CHAPTER-I

INTRODUCTION

1.1 Background of the Study

Mergers and Acquisition (M&A) has been predominately been in the limelight in the
current banking scenario along with some issues like bonus shares and right shares. It
is considered as strategy for firms to strengthen and maintain their position in the
market place. Many of the firms gone through merger have been successful to
strengthen themselves and gain synergy from the merger and acquisition.
Merger is the combination of two or more firms of same product line or different line
when they decide to be one strong and big firm and carry their work simultaneously in
future. Researcher Ganghan (2002) defines “merger as the comparison of two or more
companies in creation of a new entity or formation of a holding company.”
“Acquisition is the purchase of shares or assets of another company to achieve
managerial influence not necessary by mutual agreement.” Another researcher
Ramaiya (1977) defines “A merger or amalgamation results in the combination of two
or more companies in to one, where in the merging entities lose their identities by
being absorbed into the merger entity.” Merger has been perceived as strategy which
could be best described as M=Mixing, E=Entities, R=Recourses for G=Growth,
E=Enrichment, R=Renovation. The history of merger and acquisition in Nepal dates
back to 2004 when the Laxmi Bank Limited and HISEF Finance Limited merged into
one to perform the operations together as one entity. The modern trend of merger and
acquisition started with increase in paid up capital by NRB. The reasons and motive
for the merger and acquisition in Nepalese banking industry could be dominated by
the rise in the paid up 2 capital by NRB but there may be other factors which could be
influencing the merger and acquisitions. The M&A of NIBL and Ace Development
Bank could be different from the present common reason but the advantages of M&A
have definitely attracted the stakeholders to opt for the M&A. Nepal Rastra Bank
directed all the BFIs to increase the paid up capital. The commercial banks were given
target of Rs. 8000 million to be increased from Rs. 2000 million with change around
300% while national level development banks were given target of Rs. 2500 million
which is 290% more than the present paid up capital. Similarly, other BFIs were also
directed to increase paid up capital with change being around 33.33% to 500%. These
circumstances have changed the status quo of the BFIs in the banking industry and as
a result BFIs had to go for the merger as best alternative to reach the targeted paid up
capital and have sustainability in the industry. The effect of rise in paid up capital has
given the BFIs merger and acquisition as the suitable option due to which the industry
saw a trend in the M&A. This has created a huge decrease in the numbers of BFIs in
the Nepalese banking industry. The banking sector had around 32 commercial banks,
88 development banks and around 80 finance companies around 2012-2013 which
have been reduced to 28 commercial banks, 36 development banks and 26 finance
companies as of 2017. The change in the number of BFIs shows that many of the
BFIs have been forced to go for the M&A to be able to raise the capital as set by
NRB. The current scenario is dominating the issue of increase in paid up capital
through bonus, right shares as well as M&A. The stakeholders are in the mind of state
to achieve some value of their shares of BFIs. The success and failure of M&A have
been sometimes decided by the value shareholders get to their shares in the form of
swap ratio. The successful merger of NIC Asia, NCC bank, Kumari Bank, Global
IME Bank, Prabhu Bank, NMB Bank, etc. have shown the stories of successful
merger but the performance after M&A has been considered positive by the
stakeholders leading to the path of many merger process in the future. The aggressive
marketing of the banks and increasing competition has also challenged the BFIs to
become more aggressive as well as stronger in terms of size, branches, products, etc.
This can be seen possible when the banks are able to achieve required paid up capital
and become strong with its size and branches.

NIC ASIA Bank was founded as Nepal Industrial and Commercial Bank on 21 July
1998. It was renamed NIC ASIA Bank on 30 June 2013 after it merged with Bank of
Asia. Nepal witnessed the first merger of two commercial bank in its history. The
bank operates with the vision ' To ensure creation of optimum values for all the
stakeholders' while its mission is ' To be a Bank of 1st Choice for all the stakeholders.'
It is one of the largest private commercial banks in terms of balance sheet size,
number of branches, ATM network and customer base. The Bank has successfully
completed its 21 years of operation. The company has currently the following wholly
owned subsidiaries: 1. NIC Asia Capital Limited 2. NIC Asia Laghubittiya Sanstha
limited
The Bank with its 317 branches, 405 ATMs, 95 Extension counters and 44 branchless
banking services is the largest bank in terms of footprint expansion, customer base
including balance sheet size. It has around 2500 plus dedicated staffs. The bank has
received prestigious "Bank of the Year" by The Banker, Financial Times twice, one
before merger on 2007 and other on 2013.

1.2 Statement of the Problem

Merger of two renowned BFI’s named NIC Bank and Bank of Asia was completed on
30 June 2013. Nepal witnessed the first merger of two commercial bank in its history.
With the successful merger, in FY 2069/70 NIC Asia Bank recorded the figure of
40,113 million in deposit and 31,416 million as total loans compared to its figure of
22,244 million in deposit and 17,523 million in loan before merger respectively. With
the successful merger, bank was also able to expand its footprint by increasing its
branches to 58 branches post merger as compared to its 36 branches countrywide
before merger. Bank increased its area for serving its humble customers and also
allowing creating new customer base by on boarding new customers. With increment
in its portfolio of deposit and loans, bank was able to increase its profit as well as
financial of the bank post merger shows increase in net profit in FY 2069/70 of 642
million which was 392 million before the merger. The financials also show that the
annualized ROE has slightly gone down to 0.28%
from 0.30% as well as annualized ROA also decreased to 1.38% from 1.53%. With
increase in stakeholders after merger, bank was able to increase its capital to 2,312
million from its previous capital of 1,312 million. Performance of bank in NPA was
good as the bank was able to reduce its NPA to 0.75million after merger, NPA before
merger was 2.32 million.

a) What are the effects of the mergers on bank ROA & ROE?

b) What is the net profit of sample bank after mergers?

c) What is the capital strength before and after merger?

d) What is the position of portfolio after merger?

e) What is the effect of merger in footprint expansion of the bank?

Merger of NIC Asia Bank is regarded as one of the most successful merger in
Nepalese banking industry as the bank at present is one of the most successful banks
of Nepal. NIC Asia Bank has been able to increase its branches to 317 branches, 405
ATMs, 95 Extension counters and 44 branchless banking services is the largest bank
in terms of footprint expansion, customer base including balance sheet size. Bank
present figure stands as 150,100 million as total loan and 180,500 million deposit as
total deposit

1.3 Objectives of the Study

The general objective of this thesis is to find out the need & importance of merger of
banks & FIs in Nepal in the present context and its success. The objectives of the
study can be listed out as below:

a) To compare the effect of merger on bank ROA, ROE.

b) To find out the net profit of sample bank after mergers.

c) To know the capital strength before and after merger.

d) To compare bank loan and deposit portfolio before and after merger.

e) To know about the expansion of branches before and after merger.

1.4 Significance of the Study

Merger and Acquisition has been the hot issue in the Nepalese banking industry
complemented by the rise of paid and capital. Some of the BFIs are using right shares
to increase the paid up capital whereas some are opting for merger and acquisition.
Many BFIs have merged with each other and have done impressive performance in
the market. Global IME Bank and Prabhu Bank have been successful
in the market through merger and acquisition. The bank has gone to the merger with
Bank of Asia for the increase in paid up capital and serve the customers but with
that the bank needs to be financially viable and investments of shareholders need to be
secured. So, this study focuses on the performance of NIC Asia Bank post-merger and
analyze whether the merger and acquisition has been fruitful to the bank and its
investors. Hence, this study would present overview of the impact and performance of
NIC Asia Bank post-merger. For this, the financial performance analysis would
present the overall performance of the bank as well as the impact of merger would
help to identify its prospect of future growth. The analysis would help to know the
current situation of the bank and would help the investors and stakeholders to
compare based on its situation.
1.5 Limitations of the Study
Research is a complex process. From conceptualization of the research area to
research design, collecting data, analyzing the data as well as drawing the
conclusion, all stage have some kinds of limitations. So, this study is also not an
exception.

Though humble attempt is made to analyze the pre and post merger
financial performance of the selected banks it is difficult to narrate all incidents
and change brought up due to merger and acquisitions.

Secondly, the study is based purely on secondary data which are taken from
financial statement and statistical tools of the case through Internet only and
therefore cannot be denied for any ambiguity in the data used for the analysis.

Finally, only the descriptive research design has been used with only one bank
taken as sample for the study. Comparison is done only for five year before and
after the merger.

1.6 Organization of the Study

The present research has been organized into the five Chapters. First is the
introduction section that covered the background of the study, the introduction to
sample institutions selected for study, objectives & limitations as well as statement of
problem and significance of the study. Second chapter included the conceptual
framework of relevant terminologies, the review of the literature on the merger. Third
chapter included the research design, data collection procedures and the tools and
techniques to be employed for the analysis of the data. Forth chapter includes the
refined data presentation, analysis, interpretation related to the research problem
collected during the research work i.e. primary data and secondary data. Last chapter
Summary of the study was outlined in this chapter. Conclusion from the study also
listed with recommendations as well.
 CHAPTER-II
REVIEW OF LITERATURE

This chapter is to present the overview on the study through the different views and
ideas expressed by the past researches and philosophers on the issue related to the
study. This chapter has presented theoretical literature which explains the theories
related to the merger and the empirical literature which explains the empirical results
conducted by the researchers on the merger and acquisition.
Theoretical Literature Review: Different theories related to merger and acquisitions
have been presented for the justification of its impacts. Theories have been classified
as value increasing and value decreasing. Value increasing theories focuses on the
generation of the synergy from the M&A.

a) Differential Efficiency Theory: This theory explains that the merger and
acquisition increases the value of the firm as the firm’s management is strengthen
from the merger of other firms and as a result increases the efficiency of the
management of the firm. The firm through merger of same industry would be
benefited as it would mean that company which is merging with
the other company can expand without much cost because of the efficient utilization
of all the resources. This theory explains that the company having good potential if
merged could be utilized at optimum level with lower cost and increasing efficiency
of the firm. This theory also explains that the synergy would be gained from transfer
of knowledge, economies of scale and economies of scope.

b) Financial Synergy Theory: This theory explains that the financial synergy could
be gained by the firm through M&A as the firm could use internal financing at lower
costs than external financing. This would increase the diversification opportunities
and lower the cost of capital.

2.1 Conceptual Framework

2.1.1 Concept of Merger

In simple words, merger is complete absorption of one or more companies by a single
existing company. In other words, it is the process of diluting one or more companies
together to form a new company in a strong way making more competitive. Merger is
a technique of business growth. It is not treated as a business combination. Merger is
done on a permanent basis. Generally, it is done between two companies. However, it
can also be done among more than two companies. During merger, acquiring
company and acquired companies come together to decide and execute a merger
agreement between them.

Investopedia an online dictionary defines merger as “The combining of two or more

companies, generally by offering the stockholders of one company securities in the
acquiring company in exchange for the surrender of their stock.”

The conceptual Framework of the research paper shows the relationship the study is
based on. This study is based on the merger and its overall impact post-merger based
on the variables like profitability, Liquidity and Capital markets.

Profitability

Merger Liquidity Impacts

Capital
Markets

Figure 1: Conceptual Framework of the study

The conceptual framework explains the relationship between the merger and its
impact on the performance of the bank with the help of different variables i.e. overall
financial indicators of NIC Asia Bank Ltd. The overall financial indicators will be
explained by the changes in the financial performance of banks pre-merger and post-
merger as well as the impact due to the merger. The overall financial performance of
NIC Asia Bank Ltd will be explained by changes in different Profitability Indicators
(Gross Profit Margin, Net Profit Margin, Return On Assets, Return On Equity,
Average Yield, Non-Performing Assets, Total Loan Loss Provision To Total NPA,),
Liquidity Indicators(Liquidity Ratio, Cash To Deposit Ratio, Credit To Deposit Ratio,
Capital Fund To RWA), Capital Market Indicators(Earnings Per Share, Market Per
Share, Net Worth Per Share, Earning Yield, Price Earnings Ratio, Price To Book
Value Ratio, Market Capitalization) pre-merger and post-merger.

2.2 Review of Related Studies:

A study by Singh (2013) argues that there exist two main streams in the existing post
acquisition literature, being one as stock market approach measuring stock market
valuation to determine performance and another being accounting data approach
focusing on different ratios to measure performance. The researcher focuses on
accounting data approach with considering 3 years before merger and 3 years after
merger of the companies merged during 2005. With objective of analyzing the M&A
as an effective method of corporate restructuring, the researcher used paired t-test
through statistical tool and concluded that M&A should become an integral part of
long term business strategy as it significantly increase the performance of the firm
after the M&A.(Singh, 2013) Researchers Owolabi & Ajayi (2013) in the research
paper explains about the financial performance of the banks pre-merger and post-
merger in the Nigerian banking industry. They performed a comparative analysis on
the financial efficiency of banks in the pre-merger and post-merger and acquisitions
era in Nigeria. The researchers studied with the help of gross earnings, profit after tax
and net assets of the selected banks as representation of financial efficiency showed
that post period of M&A was more financially efficient. The researchers’ argument
that there is no significant difference in terms of profit after tax and net assets but
there is significant difference in terms of gross earnings during pre-merger and post-
merger period. So, they support that the M&A could be beneficial and fruitful but
banks need to be more aggressive in the profit drive for improved financial position to
reap the benefits of post M&A (Owolabi & Ajayi (2013) Another research by Joash &
Njangiru (2015) has studied on the effect of merger and acquisition of commercial
banks of Kenya to analyze whether the merger had any effect on the bank’s
performance. The researchers were focused to determine the effects of merger and
acquisition on the shareholders’ value and examine the implications of M&A on
profitability with the help of the EPS, ROI and ROE. The researchers explained that
the M&A raised the shareholders’ value of the merged/acquiring firms as well as
concluded that the banks merge with others to raise the profitability and most of the
banks were able to do so. They also explained that the M&A had resulted to
significant positive effect as the banks were able to increase market share, gross profit
and net profit significantly. The researchers explain that M&A is able to create
significant positive impact on the performance after the merger (Joash &Njangiru
(2015). Similarly, Mitra (2013) in her research paper explains that merger and
acquisition have become the mostly used business strategy to get bigger market share,
profitability and economies of scale in the present context of competition. The
researcher has compared pre and post-merger financial performance of merged banks
with the help of financial parameters like Gross profit ratio, Net profit ratio, Operating
profit ratio, Return on capital employed, Return on Equity and Debt equity ratio. The
researcher supports her views with the argument that the banks can achieve significant
growth in their operations, minimize expenses and eliminate competition which have
been proved by the analysis of different ratios resulting to the improved financial
performance after merger.(Mitra (2013) Another study by Mondal ,Mihir & Ray
(2016) explain that many of the BFIs are going for M&A to strengthen the
organization as well as achieve economies of scale and scope. The researchers have
tried to ascertain the impact of the M&A on the performance of the bank after merger
between Nedungadi Bank Limited (NBL) and Punjab National Bank (PNB). The
researchers through different statistical analysis concluded that post-merger showed
significant improvement in the financial performance. Different ratios like credit
deposit ratio, interest income to total income, etc. showed significant improvement
and growth post-merger representing the significant improvement in the financial
performance. They support that through M&A, the firms have been able to improve
their performance as represented by the different accounting ratios. (Mondal, Mihir &
Ray, 2016) Another research by Nalwaya & Vyas (2012) studied the financial
performance of the ICICI Bank after the merger with Bank of Rajasthan. The study
focused on the analysis of six different financial ratios Operating profit ratio, Net
profit ratio, Earning per share, Debt equity ratio, ROI and DPR of 2006/07 to 2010/11
for the measurement of financial performance and concluded that the company was
able to attain positive results in the post-merger period and significant improvement
was seen on the financial performance making the merger more fruitful to the
shareholders. (Nalwaya & Vyas, 2012) Another researcher Kemal (2011) through the
study of the financial performance of Royal Bank of Scotland through different 20
ratios of four years (2006-2009) argues that the merger could not improve the
financial performance. The researcher argues that only 30% ratios (1 profitability ratio
and 5 solvency ratios) were better after merger while 70%(14 ratios) were not better
after merger. The researcher claims that the M&A could not improve the performance
of RBS through merger (Kemal, 2011) Researcher Masud (2015) analyzed the
financial performance of the Allied Bank, NIB Bank and Faysal Bank of Pakistan
after M&A with the help of ROA, ROE, and EPS and paired sampled t-test. He
concluded that the performance of the banks showed mixed results as some indicators
were increasing while some where decreasing. But he also explained that in loner run
overall performance of the banks have shown slightly improved performance with the
passage of time even though the performance in the first year was low. (Masud 2015)
Researchers Yanan, Hamza & Basit (2016) studied 100 sample US companies to
identify the effect of M&A on the financial performance of firms. They used
indicators like ROE, EPS, NPM and sales growth and analyzed with the help of paired
t-test. The study concluded that the M&A helps to increase the profitability and
market share of the firm as it improves the value of the stockholders’ through raising
the demand dividends in the market stock. (Yanan, Hamza & Basit, 2016) Another
research by Sethy (2017) on the financial performance of the State Bank Group
attempted to examine the financial performance of State Bank group during the
merger period. The study focused on the technical efficiency of all the banks using
paired t-test with the help of variables like EPS, PE Ratio, P/BV, and Krushkal Wallis
test. He concluded that the financial performance of the bank has improved. (Sethy,
2017) Researchers Abdulazeez, Suleiman & Yahaya (2016) studied the financial
performance of the banks of Kenya to know the impact of M&A using the indicators
like ROA and ROE with the help of t-test. The study concluded that the banks
witnessed improved and robust financial performance post-merger leading to more
financial efficiency. ROA and ROE both seems to have grown post-merger leading to
improved financial performance. They also recommended that the banks should be
more aggressive in financial products marketing to increase financial performance in
order to reap the benefit of post mergers and acquisition bid in the Nigerian banking
sector. (Abdulazeez, Suleiman & Yahaya ,2016).

A study by Mantravadi and Reddy (2007) have aimed at analyzing the post-merger
operating performance for acquiring firms in Indian industry during the post-reform
period, from 1991-2003, which was expected to provide large sample size across
industries. The post-merger operating performance of acquiring firms for different
relative sizes (of acquiring and acquired firms) was analyzed to see if differences in
sizes of acquiring and acquired firms can cause a different impact on the outcome
compared to general results of merger studies. They have evaluated the impact of
merger on the operating performance of acquiring firms in different industries by
using pre and post financial ratios to examine the effect of merger on firms. They
have selected all mergers involved in public limited and traded companies in India
between 1991 and 2003 and the result has suggested that there is little variation in
terms of impact on operating performance after mergers. In different industries in
India particularly banking and finance industry have a slightly positive impact of
profitability. Some of the industries have a significant decline both in terms of
profitability and return on investment and assets after merger.

2.2.1 Research Paper

As observed from the literature review we cannot find much research being done
on Nepalese Banking Industry. A thesis paper researched by Adhikari (2014) on
“Merger and Acquisition as an indispensable tool for strengthening Nepalese
Banking and Financial Institutions” focuses on the impact of merger on the
different stakeholders such as employees, shareholders and customers and uses
earning per share (EPS) and market value per share (MVPS) to evaluate the
financial position of merged entities. It doesn’t provide an in-depth analysis of the
financial situation of the merged banks, both pre and post-merger. Secondary
analysis has not been done much in the past due to unavailability of data. But in
this paper researcher has attempted to analyze the impact (pre and post analysis) of
merger with the help of secondary data. So, the present paper would go to
investigate the details of Mergers with a great focus on Nepalese Banking Industry.
The study discusses the pre and post-merger operating performance of the selected
banks in terms of various ratios such as, operating profit margin, net profit margin,
ROA, ROE etc. In addition to the paper by Adhikari (2014), a research paper
published by NRB (2015), has performed an exploratory research to study the impact
of merger on banks and financial institutions. NRB has used primary data from 550
respondents and secondary data for 3 years of pre- and post-merger period of 25
merged entities. The study concludes that major reason for financial institutions to go
into merger is to increase their paid-up capital, expand the operational area as well as
decrease the competition. Although the merger has positive changes in the
employee satisfaction and work culture, it has created a delay in the process of
decision making. The 6 financial indicators that NRB has used indicate a mixed
result for the first two years i.e. positive changes in some BFIs and negative in
some but when the 3rd year starts after merger the financial indicators show
improvement for all the merged BFIs. Through the current study it is identified that
merger is not always profitable. The resulting profitability or loss varies according to
the financial strength and operations of the merging entities. Although NRB
introduced the merger by laws 2011 to strengthen BFIs, the results show otherwise.
But still the hype to continuously merge for the sake of meeting NRB regulations is
ongoing making BFIs more vulnerable to resulting decline in profitability.

2.3 Research Gap

The history of merger and acquisition in the today’s market is very long which has led
to various studies examining the post merger profitability, transaction cost analysis
in merger and acquisition process and various other topics regarding the cultural
clashes and many other aspects. Focarelli et al. (2002) stated that the financial
industry is being evaluated financially at an increasing pace in the current era. Firms
have responded to the tough competition by reducing the costs and growing in size,
increasing scale of operation, often by merging with opponents or by acquiring them.
Many studies have been taken place for examining the profitability of BFIs after the
merger and acquisition.
Coming into the case of merger and acquisition activities in Nepalese banking sector
the history is not so long or precisely saying it is in the starting phase resulting any
study to assess the effectiveness of merger and acquisition activities in the
performance of Nepalese Banking sector mainly in the areas of profitability, cost
efficiency, liquidity and shareholder’s wealth. Many attempts were made in finding
the past study for reviewing the literature on topics related to the “post merger
profitability of Nepalese BFIs’’, but no any study on such topics in context of Nepal
was found. This piece of work would establish a foundation for further studies in
analyzing the effect of merger and acquisition activities in performance of BFIs in
Nepal. The study will identify the effectiveness of the merger policy introduced by the
NRB with objectives of making Nepalese BFIs more trustworthy, more cost effective
and more competitive in overall.
This study is aimed at finding the effect of merger and acquisition activities in the
performance of Nepalese BFIs basically in the areas of profitability, cost efficiency,
liquidity and shareholder’s wealth. Two years average indicators before mergers are
compared with two years average indicators after mergers to assess the effect of
mergers and acquisition.
 CHAPTER-III

RESEARCH METHODOLOGY

Research is considered as journey from unknown to the known. Methodology is the

way to solve the research problem systematically. The required secondary data
constitutes the main source of information, suitable for the purpose of the present
study. In this study we have selected NIC Asia Bank Ltd for analysis of data. The
sources of secondary data were collected from Annual reports of the bank. The study
covers ten years annual data to compare the pre and post
merger performance of the bank. Thus, pre merger period of five years from 2009-10
to 2013-14 and post merger period of five years from 2014-15 to 2018-19 are taken
into consideration. The year of merger is considered as base year. The information for
this study is gathered for the time of 2009-10 to 2018-19 and also various national
journals, periodic publications, working papers, books, articles, thesis, dissertation
work on pre and post financial performance of Nepalese banking sector. This chapter
presents the design of the study, data collection and method, research variables for
study and the data analysis for the study. It explains the process of the study.

3.1 Research Design

The research used descriptive financial ratio analysis to compare the financial
performance pre-merger and post-merger and know the impact post-merger. The
study follows correlation research design to know the relationship between the
financial performance and merger of the BFIs. The data used is of five years report
before and after the merger. The data used in the study were extracted from the bank’s
website. The ratios presented on the report have been used whereas some of the ratios
have been calculated using simple financial formula. The time period of merger is of
five years report before and after the merger so to make the study relevant the ratios
have been annualized. Similarly, management overview is expressed through the
interview with some personnel of NIC Asia Bank Ltd as well as external experts of
the market to analyze the situation and shade light on the M&A. The extent of
researcher interference is minimal as the study is conducted in a natural work
environment. The research is cross-sectional as it is conducted once to analyze the
situation of the bank after merger as well as shade light on the perspective of merger
from the eyes of management personnel.
The study is mainly based on two types of research designs i.e. descriptive and
analytical. Descriptive research design describes the general procedure of merger and
its impact on Nepalese financial sector. The analytical research design makes analysis
of the gathered facts and information and makes a critical evaluation of it.

3.2 Nature and Sources of data

The data for the study have been collected through the primary sources and secondary
sources. It makes the study more realistic and meaningful because of the use of
historical data and primary data. The secondary data are collected through bank
annual report for last five year data before and after the merger of NIC Asia Bank Ltd.
The analysis is also been supported by the data and information from various
journals, literatures and online sources. Similarly, primary data are the first hand data
collected by researcher especially for the research study. These data are not disclosed
before this study. It has been collected through the observation, questionnaire,
interview and telephone conversation to concerned people and organizations to the
study regarding merger and acquisition of NIC Asia Bank Ltd.

3.3 Population and Sample

The “population” in statistics includes all members of a defined group that we are
studying or collecting information on for data driven decisions. In this research study,
the total number of banks and financial institutions licensed by NRB are the
population for the study i.e. 28 commercial banks, 32 development banks, and 54
finance companies.

A part of the population is called a sample. It is a proportion of the population, a slice

of it, a part of it and all its characteristics. A sample is a scientifically drawn group
that actually possesses the same characteristics as the population – if it is drawn
randomly. For the research study, it has been randomly selected a sample BFIs that
has under operation after merger. Randomly drawn samples have two characteristics:

 Every BFIs has an equal opportunity to be selected for the sample

 Selection of a BFIs is independent of the selection of another BFIs
Many BFIs has been through the merger process whereas there are some of BFIs
under pipeline of merger.

3.4 Data Collection and Processing Techniques

The study has used both primary and secondary data. The data collection technique
and process for primary and secondary data are applied differently.

3.4.1 Primary Data Collection Method

The primary data has been collected by the effort of the researcher through application
of multiple methods of primary data collection. Even though it used several techniques
like interview, telephone conversion, informal talks, focus is given for questionnaire
method. For this, a set of questionnaires is prepared. The questionnaire are filled up
by respondents and the collected data are tabulated systematically and related to the
research problem are presented with analysis in the next chapter. The format of the
questionnaire is given in annex section as a reference.

3.5 Data Analysis

The research study is conducted to analyze the performance of NIC Asia Bank Ltd
pre-merger and post-merger. The analysis tries to find out whether there is a change in
performance post-merger with the financial performance of the bank. Financial
analysis is used to find the associations between the financial performance and the
merger through the analysis of different ratios measuring the performance of the bank
i.e. ROA, ROE, Debt-Equity ratio, etc. The changes which have shown visible
impacts are analyzed and compared to know the positive or negative impacts of the
merger on the bank. View of management personnel of NIC Asia Bank Ltd. is also
expressed to know the effects from the banks aspect as well as market experts’ views
is also explained to see future outlook of the NIC Asia Bank Ltd. after merger and
possible circumstances in the merger and performance of BFIs.

3.5.1 Data Analysis Tools

The conceptual framework represents the variables on the basis of which the research
is conducted. The study compares different financial ratios pre-merger and post
merger to analyze the situation of the financial performance post-merger as well as
know the impacts post-merger on the basis of some aspects changed post-merger. The
ratios on the basis of which the analysis will be done are:

i. Basic Indicators: These are some general numbers which directly represent
the overall aspect of the firm. These are simple indicators to identify the performance
of the firm.

a) Cost of Funds: It is the rate of interest which the bank has to pay for using the
funds in the business. Lower the cost of funds better is the profit as the spread
between cost of funds and interest charged to borrowers is the main source of profit.

b) Number of Branches: It is the number of outlets through which the bank

provides the services to its customers. Higher the number of branches, the banks is
able to serve more customers but as well as increases the financial cost as well.

c) Operating Costs: The costs associated with the normal and regular business
operations which are core to the business functions are operating costs. It includes
interest expenses, commission charges, changes in exchanges, staff expense,
administrative expense, etc.

d) Operating Income: The income generated from the normal and regular
business operations which are core to the business functions are operating income. It
includes interest income, commission charges, changes in exchanges etc.

e) Cost to Income Ratio: The ratio is the representation of operating cost to

operating income. This shows how efficient the bank is in regards to manage the cost
in relations with the operating income. It is calculated as Operating Costs to Operating
Income.

f) Average Interest Rate Spread: It is expressed as the difference between the

average yields received from the loans and other interest bearing activities and the
interest which is paid on deposits and borrowings.

ii. Profitability Indicators: These are the indicators which represent the
business performance in terms of the profitability of the firm. The profits could be
expressed and analyzed through various aspects to have different analysis.

a) Gross Profit Margin: It is the ratio representing the gross profit in terms of
main revenue of the business. In banking interest income is the main stream revenue
and gross profit is the difference between interest income and interest expenses. It is
calculates as (Interest Income – Interest Expenses) / Interest Income.

b) Net Profit Margin: It is the ratio representing the net profit in terms of
revenue of the business. In banking it represents effectiveness of the bank as how
much the net profit after tax or net profit is generated in terms of the interest income.
It is calculated as (NPAT / Interest Income)

c) Return on Assets: It represents how effectively the bank has utilized the
resources and generated returns through its utilization. In other words it is the average
return generated from the utilization of the one unit value of assets of the business. It
is calculated as (NPAT/ Average Total Assets)

d) Return on Equity: It represents the return generated from the utilization of

the shareholders equity. In other words, it is the income generated by the utilization of
unit value of shareholders’ fund in the business. It is calculated as (NPAT –
Preference Dividend / Average Shareholders Fund).

e) Average Yield: It is the return generated from the investments, interest

bearing activities and income generated activities with respect to the investment done
on these activities. It is calculated as (interests+ income generated/Investments)

f) Non-Performing Assets: This represents the loan portfolio in which the

payment of interest and repayment of installment remains unpaid for a period of two
quarters or more increasing the risk of default of the loans to the bank. It needs to be
managed by creating provision for loan loss which decreases the profit of the bank as
well as riskiness of the bank.

g) Total Loan Loss Provision to Total NPA: Loan loss provision is a method
that the banks use to recognize the reduction in the realizable value of loans that the
banks will not be able to collect in according to the contractual terms of loan
agreements. The ratio with NPA shows the bank’s reduction in terms of loan default
and the amount that they have to segregate to minimize the loss.

iii. Financial Leverage Indicators: These represent the leverage of the firm
which would show the debt aspect in the firm and its impact on the firm.

a) Debt to Equity Ratio: It represents the financial leverage of the firm. The
firm uses debt as the fund for its operation and business purposes but it increases risk
of the firm as it has to earn return to pay debt and interest for using it. So, debt to
equity shows how much debt has been used by the firm in terms of the equity it
possesses. The creditors evaluate it as how much able the firm is able to debt using
the equity so lower the ratio higher degree of protection to the creditors. It is
calculated as(Total Debt / Equity Share Capital)

b) Debt Ratio: It represents the debt bearing capacity of the firm. It indicates
how many times the firm has liabilities in terms of the assets. It is calculated as (Total
Liabilities/Total Assets).
iv. Liquidity Indicators: These indicators represent the liquid or cash and
convertibles position in the firm and its analysis to know about the position of the
firm.

a) Liquidity Ratio: This ratio indicates the proportion of the liquid assets of the
bank in comparison to that of its total assets. In general, it is the overall liquid assets
the bank is holding in terms of the total assets of the bank. It has to maintain certain
cash reserve ratio and CD ratio directed by NRB as well as earns profit from the
utilization of funds.

b) Cash to Deposit Ratio: It represents the proportion the bank is holding with
itself in regards to the deposits it has generated from the customers. In other words, it
represents the proportion the bank has lent out of the deposits mobilized. It shows the
liquidity level of the banks as well as the efficiency in terms of deposit mobilization
in income generating activities. It is calculated as (Total of Cash in hand and Balances
with NRB divided by Total deposits)

c) Credit to Deposit Ratio: It is the ratio which explains how much credit
facilities are provided in relations to the deposit the banks has got. The NRB has
directed to maintain the ratio to 80% for maintaining the liquidity in the bank. It is
calculated as Total Advance/Total Deposit X 100.

d) Capital Fund to RWA: It is also known as the Capital Adequacy Ratio. It

represents the bank’s capital in terms of the risk associated with the bank. It
represents the risk associated and how much the bank is able to absorb a reasonable
amount of loss.

v) Capital Market Indicators: These indicators or ratios represent the financials

related to the capital market and helps to analyze the marketable aspects of the firm
and its performance.

a) Earnings per Share: It is the proportion of amount of profit each unit of share
ownership has earned. It is the actual value of profit earned by the per unit value of
share of the business It is calculated as (PAT / No. of Equity Share)

b) Market Price per Share: It is the price the investors are willing to pay for the
unit of stock of the company. It is generally determined by the demand and supply of
the stock based on the expectations of generating returns from holding it and
probability of losing fund by holding it.
c) Net Worth Per Share: It represents the per unit value of the stock the
investors hold in terms of the assets of the company. It represents the actual value of
ownership of share of the company. It is calculated as (Total Assets-Total
Liabilities/Average Shares Outstanding)

d) Earnings Yield: It represents the utilization of earnings in other earning

activities. In other words it represents how much the company has invested earnings
that was earning by the business. It is calculated as EPS/MPS.

e) Price Earnings Ratio: It is the ratio which represents the current price of the
company and the earnings per share it has generated from the business. In other
words, it expresses how much the investors are willing to pay for one unit of stock for
the stock which is generating one unit of earning from the business. It is calculated as
(Avg. stock price / EPS)

f) Price to Book Value: It represents the price the investors are willing to pay in
terms of the actual value the stock has in the book of the company. In other words, it
represents the how many times the investors are willing to pay for the share which has
one unit value. It is calculated as (Avg. Stock Price / BV per share)

g) Market Capitalization: It is the market value of the company in the market of

investors. It shows the commercial value or market value of stock or total value the
investors valued in the market. It is calculated as (Avg. Stock Price x Outstanding
shares issued)
 CHAPTER - IV
PRESENTATION AND ANALYSIS OF DATA
In this chapter the researcher has analyzed and interpreted relevant and available data
of the selected commercial banks according to the research methodology as
mentioned in the previous chapter. The analysis of data consists of organizing,
tabulating and evaluating the collected data.

4.1 Financial Tool

Financial analysis is the process of identifying the financial strength and weakness of
the organization presenting the relationship between the items of balance sheet. For the
purpose of this study, ratio analysis has been mainly used any with the help of it, data
can be analyzed. Various financial ratios related to the financial management and the
fund mobilization are presented and discussed to evaluate and analyze the performance
of NIC Asia Bank. Financial ratios are calculated and data will be analyzed with the
help of those ratios. Some important financial ratios are only calculated from the point
of view of the fund mobilization and financial analysis. The ratio’s are designed and
calculated to highlight the relationship between financial items and figures. It is a kind
of mathematical relationship and procedure dividing one item by another. All these
calculations are based on financial statements of concerned Banks.

4.1.1 Liquidity Ratio

Commercial Banks must maintain its satisfactory liquidity position to satisfy the
credit needs of the Commercial to meet demands for deposit, withdrawals, Pay nation
by obligation in time and convert non-cash assets into cash to fulfill immediate needs
without loss of bank and consequent impact on long run profit. The following ratios
are used to measure the liquidity position of NIC Asia Bank Limited with the help of
financial data of past Nine years of the bank.
a) Current Ratio
b) Cash and Bank Balance to Total Deposit Ratio
c) Cash and Bank Balance to Current Assets Ratio
d) Loan and Advance to Current Assets Ratio
e) Investment on Government Securities to Current Assets Ratio
a) Current Ratio
The current ratio is the quantitative relationship between current assets and current
liabilities. Here, current assets are those, which can normally be converted into cash
within a year. These include cash and marketable securities, accounts receivable,
inventories and so on. On other hand, current liabilities refer to those obligations,
which must be paid within an accounting cycle. These include accruals, accounts
payable, notes payable and so on. Current ratio is calculated as follows:

Total Current Assets

Current Ratio =
Total Current Liability
The current ratio of NIC Asia Bank Limited, is exhibited in table 4.1

Table 4.1
Current Ratio (In times)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
C.A 30605 35388 39048 44385 48658 52563 54138 57863 62987
551 145 317 666 814 821 762 452 650
C.L 23106 23629 29976 36265 43355 47542 48767 51987 56782
700 571 581 030 539 345 895 563 322
C.R 1.324 1.497 1.302 1.223 1.122 1.105 1.110 1.113 1.109
5 6 6 9 3 6 1 0 3
Me           1.212
an       1
S.D           0.138
      1
C.V           0.114
      0
(Source Appendix-I)

The Table and Chart 4.1 show the current ratio of NIC Asia banks from 2009/10 to
2017/18.The standard current ratio is 2:1. The current asset to current liabilities of NIC
bank is 1.105 times in fiscal year 2014/15 whereas 1.109 times in fiscal year
2017/18..Similarly the highest current assets to current liabilities ratio of bank is 1.497
times in fiscal year 2010/11 and lowest ratio is 1.105 in fiscal year 2014/15.
 Chart 4.1
Current Ratio (In times)

C.R
1.6

1.4

1.2

1
C.R
0.8

0.6

0.4

0.2

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

The average ratio of last nine years of Bank 1.2947 times, whereas 1.5692 and 1.4201
times of respectively. The average mean ratio of liquidity position is better than that of
2012/13. The table and graph indicates that all of year are below than the normal
standard.

b) Cash and Bank Balance to Total Deposit Ratio

Cash Reserve ratio is the ratio between Cash and Bank Balances to Total Deposit. The
cash reserve requirement in the most developed and developing countries have been
used extensively as a means to control commercial banks credit. Especially in
countries where capital market is not well developed, cash reserve requirement can be
used not only to control the commercial bank credit but also to influence the
investment portfolio of the commercial banks. Cash Reserve Ratio(CRR) or cash and
Bank Balance to Total Deposit Ratio is calculated by dividing the cash and bank
balance by the amount of total deposit, which is presented below.
Cas h∧Bank Balance
Cash and Bank Balance to Total Deposit =
Total Deposit
The cash and bank balance to total deposit ratio of NIC Asia Bank Limited for the
period of 2009/10 to 2017/18 is presented in the table number 4.2 below:
 Table 4.2
Cash and Bank Balance to Total Deposit Ratio
F/Y 2009/ 2010/ 2011/ 2012 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 /13 14 15 16 17 18
CBB 38664 29646 63622 3648 5542 58463 62345 65236 70237
90 51 96 198 590 52 67 54 65
TD 37611 40920 47730 5307 6467 68235 75645 76567 84567
202 627 993 2319 4848 426 434 654 897
Ratio 0.102 0.072 0.133 0.069 0.086 0.085 0.082 0.085 0.083
8 4 3 7 4 2 1
Mea                 0.088
n 8
S.D                 0.019
2
C.V                 0.216
3
(Source Appendix-I)

Chart 4.2
Cash and Bank Balance to Total Deposit Ratio

Ratio
0.14

0.12

0.1

0.08 Ratio

0.06

0.04

0.02

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

In the table and chart 4.2, cash & bank balance to total deposit ratio has been
calculated by dividing total cash and bank balance amount by total deposit amount.
The above ratio reveals that the ability of banks to cover its short-term deposits. On
an a average basis, NIC Bank is more in better position with an average 26.33% than
all other sample banks. There is Bank next to it with an average of 19.48%, which is
also in comfortable position is discharging its short-term liabilities.

This implies that HBL and NBBL are more inconsistent in cash and bank balance to
total deposit ratio over the study period. However, 2011/12 with lowest C.V. indicates
that it is consistent in cash and bank balance to total deposit ratio over the entire study
period.

c) Cash and Bank Balance to Current Assets Ratio

Cash and bank balance are the most liquid form of the current assets. The cash and
bank balance ratio indicates the percentage of readily available funds within the bank.
The cash and bank balance to current asset ratio is calculated by using the following
formulas:

Cas h∧Bank Balance

Cash and Bank balance to Current Assets Ratio =
Current Assets

The cash and bank balance to current assets ratio of NIC Asia Bank is presented
below in table 4.3
Table 4.3
Cash and Bank Balance to Current Assets Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
CBB 38664 29646 63622 36481 55425 58463 62345 65236 70237
90 51 96 98 90 52 67 54 65
CA 30605 35388 39048 44385 48658 52563 54138 57863 62987
551 145 317 666 814 821 762 452 650
Rati 0.126 0.083 0.162 0.082 0.113 0.111 0.115 0.112 0.111
o 3 8 9 2 9 2 2 7 5
Me                 0.1133
an
S.D                 0.0237
C.V                 0.2090
(Source: Appendix-III)
 Chart 4.3
Cash and Bank Balance to Current Assets Ratio

Ratio
0.18

0.16

0.14

0.12

0.1 Ratio

0.08

0.06

0.04

0.02

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The Table and Chart 4.3 show the cash and bank balance to current asset ratio of nine
year i.e. NIC Bank during fiscal year 2009/10 to 2017/18. Over the study period, on
an average NIC Asia bank has highest ratio of 16%. Likewise Therefore, 2012/13 has
the highest ratio and 2017/18 has the lowest ratio of cash and bank balance to current
assets. It implies that at some time NIC Asia has held more cash and bank balance
than has been successful in utilizing the depositor’s money in short term loans.

It indicates that NIC Asia bank has high degree of variability or is inconsistent in
holding cash and bank balance to current assets over the study period. Bank limited
has low degree of variability or is consistent in holding cash and bank balance to
current assets over the study period.

d) Loan and Advance to Current Assets Ratio

Loans and advances are the bills purchased and discounted, local and foreign
currencies, loan and advances and overdrafts. Bank loans and advances are the main
assets used as a source of income in the commercial banks. This ratio is calculated to
determine the proportional of current assets, which are interested as loans and
advances to generate the income for the bank. It is expressed as:
Loan∧ Advance
Loan and Advance to Current Assets Ratio =
Current Assets
Loans and advances to current assets ratio of NIC Asia Bank Limited for the period of
2009/10 to 2017/18 is presented in table 4.4:
Table 4.4
Loan and Advances to Current Assets Ratio (In times)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
L& 27980 31566 34965 39723 45320 49768 51234 54675 58764
A 628 976 433 805 359 546 567 643 565
CA 30605 35388 39048 44385 48658 52563 54138 57863 62987
551 145 317 666 814 821 762 452 650
Rati 0.914 0.892 0.895 0.895 0.931 0.946 0.946 0.944 0.933
o 2 0 4 0 4 8 4 9 0
Me           0.922
an       1
SD           0.023
      3
CV           0.025
      3
(Source: Appendix-IV)

Chart 4.4
Loan and Advances to Current Assets Ratio (In times)

Ratio
0.96
0.95
0.94
0.93
0.92
Ratio
0.91
0.9
0.89
0.88
0.87
0.86
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The table and Chart 4.4 shows the loans and advances to current assets ratio of nine
year from 2009/10 to 2017/18 According to the table the maximum ratio of 95.62%
in fiscal year 2014/15 .The minimum ratio of 89.08% From mean ratio perspective, it
can be concluded that Everest Bank has been successful in mobilizing its current
assets as loan and advances than other selected banks.

It indicates that has high degree of variability or is inconsistent in holding loan

advances to current assets over the study period. 2014/15 has low degree of
variability or consistent in loans and advances to current assets over the study period.

e) Investment on Government Securities to Current Assets Ratio (IGS)

The ratio examines Share of a commercial banks current assets which invested in
different government securities i.e. treasury bills and government bonds. Commercial
banks are interested to invest their collected fund on different securities issued by
government to utilize their excess fund. Even governments securities are not so liquid
as cash and bank balance of commercial bank they can easily be sold in the market or
it can also be converted into cash in other ways. The ratio is computed as:

Investment onGovernment Securities

IGS=
Current Assets

Investment on government securities to current assets ratio of NIC Asia Bank Limited
for the period of 2009/10 to 2017/18 is presented in table 4.5:

Table 4.5
Investment on Government Securities to Current Assets Ratio
F/Y 2009 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
/10 11 12 13 14 15 16 17 18
IGS 4465 6407 91622 98867 12182 13232 15090 17237 21989
3724 3625 23297 60481 97442 34522 94672 65463 86547
09 41 3 4 3 2 6
CA 3060 3538 39048 44385 48658 52563 54138 57863 62987
5551 8145 31700 66600 81400 82100 76200 45200 65000
000 000 0 0 0 0 0 0 0
Ratio 0.145 0.181 0.234 0.222 0.250 0.251 0.278 0.297 0.349
9 1 6 7 4 7 7 9 1
Mea           0.245
n       8
S.D           0.060
      6
C.V           0.246
      4
(Source: Appendix-V)
 Chart 4.5
Investment on Government Securities to Current Assets Ratio

Ratio
0.4

0.35

0.3

0.25
Ratio
0.2

0.15

0.1

0.05

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The table and chart shows investment on government securities to current assets ratio
of NIC Asia bank during fiscal year 2009/10 to 2017/18. The average ratio of are
20.69%, 14.14% and 21.32%. Average ratio of 2017/18 is higher it means have
emphasized more on loan and advances and other short term investment than
investment in govt. securities. For minimization of investment risk.

4.1.2 Leverage Ratio

Leverage ratio measures the proportion of outsider’s capital in financing the firm's
assets, and are calculated by establishing relationships between borrowed capital and
equity capital. A firm should have a strong short-term liquidity as well as long-term
financial position. Higher leverage ratio indicates larger amount of borrowed funds
used by the firm to finance its assets and it also indicates increasing obligations and
known as risky firm. A firm must have sufficient margin of equity to pay the fixed
charges and refund the borrowed funds in the maturing date. The following ratios are
used to measure the long-term solvency position of NIC Asia Bank Limited with the
help of financial data of past nine years of the bank.

a) Total Debt to Equity Ratio

b) Total Debt to Total Assets Ratio
c) Total Shareholder's Equity to Total Assets Ratio

a) Total Debt to Equity Ratio

Total debt to shareholder's equity ratio indicates the relationship between the long-term
funds provided by creditors and those provided by the firm's owners. The total debt
refers to the total current liabilities plus the borrowing from other banks. It is
commonly used to measure the degree of financial leverage of firm and is calculated
as follows:
Total Debt
Total Debt to Equity Ratio =
Total Equity

The debt to shareholder’s equity ratio of NIC Asia Bank Limited for the year 2009/10
to 2017/18 is presented in the table 4.6 below:

Table 4.6
Total Debt to Shareholder's Equity Ratio (In times)
F/Y 2009 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
/10 11 12 13 14 15 16 17 18
Debt 3927 42740 4973 55853 67506 70568 73452 75643 78976
7919 725 2418 257 434 754 314 425 545
Equit 3439 39954 4632 52997 60834 65453 68234 71864 75653
y 205 78 010 08 11 62 35 24 22
Ratio 11.42 10.69 10.73 10.53 11.09 10.78 10.76 10.52 10.43
06 73 67 89 68 15 47 59 93
Mean                 10.778
0
SD                 0.3079
CV                 0.0286
(Source: Appendix-VI)
Chart 4.6
Total Debt to Shareholder's Equity Ratio (In times)

Ratio
11.6

11.4

11.2

11

10.8 Ratio

10.6

10.4

10.2

10

9.8
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
The table and chart 4.6 shows the total debt to shareholder’s equity ratio of NIC Asia
Bank Limited during 2009/10 to 2017/18. On an average, 2017/18 has the highest ratio
of 12.95 times. Next to it there is 2013/14 with an average of 10.70 times. Year has the
lowest ratio of 5.51 times.
It means NIC Asia has high degree of variability or is in consistent in maintaining total
debt to total equity over the study period

b) Total Debt to Assets Ratio

Total debt to total assets ratio shows the relationships between creditors funds and
owners capital. This ratio shows the proportion of outsiders fund used in financing
total assets. This ratio is calculated by dividing the total debt of the bank by its total
assets, which is presented below.

Total Debt
Total Debt to Assets Ratio =
Tot al Assets

The total debt to total assets ratio of NIC Asia Bank Limited of 2009/10 to 2017/18 is
presented in the following table 4.7 below:
Table 4.7
Total Debt to Total Assets Ratio (In percent)
F/Y 2009 2010 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
/10 /11 12 13 14 15 16 17 18
Total 3927 4274 49732 55853 67506 70568 73452 75643 78976
Debt 7919 0725 418 257 434 754 314 425 545
Total 4271 4673 54364 61152 73589 76234 79806 83234 87234
Asse 7125 6204 428 965 846 564 545 567 567
ts
Ratio 91.95 91.45 91.48 91.33 91.73 92.57 92.04 90.88 90.53
Mean                 91.55
SD                 0.61
CV                 0.0067
(Source: Appendix-VII)

From the above table, The average ratio of total debt to total assets of NIC Asia Bank
Limited are 91.50%, 92.81% and 84.51% respectively respectively. It indicates that
2015/16 has highest ratio (i.e. 92.81%) of total debt into total assets over the study
period and 2017/18 has lowest ratio (i.e.84.51%) of total debt total assets over the
study period.
 Chart 4.7
Total Debt to Total Assets Ratio
Ratio
93

92.5

92

91.5 Ratio

91

90.5

90

89.5
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

c) Total Shareholder's Equity to Total Assets Ratio

Without shareholder equity commercial bank cannot performs its activity.
Shareholder's Equity to total assets ratio indicates the proportion of the assets, which is
financed from ownership capital of the firm. This ratio also exhibits the relationship
between shareholders fund and owner's capital. This ratio shows the share of
shareholders on the total assets. It can be expressed as follows:

Total Shareholder s Equity

Total Shareholder's Equity to Total Assets Ratio =
Total Assets

The shareholder’s equity to total assets ratio of NIC Asia Bank Limited for the year
2009/10 to 2017/18 is presented in the table 4.8 below:

Table 4.8
Total Shareholder's Equity to Total Assets Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
Eq 34392 39954 46320 52997 60834 65453 68234 71864 75653
05 78 10 08 11 62 35 24 22
TA 42717 46736 54364 61152 73589 76234 79806 83234 87234
125 204 428 965 846 564 545 567 567
Ra 8.051 8.549 8.520 8.666 8.266 8.585 8.550 8.633 8.672
tio 1 0 3 3 6 8 0 9 4
Me          
an       8.4995
SD                 0.2073
CV                 0.0244
 Chart 4.8
Total Shareholder's Equity to Total Assets Ratio

Ratio
8.8

8.6

8.4

Ratio
8.2

7.8

7.6
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

From above table and chart 4.8 shareholder’s equity to total assets ratio of has been in
fluctuating trend. Similarly the ratio of year 2009/10 to 2017/18 is higher than (i.e.
15.49%, 7.19% and 8.41%). It indicates that has proper utilized its shareholder’s
equity in assets have high degree of variability or is inconsistent in maintaining
shareholder’s equity to total assets over the study period.

4.1.3 Capital Adequacy Ratio

The capital adequacy ratio shows weather commercial banks are maintaining sufficient
amount of capital fund in comparison to the total amount of their deposits. According
to capital adequacy ratio principles, safety and stability of the financial system
ultimately rest upon the confidence of the depositors and creditors.

The following ratio has been used to measure the capital adequacy ratio of NIC Asia
Bank Limited with the help of financial data of past Nine years of the bank.
a) Net worth to Total Deposit Ratio.
b) Net Worth to Total Assets Ratio.

a) Net Worth to Total Deposit Ratio

This ratio is concerned with the sufficiency of shareholders fund against the total
deposits. It is very essential for every financial institution to have a balance of required
percentage of total deposits at shareholders fund. This ratio is derived by dividing
shareholders fund by total deposits.
 Net Worth
Net Worth to Total Deposit Ratio =
Total Deposit
Net worth to total deposit ratio of NIC Asia Bank Limited for the year 2009/10 to
2017/18 is presented in the table 4.9 below:

Table 4.9
Net Worth to Total Deposit Ratio
F/Y 2009 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
/10 11 12 13 14 15 16 17 18
NW 3439 39954 46320 52997 60834 65743 70234 75456 78987
205 78 10 08 11 22 57 73 62
TD 3761 40920 47730 53072 64674 68235 75645 76567 84567
1202 627 993 319 848 426 434 654 897
Rati 9.14 9.764 9.704 9.985 9.406 9.634 9.284 9.854 9.340
o 41 0 4 8 1 8 7 9 1
Mea          
n       9.5688
SD                 0.2864
CV                 0.0299
(Source: Appendix-IX)

Chart 4.9
Net Worth to Total Deposit Ratio

Ratio
10.2

10

9.8

9.6
Ratio
9.4

9.2

8.8

8.6
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

From above table 4.9 net worth to total assets ratio of Bank Limited during 2009/10 to
2017/18. On an average, has the highest ratio of 11.86. Next to it there is bank with an
average of 9.6. has the lowest ratio of 8.11 Here the average ratio of which shows the
favorable capital adequacy ratio.
b) Net Worth to Total Assets Ratio

This ratio is concerned with the sufficiency of shareholders fund against the total
assets. It is very essential for every financial institution to have a balance of required
percentage of total assets at shareholders fund i.e. capital fund. This ratio is derived by
dividing shareholders fund by total assets.
Net Worth
Net Worth to Total Assets Ratio =
Total Assets

Net worth to total assets ratio of NIC Asia Bank Limited for the year 2009/10 to
2017/18 is presented in the table 4.10 below:
Table 4.10
Net Worth to Total Assets Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NW 34392 39954 46320 52997 60834 65743 70234 75456 78987
05 78 10 08 11 22 57 73 62
TA 42717 46736 54364 61152 73589 76234 79806 83234 87234
125 204 428 965 846 564 545 567 567
Ra 8.051 8.549 8.520 8.666 8.266 8.623 8.800 9.065 9.054
tio 1 0 3 3 6 8 6 6 6
Me          
an       8.6220
SD                 0.3327
CV                 0.0386
(Source: Appendix-X)

From above table 4.10 net worth to total assets ratio of has been in fluctuating trend.
Similarly the ratio of has been fluctuating during nine year period. The average ratio
of 2017/18 is higher than (i.e. 15.49%, 7.19% and 8.41%). It indicates that has proper
utilized its net worth in assets.

The standard deviation of bank is also greater than 2015/16 to 2016/17 (i.e. 1.3411,
0.2229 and 0.4247). It indicates that has high fluctuation than the in net worth to total
assets ratio have high degree of variability or are inconsistent in maintaining net
worth to total assets over the study period.
 Chart 4.10
Net Worth to Total Assets Ratio

Ratio
9.2

8.8

8.6

8.4 Ratio

8.2

7.8

7.6

7.4
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

4.1.4 Activity ratio

This ratio is used to measure the speed with which various accounts are converted into
sales or cash. Therefore, the activity ratios are used to measure the ability of the bank
in utilizing its available resources. The following activity ratios are calculated and
analyzed to determine the degree of utilization of available resources of the bank

a) Investment to Total Deposit Ratio

b) Loan and Advance to Saving Deposit Ratio
c) Loan and Advance to Fixed Deposit Ratio
d) Loan and Advance to Total Deposit Ratio
e) Fixed Deposit to Total Deposit Ratio
f) Saving Deposit to Total Deposit Ratio

a) Investment to Total Deposit Ratio

This ratio is calculated investment dividing by total deposits. This ratio presents how
efficiently the resources the banks have been mobilized high ratio shows managerial
efficiency regarding the utilization of deposits.
Investment
Investment to Total Deposit Ratio =
Total Deposits
Total Investment to total deposit ratio of NIC Asia Bank Limited for the year 2009/10
to 2017/18 is presented in the table 4.11 below:
Table 4.11

Total Investment to Total Deposit Ratio

F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/1
10 11 12 13 14 15 16 17 8
Invest 8444 8769 1003 1299 1984 2143 2257 2306 23876
ment 910 938 1580 2045 2060 4567 6454 4532 542
TD 3761 4092 4773 5307 6467 6823 7564 7656 84567
1202 0627 0993 2319 4848 5426 5434 7654 897
Ratio 22.45 21.43 21.01 24.47 30.67 31.41 29.84 30.12 28.233
32 16 69 99 97 27 51 31 6
Mean           26.630
      6
S.D                 4.2571
C.V           0.1598
      57221
(Source: Appendix-XI)
Chart 4.11
Total Investment to Total Deposit Ratio

Ratio
35

30

25

20 Ratio

15

10

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

From above table and chart deposit ratio of NIC Asia Bank Limited during 2009/10 to
2017/18. On an average, 2018/19 has the highest ratio of 24.01 which mean that in average is
investing 24.01 percent of its deposit in different sectors. 2016/17 have lowest average ratio
of 14.93% and 18.75% respectively. From above calculation it is found that is investing more
deposit than 2012/13.
b) Loan and Advance to Saving Deposit Ratio
Loan and advances to saving deposit ratio measures how many times the second high
interest bearing deposit is utilized for income generating purpose. This ratio can be
calculated by dividing the amount of loans and advances by the amount of saving
deposits. The ratio is calculated as follows.
Loan∧ Advance
Loan and Advance to Saving Deposit Ratio =
Saving Deposit

The loans and advances to saving deposit ratio of NIC Asia Bank Limited for the year
2009/10 to 2017/18 is presented in the table 4.12 below:
Table 4.12
Loan and Advance to Saving Deposit Ratio (In Times)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
LA 27980 31566 34965 39723 45320 49768 51234 54675 58764
628 976 433 805 359 546 567 643 565
SD 16294 15994 21915 26484 32843 36745 40567 43567 48765
680 564 374 280 446 634 834 823 345
Ra 1.717 1.973 1.595 1.499 1.379 1.354 1.262 1.255 1.205
tio 2 6 5 9 9 4 9 0 0
Me          
an       1.4715
S.D                 0.2530
C.V                 0.1719
(Source: Appendix-XII)

Chart 4.12
Loan and Advance to Saving Deposit Ratio (In Times)

Ratio
2.5

1.5
Ratio

0.5

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The table and Chart 4.12 shows the loan and advances to saving deposit ratio of
during 2009/10 to 2017/18. Over the study period on an average basis, 2012/13 has
the highest ratio of 2.08 times similarly have the lowest ratio of 1.63 times. It implies
that has been successful in using the depositor’s saving deposit properly in loan and
advances than over the study period.

c) Loan and Advance to Fixed Deposit Ratio

Loan and advances to fixed deposit ratio means how many times the amount is used
in loans and advances in comparison to fixed deposit. Fixed deposits are high interest
bearing obligation whereas loans and advances are the major sources of investment to
generate income for the commercial banks. This ratio is calculated by dividing the
amount of loans and advances by fixed deposit that is given below:

Loan∧ Advance
Loan and Advance to Fixed Deposit Ratio =
¿ Deposit

The loans and advances to fixed deposit ratio of NIC Asia Bank Limited is presented
in the table 4.13 below:

Table 4.13
Loan and Advance to Fixed Deposit Ratio (In Times)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
LA 27980 31566 34965 39723 45320 49768 51234 54675 58764
628 976 433 805 359 546 567 643 565
FD 11328 13507 11866 13964 13589 13872 13903 13959 14123
636 370 679 638 370 345 234 845 456
Ra 2.469 2.337 2.946 2.844 3.335 3.587 3.685 3.916 4.160
tio 9 0 5 6 0 6 1 6 8
Me          
an       3.2537
S.D                 0.6406
C.V                 0.1969
(Source: Appendix-XIII)

The table 4.13 shows the loans and advances to fixed deposit ratio of during 2009/10
to 2017/18. The lowest ratio of 2012/13 is 2.33 times in 2014/15 and the highest ratio
is 3.33 times in fiscal year 2017/18. The lowest ratio of 2014/15 is 2.06 times in fiscal
year 2014/15 and 3.27 times in fiscal year 2017/18. Similarly the lowest ratio of is
2.19 times in fiscal year 2017/18 and highest ratio is 5.75 times in fiscal year
2013/14. The mean ratio of 2015/16 is higher than 2012/13 to 2013/14 (i.e. 3.57 times
2.78 times and 2.76 times). It indicates that 2016/17 has proper utilization of fixed
deposit than 2009/10 to 2017/18.
Chart 4.13
Loan and Advance to Fixed Deposit Ratio (In Times)

Ratio
4.5

3.5

2.5 Ratio

1.5

0.5

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

d) Loan and Advance to Total Deposit Ratio

oan and advances to total deposit ratio measures the extent to which the banks are
successful to utilize the outsider’s fund (total deposit) for generating profit can be
calculated by dividing the amount of loans and advances by the amount of total
deposits.
Loan∧ Advances
Loan and Advance to Total Deposit Ratio =
Total Deposit

The loans and advances to total deposit ratio of NIC Asia Bank Limited is presented
in the table 4.14 below.

Table 4.14
Loan and Advance to Total Deposit Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
LA 27980 31566 34965 39723 45320 49768 51234 54675 58764
628 976 433 805 359 546 567 643 565
TD 37611 40920 47730 53072 64674 68235 75645 76567 84567
202 627 993 319 848 426 434 654 897
Ra 74.39 77.14 73.25 74.84 70.07 72.93 67.72 71.40 69.48
tio 44 20 52 84 42 65 99 83 80
Me           72.364
an       1
S.D                 2.9612
C.V                 0.0409
(Source: Appendix-XIII)
 Chart 4.14
Loan and Advance to Total Deposit Ratio

Ratio
78

76

74

72
Ratio
70

68

66

64

62
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The table 4.14 shows the loans and advances to total deposit ratio of NIC Asia Bank
Limited during 2009/10 to 2017/18. The lowest ratio of loans and advances to total
deposit of 2012/13is 70.07% in fiscal year 2017/18 and the highest ratio is 77.14% in
fiscal year 2014/15. Similarly the lowest ratio of 2017/18 is 71.81% in 2015/16 and
the highest ratio is 76.60% in 2017/18. On the other hand the lowest ratio of 60.93%
in year 2015/16 and highest ratio is 77.69 % in year 2013/14.

e) Fixed Deposit to Total Deposit Ratio

Fixed deposit gives higher interest than other deposit in every commercial bank and
can be withdrawn only after its maturity. This ratio is calculated in order to find out
the proportion of fixed deposit with respect to the total deposit. It is calculated by
dividing the amount of fixed deposits by the amount of total deposit, which is given
below:

¿ Deposit
Fixed Deposit to Total Deposit Ratio =
Total Deposit
The fixed deposit to total deposit ratio of Himalayan Bank Limited, Everest Bank
Limited and Nepal Bangaladesh Bank Limited is presented in the table 4.15 below:
 Chart 4.15
Fixed Deposit to Total Deposit Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
FD 11328 13507 11866 13964 13589 13872 13903 13959 14123
636 370 679 638 370 345 234 845 456
TD 37611 40920 47730 53072 64674 68235 75645 76567 84567
202 627 993 319 848 426 434 654 897
Ra 0.301 0.330 0.248 0.263 0.210 0.203 0.183 0.182 0.167
tio 2 1 6 1 1 3 8 3 0
Me                 0.2322
an
S.D                 0.0570
C.V                 0.2454
(Source: Appendix-XV)

The table 4.15 shows the fixed deposit to total deposit ratio of NIC Asia Bank Limited
during 2009/10 to 2017/18. According to the table 5.6 the highest ratio of 2012/13 is
33.01% in fiscal year 2014/15 and the lowest ratio is 21.01% in 2017/18 and on an
average 27.08%. Similarly the highest ratio of 2016/17 is 36.62% in 2014/15 and
lowest is 23.39% in fiscal year 2017/18 and on an average of 27.75%. It contrast the
highest ratio of 2014/15 is 33.04% in 2017/18 and lowest is 13.50% in 2013/14.

Chart 4.15
Fixed Deposit to Total Deposit Ratio

Ratio
0.35

0.3

0.25

0.2 Ratio

0.15

0.1

0.05

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18
The average ratio of year is lower than selected banks. This table and figure shows
that liquidity position is better than 2013/14. Higher proportion of fixed deposits
indicates the stronger liquidity position.

It indicates that NBBL has high degree of variability or is inconsistent in holding

fixed deposit to total deposit over the study period HBL has low degree of variability
or is consistent in fixed deposit to total deposit over the study period.

f) Saving Deposit to Total Deposit Ratio

Saving deposit is for general people in every commercial bank. Its purpose is mainly
saving. Saving deposit stand midway between current and fixed deposit. These
deposits are not as freely withdrawal as current deposit. It can be calculated by
dividing the amount of saving deposit by the amount of total deposit which is
presented below:
Saving Deposit
Saving Deposit to Total Deposit Ratio =
Total Deposit
The saving deposit to total deposit ratio of NIC Asia Bank Limited is presented in the
table 4.16 below:

Table 4.16
Saving Deposit to Total Deposit Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
SD 16294 15994 21915 26484 32843 36745 40567 43567 48765
680 564 374 280 446 634 834 823 345
TD 37611 40920 47730 53072 64674 68235 75645 76567 84567
202 627 993 319 848 426 434 654 897
Ra 43.32 39.09 45.91 49.90 50.78 53.85 53.63 56.90 57.66
tio
Me                 50.12
an
S.D                 6.277
C.V                 0.1252
(Source: Appendix-XVI)
 Chart 4.16
Saving Deposit to Total Deposit Ratio

Ratio
70

60

50

40 Ratio

30

20

10

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The table and chart 4.16 shows the saving deposit to total deposit ratio of NIC Asia
Bank Limited during 2009/10 to 2017/18. The saving deposit to total deposit ratio of
2017/18 varies from maximum of 50.78% in year 2017/18 and minimum of 39.09%
in fiscal year 2014/15. Similarly the ratio of varies from maximum of 42.65% in
fiscal year 2017/18 and minimum of 31.70% in fiscal year 2014/15. Bank varies
maximum of 59.36% in fiscal year 2013/14 and minimum of 35.82% in fiscal year
2017/18.

It indicates the fluctuation of the Bank is higher than other selected two banks. The
coefficient of variation it indicates that the NBBL is less consistent than other.

4.1.5 Profitability Ratio

Profitability is the mirror of success for every commercial bank. Profit is the
difference between revenues and expenses over a period of time. Profit is the ultimate
output of a commercial bank and it will have no future if it fails to make sufficient
profits. Therefore, the financial manager continuously evaluates the efficiency of the
bank in terms of profits. There are many measure of profitability. Each relates the
returns of the firm to its sales, assets, and equity or share value. As a group, these
measures allow the analyst to evaluate firm's earning with respect to given level of
sales, a certain level of assets, the owners investments or share value. The
profitability ratios in this study are calculated to measure the operating efficiency
ratios calculated in this study.

a) Return on Total Asset

b) Return on Net Worth
c) Return on Total Deposit
d) Interest Earned to Total Assets Ratio
e) Net Operating Profit to Total Assets Ratio
a) Return on Total Asset
Return refers to profit after interest and taxes. Total assets deals with those assets that
appear on the assets side of balance sheet .This ratio is a useful measurement of the
profitability of all financial resources invested in the bank’s assets. The return of
assets (ROA) or profit to assets ratio is calculated by dividing the amount of net profit
by the amount of total assets.
Net Profit After Tax
Return on Total Assets =
Total Assets

The return on total assets ratio of NIC Asia Bank Limited is presented in the table
4.17 below:

Table 4.17
Return on Total Asset
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NP 50879 89311 95863 94369 95910 10934 11200 11423 11987
AT 8 5 8 8 7 55 43 42 85
TA 42717 46736 54364 61152 73589 76234 79806 83234 87234
125 204 428 965 846 564 545 567 567
Ra 1.191 1.911 1.763 1.543 1.303 1.434 1.403 1.372 1.374
tio 1 0 4 2 3 3 4 4 2
Me          
an       1.4774
SD                 0.2279
CV                 0.1542
(Source: Appendix-XVII)

The table 4.17 shows the return on total assets ratio of NIC Asia Bank Limited during
2009/10 to 2017/18. On an average, Bank has the highest return on total assets of
3.63. Next to it, there is Bank with 2.08 %. Bank has the lowest profit i.e. 1.54% on
total assets. It indicates that bank has been successful to generate more profit than
other banks by using its total assets has lower degree of variability or is consistent in
generating more net profit by using total assets in a systematic way.

Chart 4.17
Return on Total Asset

Ratio
2.5

1.5
Ratio

0.5

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

b) Return on Net Worth

Net worth or shareholders equity refers to the owner's claim on the assets of the bank.
The ROE measures the earned on the owner's investment. This ratio indicates how
well the banks have used the resources of the owners. Higher this ratio indicates
sound and efficient management. It is calculated by dividing net profit after tax by net
worth.

Net Profit After Tax

Return on Net Worth =
Net Worth

The return on net worth ratio of Himalayan Bank Limited, Everest Bank Limited and
Nepal Bangaladesh Bank Limited is presented in the table 4.18 below:

Table 4.18
Return on Net Worth
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NPA 50879 89311 95863 94369 95910 10934 11200 11423 11987
T 8 5 8 8 7 55 43 42 85
N 34392 39954 46320 52997 60834 65743 70234 75456 78987
W 05 78 10 08 11 22 57 73 62
Rati 14.79 22.35 20.70 17.81 15.77 16.63 15.95 15.14 15.18
o
Me          
an       17.15
 SD                 2.67
CV                 0.1559
(Source: Appendix-XVIII)
The table 4.18 shows the return on net worth ratio of NIC Asia Bank Limited during
2009/10 to 2017/18. The net profit to net worth of bank varies from maximum of
22.35 % in year 2014/15 and minimum of 11.79% in fiscal year 2013/14. The ratio of t
bank varies from maximum of 30.47% in fiscal year 2016/17 and minimum of 26.11%
in fiscal year 2015/16. The maximum of 47.87 % in fiscal year 2013/14 and minimum
of 0% in fiscal year 2014/15.
Chart 4.18
Return on Net Worth

Ratio
25

20

15
Ratio

10

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

The average ratio of during the study period. It indicates that Everest Bank has
successful in utilizing the net worth more efficiently in generating more profit.

The standard deviation of selected three banks i.e. indicates the fluctuation of the
Everest bank is lower than other selected two banks.

c) Return on Total Deposit

Deposits are mobilized in investment and loans to get profit. This ratio indicates the
percentage of profit earned by using the total deposit. It shows how efficiently the
management has utilized its deposit in profit making activities. It is calculated by
dividing the amount of net profit by the amount of total deposits which is presented
below:

Net Income
Return on Total Deposit =
Total Deposit
The return on total deposit ratio of NIC Asia Bank Limited is presented in the table
4.19 below:

Table 4.19
Return on Total Deposit

F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NPA 50879 89311 95863 94369 95910 10934 11200 11423 11987
T 8 5 8 8 7 55 43 42 85
Tota 37611 40920 47730 53072 64674 68235 75645 76567 84567
l 202 627 993 319 848 426 434 654 897
Dep
osit
Rati 1.353 2.183 2.008 1.778 1.483 1.602 1.481 1.492 1.418
o
Mea          
n       1.644
S.D                 0.286
C.V                 0.1740
(Source: Appendix-XIX)
The table 4.19 shows the return on total deposit ratio of during 2009/10 to 2017/18.
On an average point of view, year 2017/18 has the highest ratio of 4.44%. There is
next to it with 2.35% and has the lowest ratio of 1.76% over the study period. It
implies that has been successful in utilizing the depositor’s fund more efficiently in
generating more profit. The Bank have not managed the deposit efficiently and thus it
has failed to generate more profit over the study period. It implies that Bank has high
degree of variability or is inconsistent in generating profit and Bank has lower degree
of variability or is more consistent in generating profit by employing the deposit
efficiently.

Chart 4.19
Return on Total Deposit
 Ratio
2.5

1.5
Ratio

0.5

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

d) Interest Earned to Total Assets Ratio

There are different sources of income for financial sector or commercial bank interest
earning is the major source of a commercial bank. This ratio measures how much
interest has been earned in different years by mobilizing assets of the bank. Generally
banks generate interest income through loan and advances, investments, overdraft, hire
purchase finance and loan given to priority sectors. The ratio can be calculated by
using the following formula:

Interest Earned
Interest Earned to Total Assets Ratio =
Total Asset
The interest earned to total assets ratio of NIC Asia Bank Limited is presented in the
table 4.20 below:

Table 4.20
Interest Earned to Total Assets Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
Int 31486 43261 47248 46273 47429 49345 51989 52874 55234
Earn 05 40 87 35 75 62 89 56 52
ed
TA 42717 46736 54364 61152 73589 76234 79806 83234 87234
125 204 428 965 846 564 545 567 567
Rati 7.37 9.26 8.69 7.57 6.45 6.47 6.51 6.35 6.33
o
Mea          
n       7.22
SD                 1.098
CV                 0.1521
(Source: Appendix-XX )
The table 4.20 shows the interest earned to total assets ratio of during 2009/10 to
2017/18. On an average, Bank has the highest ratio of 8.24%. Bank is slightly less
than 2012/13 with 7.57%. 2010/11 has lowest average ratio of 9.26% during nine year
period. It implies that have been managing the assets efficiently and earning more
interest out of it and L has not been able to utilize the assets efficiently and earning
low interest are more consistent or have lower degree of variability in earning interest
by the proper use of its total assets over the study period.
 Chart 4.20
Interest Earned to Total Assets Ratio

Ratio
10
9
8
7
6
Ratio
5
4
3
2
1
0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

e) Net Operating Profit to Total Assets Ratio

Net operating profit is the profit before interest and taxes (EBIT). When financial
charges are significant then it is appropriate for the comparative study, to compute the
net operating profit to total assets ratio rather than the return on assets ratio. This ratio
is useful to measure the profitability ratio before interest and taxes to all financial
resources invested in the bank’s assets. The following formula is used to calculate the
net operating profit to total assets ratio:
Net Operating Profit
Net Operating Profit to Total Assets Ratio =
Total Asset

The net operating profit to total assets ratio of NIC Asia Bank Limited is presented in
the table 4.21 below:

Table 4.21
Net Operating Profit to Total Assets Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NO 57923 10152 10570 11459 98257 11234 12674 13076 13542
P 1 13 56 74 9 53 35 54 34
TA 42717 46736 54364 61152 73589 76234 79806 83234 87234
125 204 428 965 846 564 545 567 567
Ra 1.356 2.172 1.944 1.874 1.335 1.474 1.588 1.571 1.552
tio
Me          
an       1.652
SD                 0.284
CV                 0.1720
(Source: Appendix-XXI)

Ratio
2.5

1.5
Ratio

0.5

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Chart 4.21
Net Operating Profit to Total Assets Ratio

The table and chart 4.21 shows the net operating profit to total assets ratio of during
2013/14 to m2017/18. On an average has the highest ratio of 3.14%. There is L next
to it with 2.47% and has the lowest ratio of 1.74% over the study period. It implies
that EBL and NBBL have been successful in managing their assets efficiently to
generating more profit. Bank has not managed the assets efficiently and thus it has
failed to generate more profit over the study period. It implies that Bank has high
degree of variability or is inconsistent in generating operating profit and Bank has
lower degree of variability or is more consistent in generating operating profit by
employing the total efficiently.

4.1.6 Other Ratios

Above stated ratios, throw light on various aspects of bank. Management, investors
and creditors can get information regarding their interest. Some ratios are dealt here
which provide more knowledge about the performance of the bank they are listed
below:
a) Earning Per Share (EPS)
b) Divided Per Share (DPS)
c) Dividend Payout Ratio (DPR)
d) Price-Earning Ratio( P/E Ratio)
a) Earning per Share
The firm's Earning per Share are generally of interest to present or prospective
Stockholders and management. The EPS represents the amount earned on behalf of
each outstanding share of common stock. They are closely watched by investing
public and are considered an important indicator of the firm's success. EPS is
calculated as follows:
Net Profit After Tax
EPS=
No of ShareOutstanding
The EPS of NIC Asia Bank Limited is presented in the table 4.22 below:

Table 4.22
Earning Per Share (In Rs)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
NPA 50879 89311 95863 94369 95910 10934 11200 11423 11987
T 8 5 8 8 7 55 43 42 85
NOS 16000 20000 24000 27600 28980 40200 45400 50600 56700
Rati 31.80 44.66 39.94 34.19 33.10 27.20 24.67 22.58 21.14
o
Me                 31.03
an
SD                 7.94
CV                 0.256
(Source: Appendix-XXII)
Chart 4.22
Earning Per Share (In Rs)

Ratio
50
45
40
35
30
Ratio
25
20
15
10
5
0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

From the table and chart 4.22 we can see that on an average, bank has the highest
amount of EPS of Rs. 89.96. Next to it, there is year bank with EPS of Rs 36.74,
among It implies that Nepal Bangaladesh bank has high fluctuation (less homogeneity)
in EPS over the study period whereas Everest and Himalayan bank with lowest S.D.
indicates the low fluctuation (more homogeneity) in EPS over the study period which
indicates it has low degree of variability, or is consistent in providing EPS amount to
the equity holders on a per share basis over the study period.

b) Divided Per Share (DPS)

Dividend per share is calculated to know proportion of the earnings distributed with
the help of following formula:
¿
DPS = Earning Paid ¿ Shareholders Number of Common Shares Outstanding

The DPS of NIC Asia Bank Limited is presented in the table 4.23 below:

Table 4.23
Dividend per share (In Rs)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
Divide 18947 33684 32210 27600 17540 18560 25098 30987 36734
nd 4 2 6 0 4 9 7 6 5
NOS 16000 20000 24000 27600 28980 40200 45400 50600 56700
Ratio 11.84 16.84 13.42 10.00 6.05 4.62 5.53 6.12 6.48
Mean                 8.99
SD                 4.25
CV                 0.47
(Source: Appendix-XXIII)
 Chart 4.23
Dividend per share (In Rs)

Ratio
18

16

14

12

10 Ratio

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

According to table and chart 4.23 we can see that on an average, bank has the highest
amount DPS of Rs.40.85. Next to it, there is Himalayan with DPS of Rs 11.63,
among bank, bank has the lowest amount of 2012/13 i.e. Rs.4.43 over the study
period. It means that have been able to provide maximum profit to equity holder on a
dividend basis over the study period. Bank with lowest C.V. indicates it has low
degree of variability, or is consistent in providing DPS amount to the equity holders
on a per share basis over the study period.
c) Dividend Payout Ratio (DPR)
The dividend payout ratio represents the percentage of net profit after tax distributed
as dividend and the percentage retained as revenue and surplus for the growth of the
bank. It is determined by dividing dividend per shares (DPS) by earning per shares
(EPS), as expressed below:

DPS
DPR =
EPS
The DPR of NIC Asia Bank Limited is presented in the table 4.24 below:

Table 4.24
Dividend Payout Ratio
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
DPS 11.84 16.84 13.42 10 6.05 4.62 5.53 6.12 6.48
EPS 31.8 44.66 39.94 34.19 33.1 27.2 24.67 22.58 21.14
Rati 37.23 37.71 33.60 29.25 18.28 16.99 22.42 27.10 30.65
o
 Me          
an       28.14
SD                 7.64
CV                 27.16
(Source: Appendix-XXIV)

From the above table we can see that on an average basis Bank has the highest
percentage of payment ratio with 45.56%. Next to it, there is bank with 31.22%
likewise; Bank has the lowest ratio with 5.19%. Average ratio appeared greater in
Everest Bank Limited, which signifies that distributed comparatively more proportion
of dividend out of its earning. In other words, it remained more successful of attract
the investors.

Bank with lowest S.D indicates low fluctuation in providing dividend to its
shareholders throughout the study period has the lowest C.V. of 22.90%. It indicates
that high degree of variability. Bank have low degree of variability is consistent in
providing a regular amount as dividend.

Chart 4.24
Dividend Payout Ratio

Ratio
40

35

30

25
Ratio
20

15

10

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

d) Price Earning Ratio (P/E Ratio)

P/E ratio is a valuation ratio of a company's current share price compared to its per
share earnings. Generally a high P/E ratio means that investors are anticipating higher
growth in the future. It is obtained by dividing market value per share by Earning per
share.

Ma rket Value per Share

P/E ratio =
Earning Per Share
The P/E ratio of NIC Asia Bank Limited is presented in the table 4.25 below:

Table 4.25
Price Earning Ratio (In Times)
F/Y 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/ 2017/
10 11 12 13 14 15 16 17 18
MV 816 575 653 700 941 830 760 640 540
PS
EPS 31.8 44.66 39.94 34.19 33.1 27.2 24.67 22.58 21.14
Rati 25.66 12.88 16.35 20.47 28.43 30.51 30.81 28.34 25.54
o
Mea          
n       24.33
SD                 6.38
CV                 0.26
(Source: Appendix-XXV)
Chart 4.25
Price Earning Ratio (In Times)

Ratio
35

30

25

20 Ratio

15

10

0
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

From the above table and figure we can see that on an average basis bank has the
highest P/E ratio with 20.46 times. Next to it, there is bank with 17.80 times likewise
has the lowest ratio with 6.90 times over the study period. It means that investors of
Himalayan bank and Everest bank are anticipating higher growth in the future
than bank or the investors of bank are well satisfied with the performance of the bank.
C.V. of 94.59%. Next to it; there is has high degree of variability have low degree of
variability.
4.2 Major Findings of the Study

4.2.1 Liquidity Ratio

a) The liquidity position of selected banks reveals that: The average current ratio
of banks i.e. It shows that the current ratio of all the sample banks is below the
standard ratio 2:1. It is clear that has slightly more liquidity than other banks.
But it can’t be concluded that all the banks are in poor condition with low
current ratio. (Table 4.1)

b) The average ratio of cash and bank balance to total deposit of it reveals that on
an average basis Bank has more liquid to serve its depositors in time with
enough case in hand. Other remaining banks are found to be holding less cash
in hand that its deposits. (Table 4.2)

c) The average ratio of cash and bank balance to current as sets of it indicates that
the ratio of Bank is the highest ratio among the sample banks. There is Bank
next to it with the ratio of 23.72%. Bank has the lowest ratio with 11.44% than
other sampled banks. It implies that all the sample banks do not have enough
cash balance with respect to current assets. However Bank seems to be in better
position than other sample banks. (Table 4.3)

d) The average loans and advances to current assets ratio of it indicates that the
ratio of Bank is higher than Bank. It can be concluded that Bank has been
successful in mobilizing its current assets as loan and advances than other
selected banks. (Table 4.4)

e) The average Investment on Government Securities to current Assets ratio of it

implied that the ratio of Bank is higher than Bank (Table 4.5)

4.2.2 Leverage Ratio

a) The leverage ratio of sampled banks reveals that the average ratio of total debt
to shareholder’s equity of has highest ratio of 12.95 times means, debt capital
financing is more than 12.95 times of its shareholder equity over the study
period where as Bank has lowest ratio (i.e. 5.5 times) of total debts to
shareholders equity. (Table 4.6)
b) The average ratio of total debt to total assets of it indicates that Bank has
highest ratio (i.e. 92.81%) of total debt into total assets over the study period
 and Bank has lowest ratio (i.e.84.51%) of total debt total assets over the study
period. (Table 4.7)
c) The average ratio of shareholders equity to total assets of Bank has higher ratio
of shareholders equity to total assets than other sample banks during the study
period. It indicates that Bank has proper utilized its shareholder’s equity in
assets. (Table 4.8)

4.2.3 Capital Adequacy Ratio

a) The leverage ratio of sampled banks reveals that the average ratio of net worth
to total deposit ratio of Bank has higher ratio of net Worth to total deposit
ratio. (Table 4.9)
b) The average ratio of net worth to total assets ratio of has higher ratio of net
worth to total assets ratio. It indicates that has proper utilized its net worth in
assets. (Table 4.10)

4.2.4 Activity Ratio

a) The activity ratio of selected banks reveals that: The average ratio of
Investment to total deposit ratio of has higher ratio of investment to total
deposit ratio. It can be concluded that is investing more deposit than Bank.
(Table 4.11)
b) The average ratio of loan and advances to saving deposit of it can be concluded
that Bank as been successful in using the depositor’s saving deposit properly in
loan and advances than Bank. (Table 4.12)
c) The average ratio of loans and advances to fixed deposit of i t implies that on an
average Bank has proper utilization of fixed deposit than Bank during the study
period. (Table 4.13)
d) The average ratio of Loans and advances to deposit of it implies that on an
average Bank has proper utilization of total deposit than Bank. (Table 4.14)
e) The average ratio of fixed deposit to total deposit of are 27.08%, 22.75% and
22%. It indicates that the liquidity position of Bank is better than other sampled
banks. (Table 4.15)
f) The average ratio of saving deposit to total deposit of it indicates that Bank has
been more successful in mobilizing its saving deposits on total deposit. (Table
 4.16)

4.2.5 Profitability ratio

a) The profitability ratio of banks reveals that: The average ratio of return on total
assets of it indicates that has been successful to generate more profit than other
banks by using its total assets. (Table 4.17)
b) The average ratio of return on net worth of it indicates that Bank has successful
in utilizing the net worth more efficiently in generating more profit. (Table
4.18)
c) The average ratio of return on total deposit of it indicates that Bank has
successful in utilizing the depositor’s fund more efficiently in generating more
profit. (Table 4.19)
d) The average of interest earned to total assets ratio of it implied that have been
managing its assets efficiently and earning more interest than Himalayan Bank.
(Table 4.20)
e) The average of net operating profit to total assets ratio of it implied that has
been successful in manage its assets efficiently to generating more profit.
(Table 4.21)
4.2.6 Other Ratios

a) The average ratio of earning per share of it indicates that Bank has been able to
provide its maximum profit to equity holder on a per share basis. (Table 4.22)
b) The average ratio of dividend per share of it indicates that Bank has been able
to provide maximum profit to equity holder on a dividend basis over the study
period. (Table 4.23)
c) The average of dividend payout ratio of average ratio appeared greater in
which signifies that distributed comparatively more proportion of dividend out
of its earning over the study period. (Table 4.24)
d) The average of price earning ratio of it indicates that investors of anticipating
higher growth in the future than investors of Bank are well satisfied with the
performance of the bank. (Table 4.25)