1

CHAPTER-I
INTRODUCTION
1.1 Meaning of banking
The word “Bank” is derived from Italian word “Banco” which means a bench. In
the past, the ancestor of modern banking system that was merchants, goldsmith and
money lenders used to perform the monetary task sitting on the bench not in the
market. So, “Banco” was used to denote monetary transactions.
A bank is an institution established by law which deals with money and credit. In
other word, bank is a monitory institute, which accepts deposits and provides loan
facilities. Bank is organization where primary functions are concentrated with
accumulation of ideal money from general public and advancing loan to individual,
trades, industries, business sectors etc. Bank is necessary for various purposes that are
economic development, capital formation, price stability, control an interest trade etc.
Generally the bank refers to those institutions which are established under law for
dealing with monetary transactions. It means those institutions are treated as banks
which accept the deposit of public and grant loan to the needy person or businessmen
or industrialists against security deposits. A bank can generate revenue in a variety of
different ways including interest, transaction fees and financial advice. The main
method is via charging interest on capital it lends out to customers. The bank profits
from the difference between level of interest it pays for deposits and other sources of
fund and level of interest it charges in its lending activities. Besides this, bank is
engaged in different types of activities such as exchange currency, joint venture,
underwriting, bank guarantee, discounting bills etc.
According to Nepal Commercial Co. Act 2031 B.S., “A commercial bank refers to
such type of bank which deals in money exchange, accepting deposits, advancing
loans and commercial transaction except specific banking related to co-operative
agriculture and industry and other objective.”

According of Kent, “A bank is an organization whose principal operations are

concerned with the accumulation of the temporarily idle money of the general public
for the purpose of advancing to other for expenditure.”
Therefore, bank can be defined as an institution which deals with monetary
transactions for the mobilization of idle money or deposits in productive sector which
is essential for development of whole nation.
 2

The World Bank is a component of the World Bank Group. The World Bank's most
recent stated goal is the poverty. The development of banking spread from northern
Italy throughout the Holy Roman Empire, and in the 15th and 16th century to northern
Europe. The World Bank is an international financial institution that provides loans
to countries of the world for capital projects. It comprises two institutions:
the International Bank for Reconstruction and Development by a number of important
innovations that took place in Amsterdam during the Dutch Republic in the 17th
century and in London since the 18th century. During the 20th century, developments
in telecommunications and computing caused major changes to banks’ operations and
let banks dramatically increase in size and geographic spread. The financial crisis of
2007-2008 caused many bank failures, including some of the world’s largest banks,
and provoked much debate about bank regulation.
The idea of banks began as long ago as 1800 BC in Babylon. In those days
moneylenders made loans to people. In Greece and Rome banks made loans and
accepted deposits. They also changed money. (In the Bible Jesus famously drove the
money changers out of the temple in Jerusalem). However with the collapse of the
Roman Empire trade slumped and banks temporarily vanished. Sometimes people
deposited their money with goldsmiths for safety. The goldsmiths issued a note
promising to pay the bearer a certain sum demand. In time people began to exchange
these notes instead of coins because it was easier and safer. Goldsmiths began to lend
the money deposited with them in return for a high rate of interest. They also paid
interest to people who deposited money in order to attract their savings.

1.2 History of banking:

In the banking history of Nepal, Nepal Bank Ltd. is the first bank of Nepal
which was established in 1994 B.S where only metallic coins were used as medium of
exchange. After that, Nepal Rastra Bank was established in 2012 B.S with the
objective of issuing paper currency, maintaining stability in exchange rate, mobilizing
capital and developing banking sector in country. Accordingly, Rastriya Banijya
Bank, Agriculture Development Bank and Nepal Industrial Development Bank were
established. After the restoration of multiparty democracy in Nepal, government took
liberal policy in the banking sector. As a result, a large number of commercial banks
established in Nepal with the joint venture with foreign commercial banks. Nepal
Arab Bank Ltd, Himalayan Bank, Bank of Kathmandu, etc. are some examples of
 3

such banks. As per the provision of liberal policy adopted in Nepal, bank can be
established easily. On the permission of central bank, such bank can established at
any time anywhere. At present there are 32 commercial banks in Nepal.
Basically basic functions of commercial banks are collecting various types of deposit
facility, exchange of money, lending of money, remittance of money, letter of credit,
guarantee, loans, foreign exchange etc. Commercial banks are profit oriented financial
institution having certain rate of interest given to the depositors and also charged
certain interest rate to the loan borrowers.

1.3 Background of EBL

Everest Bank Limited (EBL), one of the leading banks of Nepal commenced
its operation in 1994.Its head office is situated in Lazimpat, Kathmandu Nepal which
regulates all its branches. Everest Bank Limited (EBL) was established in 1994 and
started its operations with a view and objectives of extending professional ideas and
efficient banking services to various segments of the society. EBL joined hands with
Punjab National Bank (PNB), India as its joint venture partner in 1997. EBL has been
established with the objectives of extending professionalizing banking service and to
contribute in the economic development of the country. The bank is providing
customer friendly services through its branch network. All the branches of the bank
are connected through Anywhere Branch Banking System (ABBS), which enables
customers for operational transactions from any branches. The bank has been
providing diversified services to its clients by offering its products in the form of loan,
guarantees, and venture capital etc. The bank has 86 Branches, 115 ATM Counters, 3
extension counter & 28 Revenue Collection Counters across the country making it a
very efficient and accessible bank for its customers, anytime, anywhere.
This bank has been steadily growing in its size and operations. For its
excellence in banking service, the bank has been confirmed with “Bank of the year
2006, Nepal” by the banker, a publication of financial times, London. Similarly, the
bank bestowed with the “NICCI Excellence award” by Nepal India chamber of
commerce for its spectacular performance under finance sector.
EBL has been expanding range of services to the customers .It has pioneered
in extending various customer friendly products such as Home loan, Education Loan,
equity loan, Vehicle loan, Loan Against Share, Loan Against Life Insurance Policy
and Loan for professional. EBL was one of the first bank to introduce ABBS in
 4

Nepal.EBL is also providing Remittance facility through which EBL customer can
remit fund from Nepal to CBS branches of PNB India.
Drawing its strength from its joint venture partner, EBL has been steadily
growing its size and operations. The bank is providing customer friendly services
through a network of 27 branches across the nation. The main branch of EBL is
situated in Baneshwor, Kathmandu. Furthermore, the bank has branches in Teku,
pulchowk, Balaju, Lazimpat, Pokhara, Janakpur, Biratnagar amongst several other
places/cities.
1.3.1. Vision
To be a Leading Commercial Bank with Pan Nepal presence and become a household
name, providing wide range of financial products and services under one roof.
1.3.2. Mission
Growth through Banking for All

1.3.3 Objectives of EBL

EBL has the following objectives:
 To evolve and position the bank as a progressive, cost effective & customer friendly
bank providing comprehensive financial and other related services.
 To be committed to excellence in servicing the public and also excelling in corporate
values.
 To provide excellent professional services & improve its position as a leader in the
field of financial related services.
 To build & maintain a team of motivated and committed workforce with high work
ethics.
 To use the latest technology aimed at customer satisfaction & act as an effective
catalyst for socio-economic developments in the country.

1.4 Problem statement

This part deals with the areas of the topic that should be studied rather than the
problems that the problems facing by the selected banks for the research study.
Banking sector in the present context of Nepal which are badly affected form political
conflicts and declined the entire economy of the country. Another problem faced by
the banking industry is the lack of optimal capital fund in the commercial banks. This
study specially deals with the following problems:
 5

 What is the profit analysis of last five years?

 How does the company function for profit making?
 How to find out the company’s strength?

1.5 Objectives of the study

The basic objective of this report is confined to the profitability analysis
adopted by EBL. Other specific objectives are as follows:
 To analyze the situation of profitability of last five years.
 To know the major component for profit making.
 To find out the company’s strength.

1.6 Significance of the study

The significances of the study are as follows:
 The study will be useful to provide guidelines for other researchers in similar area.
 The study helps to show the profitability analysis of EBL.
 It is also useful for policy makers and government.

1.7 Research Methodology

The study is based on secondary data. The basic aim of the present study is to
know the profitability analysis of EBL. To achieve the objectives of the study,
quantitative, analytical as well as descriptive research design has been used. The
results are presented using table and line graph.

1.7.1 Research Design

Research design is a master plan specifying the methods and procedures for
collecting and analyzing the needed information. This serves as a framework for the
study, guiding the collection and analysis of data, the research instruments to be
utilized, and the sampling plan to be followed.
Here, this study is concerned on profitability of Everest Bank Limited. For the
study, descriptive and analytical research methodology is used. Those methodologies
involve gathering data that describes events and then organizes, tabulates, depicts and
describes the data collection that reduce the data to manageable form.
 6

1.8 Literature review

Profitability is the ability of a business to earn a profit. A profit is what is left
of the revenue a business generates after it pays all expenses directly related to the
generation of the revenue, such as producing a product, and other expenses related to
the conduct of the business activities.
There are many different ways for you to analyze profitability. This lesson will focus
on profitability ratios, which are a measure of the business's ability to generate
revenue compared to the amount of expenses it incurs.

1.9 Limitation of the study

 This study has covered only 5 financial years from FY 2013/14 to FY 2017/18.
 Validity of report fully depends on the information provided by concerned authorities.
 It is based on secondary data.
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CHAPTER II
RESULT AND ANALYSIS

Presentation of Data and their Analysis

The data so collected must be presented properly and systematically so that
they can be presented in various forms such as tabular form, diagrammatical form,
graphical form, etc. After presentation, the next step is to analyze the data with the
help of financial and statistical tools that is concerned about comparative analysis and
interpretation of available data. The analysis of data consists of organizing, tabulating,
and performing statistical analysis. The main purpose of analysis of the data is to
change it from an unprocessed form to an understandable presentation.

2.1 Profitability ratios

Profitability ratios indicate a relative measure. It shows the combined effect of
liquidity, asset management and debt management on operational results. A
profitability ratio measures the efficiency of a bank. On the other hand, the owners
want to acquire adequate rate on their investments, creditors want to get interest and
principal on time, profitability ratios also indicate the goodwill of the bank.
Computation of profitability ratios is done by relating the profits of the bank to its
investment. These ratios are also known as return on investments. If the bank is not
able to earn required profit in investment, it would face problems availing of return to
owners, meetings of expenses, etc. Generally, higher value of profitability ratios
shows better performance of the company and vice versa. There are different methods
to measures of profitability. Some of them are discussed below:
2.1.1 Net Profit Margin
This ratio provides the considerable insight into overall efficiency of the business.
The measurement reveals the amount of profit that a business can extract from its total
sales. It is the performance evaluation of the organization. Higher the net profit
margin shows efficiency and effectiveness of bank’s performance.
This ratio is calculated by diving net profit after taxes and interest by sales and
expressed as percentage of net sales. Here, in this study we take total operating
income and net interest income instead of sales.
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Table 2.1.1
Net Profit Margin of EBL.

Year NPAT Revenue Net Profit Margin

2013/14 1549.69 6469 23.95563

2014/15 1574.35 6535.76 24.08825

2015/16 1730.2 7365.87 23.48942

2016/17 2006.24 8480.35 23.65751

2017/18 2581.68 10850.15 23.79396

Average 1888.432 7940.226 23.79695

Median 1730.2 7365.87 23.79396

S.D 382.85 1626.42 0.2116

C.V 0.2027 0.2048 0.0088

Note: Annual Report of EBL. (2013 to 2018)

Table 2.1.1 shows the Net Profit Margin of EBL from FY 2013/14 to 2017/18. As per
the table the net profit margin in FY 2013/14 was 23.95% which is increased to
24.08% in FY 2014/15. Similarly net profit margin has decreased to 23.48% in FY
2015/16. In FY 2016/17 the net profit margin has increased to 23.65%. In FY 2017/18
the net profit margin is increased to 23.79%. The highest net profit margin is in FY
2014/15 i.e. 24.08% and the lowest net profit margin is in FY 2015/16 i.e. 23.48%.
In table 2.1.1 Mean, median, S.D and C.V are also calculated. S.D and C.V calculated
in the above table shows the riskiness of the bank. Higher the S.D and C.V higher is
the risk.
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Net profit margin

24.2

24.1

24

23.9

23.8

23.7

23.6 Net profit margin

23.5

23.4

23.3

23.2

23.1
2013/14 2014/15 2015/16 2016/17 2017/18

Figure 2.1.1: Net profit Margin Ratio

In the given figure, ‘X’ axis denotes fiscal year and ‘Y’ axis shows the net profit
margin. The net profit margin curve shows that net profit margin in increasing trend
from FY 2013/14 to 2014/15, Net profit margin decreased in FY 2015/16. In the
following year, net profit margin has increased. Higher the net profit margin indicates
how efficient a bank is and how well it controls its costs. The higher the margin is, the
more effective the company is in converting revenue into actual profit.
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2.1.2 Return on Asset

The return on assets percentage shows how profitable a company‘s assets are in
generating revenue. Return on assets gives an indication of the capital intensity of the
company, which will depend on the industry; companies that require large initial
investments will generally have lower return on assets.

Table 2.1.2
Return on Asset of EBL

Year NPAT Total asset ROA(%)

2013/14 1549.69 70445 2.199858

2014/15 1574.35 99167.2 1.587571

2015/16 1730.2 113885 1.519252

2016/17 2006.24 116510.4 1.721941

2017/18 2581.68 144811.1 1.782792

Average 1888.432 108963.7 1.762283

Median 1730.2 113885 1.742112

S.D 382.85 24272.9 0.2379

C.V 0.202734 0.222761 0.134995

Note: Annual report of EBL(2013 to 2018)

Table 2.1.2 shows the Return on Asset (ROA) of five different FY i.e. from 2013/14
to 2017/18. ROA of EBL has decreased from FY 2013/14 to 2015/16.i.e. 2.199% to
1.519%. From FY 2015/16 ROA has increased from 1.5192% to 1.7219%. Similarly,
ROA has increased to 1.7827% in FY 2017/18. The increasing ROA shows that the
bank has utilized its available assets effectively whereas the lower CV of the bank
shows that the asset of the bank is at lower risk.
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ROA(%)
2.5

1.5

ROA(%)

0.5

0
2013/14 2014/15 2015/16 2016/17 2017/18

Figure 2.1.2: ROA of EBL

In the figure we can see that ROA of bank has decreased from FY 2013/14 to
2015/16. ROA in FY 2013/14, 2014/15, 2015/16, 16/17 were 2.1998%, 1.5875%,
1.5192%, 1.7219% respectively. ROA has increased from FY 2015/2016 which goes
on increasing to 1.7827% in FY 2017/18.
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2.1.3 Return on Equity

Return on Equity is one of the profitability ratios. Return on equity (ROE) measures
the rate of return on the ownership interest (shareholders' equity) of the common stock
owners while net profit is focused on the profit earned by commercial banks. It is
return on owner’s investment. Higher the return on equity, the better it is. It indicates
how well the firm has utilized the resources of the owners. Increasing ratios are
favorable since they reveal the efficient use of owner’s investment and vice versa.

Table: 2.1.3
ROE of EBL

Year NPAT Total equity ROE

2013/14 1549.69 5856 26.46329

2014/15 1574.35 6981 22.55193

2015/16 1730.2 9845 17.5744

2016/17 2006.24 13207 15.19073

2017/18 2581.68 16134 16.00149

Average 1888.432 10404.6 19.55637

S.D 382.85 3831.5 4.296

C.V 0.202734 0.222761 0.219673

Note: Annual report of EBL ( 2013 to 2018)

In the above table, ROE of EBL during FY 2013/14 was 26.46% which has decreased
to 22.55% in FY 2014/15. ROE of EBL in FY 2015/16, FY 2016/17, and FY 2017/18
were 17.57%, 15.19% and 16.001% respectively. It shows that ROE of EBL is in
decreasing trend.
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ROE
30

25

20

15
ROE

10

0
2013/14 2014/15 2015/16 2016/17 2017/18

Figure: 2.1.3: ROE of EBL

Figure 2.1.3 represents ROE of EBL. ROE of EBL bank is in decreasing trend from
FY 2013/14 to FY 2016/17. ROE of EBL in FY 2013/14, FY 2014/15, FY 2015/16
and FY 2016/17 were26.46%, 22.55%, 17.57% and 15.19% respectively. But in FY
2017/18 ROE was increased to 16.001%.
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2.1.4 Earning per share

Earning per share serves as an indicator of a company's profitability. Earning per
share measures the profit available to the shareholders on per share basis. It is the
ratio of net profit of the bank and total number of share outstanding. Higher earnings
per share are always better than a lower ratio because this means the company is more
profitable and the company has more profits to distribute to its shareholders

Table 2.1.4
EPS of EBL

Year NPAT Total share EPS

2013/14 1549.69 54572 0.028397

2014/15 1574.35 68903 0.022849

2015/16 1730.2 85141 0.020322

2016/17 2006.24 115446 0.017378

2017/18 2581.68 161345 0.016001

Average 1888.432 97081.4 0.020989

S.D 382.85 37975.55 0.00439

C.V 0.202734 0.391172 0.209154

Note: Annual report of EBL (2013 to 2018)

The table 2.1.4 shows the earning per share of the shareholders. Earning per share in
FY 2013/14 is highest i.e. Rs.0.0283 and in FY 2017/18 is lowest i.e. 0.0160. EPS has
increased from FY 2013/14 to 2017/18. This shows that banks profit is decreasing.
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EPS

0.03

0.025

0.02

0.015 EPS

0.01

0.005

0
2013/14 2014/15 2015/16 2016/17 2017/18

Figure: 2.1.4: EPS of EBL

In the figure 2.1.4 trend line is drawn to show the EPS of EBL. The EPS was in
decreasing trend. So the EPS of EBL were Rs. 0.028397, Rs. 0.022849, Rs. 0.020322,
Rs. 0.017378, Rs. 0.016001 in FY 2013/14 to FY 2017/18.
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2.1.5 Net Interest Margin

Net interest margin is calculated as a percentage of interest bearing assets. It helps to
know total interest income in relation with earning assets. It is usually expressed in
percentage.

Table 2.1.5
Net Interest Margin of EBL
Net Interest
Year Income Total assets NIM(%)

2013/14 2918.8 70445 4.143374

2014/15 2879.4 99167.2 2.903581

2015/16 3275 113885 2.875708

2016/17 3806.2 116510.4 3.266833

2017/18 4869.76 144811.1 3.362836

Average 3549.832 108963.7 3.310466

S.D 739.07 24272.9 0.4589

C.V 0.208199 0.222761 0.138621

The table 2.1.5 shows the net interest margin of EBL. The table shows that the net
interest margin of EBL is in decreasing trend from FY 2013/14 to FY 2015/16. But in
FY 2016/17 and 2017/18 the net interest margin has slightly increased. In FY 2013/14
NIM was 4.14%, in FY 2014/15 NIM was 2.90%, in FY 2015/16 NIM was 2.87%.
Similarly, in FY 2016/17 NIM was 3.26% and in FY 2017/18 NIM of EBL was
3.36%.
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NIM
4.5

3.5

2.5

NIM
2

1.5

0.5

0
2013/14 2014/15 2015/16 2016/17 2017/18

Figure 2.1.5 : NIM of EBL

The above figure shows the NIM of EBL from FY 2013/14 to FY 2017/18. The trend
line shows the decreasing trend of EBL from FY 2013/14 to FY 2015/16. The NIM of
EBL in FY 2013/14, 2014/15, and 2015/16 were 4.14%, 2.90%, 2.87%. But in FY
2016/17and 2017/18, the NIM of bank has slightly increased to 3.36%.
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Findings
 The study shows that the net profit margin of EBL has increased from FY 2013/14 to
FY 2014/15. From FY 2014/15 to FY 2015/16 the net profit margin of the bank has
decreased. And from FY 2015/16 net profit margin of the bank has increased. The net
profit margin of the bank in recent year has been increased which is good for the
bank.
 The study shows the ROA of EBL from FY 2013/14 to FY 2017/18. ROA of EBL
from FY 2013/14 to FY 2015/16 is in decreasing trend. After that ROA of the bank
has increased.
 In the study we can see that ROE of EBL is in decreasing trend from the FY 2013/14
to FY 2016/17. The ROE of the bank has increased thereafter from FY 2016/17.
 The study also shows the EPS of EBL. EPS of EBL from FY 2013/14 to FY 2017/18
is in decreasing trend.
 The study shows NIM of EBL from FY 2013/14 to FY 2017/18. From the study it is
found out that NIM of EBL has decreased gradually from FY 2013/14 to FY 2015/16.
The NIM of EBL has increased from FY 2015/16.
 The study also shows the mean, standard deviation and coefficient of variation of net
profit margin of the bank i.e. 23.79%, 0.21%, 0.0088 respectively.
 This study shows the mean, standard deviation and coefficient of variation of ROA of
EBL. Mean, standard deviation and coefficient of variation of ROA of the bank are
1.76%, 0.23% and 0.13499 respectively.
 The study has also calculated the mean, standard deviation and coefficient of variation
of ROE of EBL which are 19.55%, 4.29% and 0.21 respectively.
 As per the study mean, standard deviation and coefficient of variation of EPS of EBL
are Rs.0.02, Rs.0.004 and 0.029 respectively.
 This study has also shown mean, standard deviation and coefficient of variation of
NIM of EBL which are 3.31%, 0.45% and 0.13 respectively.
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CHAPTER-III
SUMMARY AND CONCLUSION

3.1 Summary
Financial sector in Nepal comprises of commercial banks and other financial
institutions like development banks, finance companies, cooperatives etc. Everest
Bank LTD (EBL) established in 1994 is one of the commercial bank which started its
operation with an objective of providing excellent professional services and improves
its position as a leader in the field of financial related services. This bank is a joint
venture partner with Punjab National Bank (PNB) of India. As the bank has just
completed twenty fourth years of operation, it has achieved so many successes in the
way of its operation.
Everest Bank mainly focuses on the profitability which includes net profit
margin, ROA, ROE, EPS and NIM of 5 different years. The net profit margin of EBL
of last 5 years are 23.95%, 24.08%, 23.48%, 23.65% and 23.79%. The ROA of EBL
are 2.19%, 1.58%, 1.51%, 1.72% and 1.78%. The ROE of EBL are 26.46%, 22.55%,
17.57%, 15.19% and 16.001%. Similarly, the EPS of the bank are Rs 0.028, 0.022,
0.020, 0.017 and 0.016 and NIM are 4.14%, 2.90%, 2.87%, 3.26% and 3.36%.
EBL is at consistent progress over the three years which can be known by the
increase in profit every year. Due to its improvement, it is gradually expanding its
branches. In the same way, the bank has been facing various challenges that has arise
in the market and has been able to give best performance in the market.
 20

3.2 Conclusion
 Net profit margin of the bank is in increasing trend which is good for the bank.
 The study shows the ROA of EBL from FY 2013/14 to FY 2017/18 is in decreasing
trend then it increased thereafter.
 ROE of the bank is in decreasing trend from FY 2013/14 to FY 2016/17 thereafter it
has increased from FY 2016/17.
 The study also shows the EPS of EBL. EPS of EBL from FY 2013/14 to FY 2017/18
is in decreasing trend.
 From the study it is found out that NIM of EBL has decreased gradually from FY
2013/14 to FY 2015/16. The NIM of EBL has increased from FY 2015/16.
 The study also shows the mean, standard deviation and coefficient of variation of net
profit margin of the bank i.e. 23.79%, 0.21%, 0.0088 respectively.
 This study shows the mean, standard deviation and coefficient of variation of ROA of
EBL. Mean, standard deviation and coefficient of variation of ROA of the bank are
1.76%, 0.23% and 0.13499 respectively.
 The study has also calculated the mean, standard deviation and coefficient of variation
of ROE of EBL which are 19.55%, 4.29% and 0.21 respectively.
 As per the study mean, standard deviation and coefficient of variation of EPS of EBL
are Rs.0.02, Rs.0.004 and 0.029 respectively.
 This study has also shown mean, standard deviation and coefficient of variation of
NIM of EBL which are 3.31%, 0.45% and 0.13 respectively.