 1090.56 35910.97 3.04
2019/20 1471.12 43393.19 3.39
Mean ¿ anX) 3.02
S.D. (σ ) 0.25
C.V. 8.44

The table 13 shows the ratios of return on loan and advances ratio of NIC. The average ratio
of return of working fund ratio of NIC is 3.02 percent . The maximum return of NIC is 3.39
percent in the year 2019/20 and the lowest is 2.67 percent in the year 2015/16. The CV of
the NIC is 8.44 percent which shows that the earning net profit levels of NIC is less
consistent.

The above return on loan and advances ratio is presented in following figures:

Figure : 13
35
 Return on loan and advance
4

3.5 3.39
3.02 3 3.04
3
2.67
2.5

2
Ratio

1.5

0.5

0
2015/16 2016/17 2017/18 2018/19 2019/20

In the above figure 13 , it can be seen that the ratio has been in increasing trend since year
2015/16 to 2016/17 . It is decreased in year 2017/18. But , in year 2018/19 to 2019/20 it has
been increased.

2.3 Major Findings

From the deposit collecting, loan and advances and investment of the banks, it is clear that
the deposit collection of NIC is not satisfactory even though the deposit is increasing every
year. The bank is more attracted to utilizing its resources on investment and also, it can be
said that NIC is taking more interest towards less risky investment. From the study of NRB
balance with total deposit ratio, it is found that the average ratio (mean ratio) of the bank is
14.31 percent and the ratio was increasing every year over the study period. It indicates the
strong liquidity position of the bank.
Balance with NRB to current and saving deposits of the bank was in increasing trend. The
bank keep higher amount to NRB over the study period and maintained the ratio prescribed
by NRB i.e. 6 percent NRB balance to total fixed deposit of the bank is in fluctuating trend
but the bank able to maintain the liquidity. Even, NRB balance to total fixed deposit of NIC
found that it exceeds the minimum requirement laid down by the NRB rules. This indicates
36
that the bank had tied up their fund in excess deposit of NRB which ultimately affects the
profitability of the bank. In average NIC 6.10 percent of cash and bank balance to total
deposit and commercial banks has 12.22 percent which shows that commercial banks has
just reasonable funds to meet their payment obligation than NIC bank. Lower ratio indicates
that the bank might face liquidity crunch while paying its obligations; whereas a high ratio
points out that the bank has been keeping idle funds and not deploying them properly.
The average ratio of the borrowing to total liabilities of NIC and commercial banks is 2.45
percent and 2.26 percent. Both banks have increasing trend it can be said that Bank has high
ability of the borrowing in the final year to maintain the strong liquidity position.The high
percentage of the ratio indicates the high amount of less costly borrowing among other
borrowings. The borrowing is made to meet the daily liquidity purpose. So, one should
identify the frequency of borrowing rather than amount of borrowing.
The net profits of both the banks have the increasing trend for the forecasted period. If other
things remaining the same, the total net profit of NIC and Com. Bank will be Rs 25339.85
million and Rs 19894.67 million for the F/Y 2015/16. And the total deposit of NIC and Com.
Bank will be Rs 65970.90 million and Rs 904224.35 million for the F/Y 2017/18

37
 CHAPTER III
SUMMARY AND CONCLUSION

This chapter summarizes the whole study, draws the major conclusions and forwards the
recommendations on the basis of major findings.

3.1 Summary
As deposits are the major organ of commercial bank to sustain in the industry, CBs should
have optimum policy to collect the deposit in various accounts. Higher the deposit higher will
be chance of the mobilization of working fund and profit. Banks should not invest their fund
haphazardly. It should be careful while advancing loan because loan is the blood of the CBs
for survival. If commercial bank doesn’t apply sound investment policy it will be in great
trouble in future to collect it in time. Hence the possibility of bankruptcy may arise there.
Banks should invest their fund in various portfolios after the deep study of the project to be
safe from being bankruptcy. If banks concentrate the investment in few organizations there is
a high chance of default risk.

Banks are important for economic development of the country. Diversification is indeed need
to all the business houses but it has seen immense important to commercial banks than other
business house because banks use the money of other people for the benefit of its own. It
helps in the capital formation to the country which is the most important element for the
economic growth of the country. In overall, it can be concluded that CBs life is totally
dependent upon the deposit collection policy and the optimum deposit mobilization
procedure.

38
3.2 Conclusion

Deposit collection of NIC is increasing every year. However, increment of the deposit may
not mean that the increment of the profit and shareholders wealth. In the recent market
interest rate of the bank is drastically decreasing in both of the loan and deposit. The bank is
recommended to collect the low cost fund from the market and renew the prior fixed deposit
at the low interest rate as offered by the market.

NIC is increasing loan and advance in every successive year but it is suggested that it should
increase the percentage of investment on loan and advance which helps to earn more profit.

NIC has invested a lot of money in Government enterprises. Bank cannot earn profit by
mobilizing its maximum funds to Government enterprises as prescribed by statutory
Liquidity Ratio (SLR). So, it will be beneficial for NIC to mobilize the fund in high profitable
projects rather than giving importance to the government sector.

To be a successful banker a bank must utilize depositor’s money as loan and advance. Loan
and advances is the largest item of the bank in the assets side. NIC is recommended to utilize
its depositor’s money as loan and advances.

Present banking market is highly competitive so the bank should focus for developing
different strategy to lead in the market.

Due to the advancement of technology banking fraud is increasing day by day. The bank
should adopt anti-fraud mechanism and internal control to maintain the trust among its
intermediaries.

Commercial banks must be providing their services in the remote area and deprived people. It
should not only concentrate its activities in urban areas.

39
 Bibliography

Bajracharya, R.R. (1990). Rastriya Banijya Bank: A Comparative Performance

Study. Rajat Jayanti Smarika, RBB.
Bays, B. (1996). Money, Banking Market: an Economic Approach. New York: World
Bank.
Demirguc, K. & Huizinga, H. (1999) Determinants of Commercial Bank Interest Margins
and Profitability: Some International Evidence, New York: World Bank Policy
Research Working Paper No. 1900.
Dhungana, B.R. (2005). Financial Sector Reform Program (FSPR) in Nepal. RBB Newsletter,
Vol 6.
Narayan, L. (1980). Principal and Practice of Public Enterprises Management. New
Delhi: S. Chand & Company.
Robinson, R.I. (1951). The Management of Bank Fund. New York: McGraw Hill.

Websites

www.nrb.gov.np

www.google.com

www.wikipedia.com

www.NIC.com.np

40