A COMPARATIVE STUDY OF FINANCIAL PERFORMANCE OF COMMERCIAL

BANKS IN NEPAL
(With special reference to NBBL, HBL & EBL BANKS)

By
…………………………….

……………………. Campus

Roll No. ……………..

T.U. Regd. No. 7-2-………………….

A Thesis

Submitted to:

Office of the Dean

Faculty of Management

Tribhuvan University

In partial fulfillment of the requirement for the degree of Master of

Business Studies (MBS)
 Kathmandu, Nepal
March, 2019

CHAPTER - I

INTRODUCTION

1.1 Background of the Study

Bank is one of the financial institutional which provides to public borrowing and lending.
Now a day the banking sector reached to the most remote areas of the country and has
gain a good experienced in the growth of the economy. The present structure of the
financial institution is based on commercial banks. The banking sector is largely
responsible for collecting household saving in terms of different types of deposits and
regulating them in the society by lending in different sectors of economy.

Financial analysis is to analyze the achieved statement to see if the results meet the
objectives of the firms to identify problems, if any in the past or present and or likely to
be in the future and to provide recommendation to solve the problems. Financial analysis
is the pinpointing of the strengths and weakness of a business undertaking by regrouping
and analysis of figures contained in financial statement by making comparison of various
components and by examining. Their context, this can be used by financial managers as
the basis to plan future financial requirements by means of forecasting and budgeting
procedures.

In developing country development banks are very important of the financial approach.
They always concern about how to make funds and how they lending and investing to
their borrowers. Financial institutions provide capital to the entrepreneurs for the
development of industry, trade and business by investing saving collected as deposits.
They also providing good services to their customers, facilitating their economic
activities, thus, integrated and speedy development of the country is only possible.
When competitive and reliable banking services are developed and carried to every hook
and corner of the country.

One of the basic objectives of establishing a bank is to earn optimal profit by proper
utilization of fund. By mobilizing public money and channeling the same to various
business and production activities. Commercial banks contribute to the development of
the country. In a developing country like Nepal, saving is low and scatters in small
amounts which individuals residing in different number of the mobilization of such
savings is made by commercial banks through their branches established in different parts
of the country.

1.2 Profile of the selected bank

Nepal Bangladesh Bank Ltd.

NBBL has a joint venture commercial bank with IFIC Bank ltd. of Bangladesh was
established in the year 1994. The bank after completion 24 years of operations has the
highest number of 81 branches with in the country. Nepal Bangladesh bank is the first
private sector commercial bank.

NBBL is the sixth joint venture bank of Nepal. The understanding was signed on June
3.1993 and the letter of interest for the establishment of bank was received from Nepal
Rastra Bank (NRB) on December 27, 1993, Accordingly Nepal Bangladesh Bank Ltd.
was registered in the office of the registrar of companies on January 14, 1994. On the
basis of memorandum of understanding a joint venture agreement and a technical
services agreement were signed on April 8, 1994. Shares of the bank are listed in Nepal
Stock Exchange Ltd. since 1995.

NBBL started its shareholding pattern is Bangladesh international finance investment and
commercial bank (IFIC) is 50%, general public by 30% and local promoters 20%.

Nepal Bangladesh Bank has been providing various services to the public which are
deposit, education loan, bank guarantee, hire purchase loan, letter of credit, locker
facility, Grihini bachat khata, housing loan, SMS banking, term loan, remittance services
all over the world, underwriting of shares, trade finance, bills purchase, and working
capital loan. The bank has 81 branches and 63 ATMs.

Himalayan Bank Limited

Himalayan Bank Limited (HBL) is one of the largest and reputable private sector banks
of Nepal. The Bank was incorporated in 1992 by a few eminent individuals of Nepal in
partnership with the Employees Provident Fund and Habib Bank Limited of Pakistan.
The bank commenced its operations in January 1993. Himalayan Bank is also the first
commercial bank of Nepal with most of its shares held by the private sector of Nepal.
Besides commercial banking services, the bank also offers industria land merchant
banking. HBL introduced several new products and services Millionaire Deposit
Scheme, Small and Medium Enterprises Loan, Pre-paid Visa Card, International
Travel Quota Credit Card, Consumer Finance through Credit Card and online TOEFL,
SAT, IELTS, etc. fee payment facility are some of the products and services. HBL also
has a dedicated offsite ‘Disaster Recovery Management System’. Looking at the number
of Nepalese workers abroad and their need for formal money transfer channel; HBL has
developed exclusive and proprietary online money transfer software- HimalRemitTM. By
deputing bank's own staff with technical tie-ups with local exchange houses and banks, in
the Middle East and Gulf region, HBL is the biggest inward remittance handling Bank in
Nepal. With its head and corporate office at Kamaladi, Kathmandu, the bank has 50
branches. Seventeen of its branches are located inside the Kathmandu Valley while the
rest are outside valley.

The Nepalese promoters hold 65% stake in the banks equity, while 20% of equity is
contributed by joint venture partner Habib Bank Limited and remaining 15% is held by
the general public.

Everest Bank Limited

EBL established in 1994 and started its operation with its first branch at Naya
Baneshwor, Kathmandu with a small capital. Now its Head office is situated Lazimpat
Kathmandu with view and objective of extending professionalized and efficient banking
services to various segments of the society, EBL joined hands with Panjab National Bank
(PNB) India as its joint venture partner in 1997. PNB is the largest public sector Bank of
India having more than 100 years of banking history with more than 7,000 branches and
8500 ATMs spread all across the India. As a joint-venture partner, PNB has been
providing top management support to EBL under Technical Service Agreement all over
India and is known for its strong systems and procedures and a distinct work culture.
EBL has been steadily growing in its size and operation ever since its inception and today
it has established itself as a leading private sector bank of the nation.

Everest Bank Limited (EBL) provides customer-friendly services through its wide
Network connected through ABBS system, which enables customers for operational
transactions from any branches. The bank has 92 Branches, 116 ATM Counters & 28
Revenue Collection across the country making it a very efficient and accessible bank for
its customers.

The Nepalese promoters hold 50% stake in the banks equity, while 20% of equity is
contributed by joint venture partner Panjab National Bank and remaining 30% is held by
the public.

1.3 Focus of the Study

The focus of the study is financial performance analysis of Nepalese Commercial Banks.
Financial performance covers the financial analysis and profitability of the Nepalese
selected commercial banks. The three commercial banks .i.e. Nepal Bangladesh Bank
Limited (NBBL), Himalayan Bank Limited (HBL) and Everest Bank Limited (EBL)
stood as the pioneer Banks on the basis of market capitalization. This thesis focuses on
the analysis of their financial performance to disclose the truth about their financial
decisions, present problems and recommendations for corrections.

Besides the financial analysis, the study is also focused on profitability analysis.
Financial ratio has helped the researcher to make a qualitative analysis about the financial
performance of the bank. The profitability analysis is the percentage in relation to total
assets, total deposit, investment which has helped the researcher to study trends in
financial statements over time.

1.4 Statement of the Problem

A well functioning banking system is an essential element in economic growth. A good

banking system is supposed to mobilize savings from households and business in low
cost of financing activities and channel funds to the most productive investment
opportunities. Though banks could maintain their position in the banking industry, it
cannot be predicted that the banks would continue to maintain its profitability and
stability of earnings because of the tough competition in this sector.

Financial management aspect is considered to be the vital and integral part of overall
management of any enterprise, ensuring financial strength through adequate cash flow,
liquidity and better utilization of assets. Commercial banks set up in Nepal seem to need
greater funds in terms of financing to the expansion of their assets because of growing
number of new establishment of banks in the country. These banks deal with other
people's deposits, most of which are payable on demand. There is no doubt that the
survival of the existing commercial banks and other financial institutions depend upon
how they manage their assets and liabilities to maximize of assets to risk, and are guided
by three important conflicting criteria of solvency, liquidity and profitability. Therefore,
the financial performance is the main indicator of the success or failure of any business
firm. Financial condition of the business firm should be sound from the point of view of
shareholders, debenture holders, financial institutions and nation as a whole.

This study attempts to evaluate the financial performance of selected commercial banks
of Nepal by using various measuring financial tools such as financial ratios, income and
expenditure statement analysis and other necessary analysis. It gives the answer to these
issues:

 What are the comparative liquidity, profitability, activity, and leverage position
among selected three commercial banks?
  What is the level of profitability of the banks?

 Whose performance is better among the sample banks?

 To what extent is the bank distributing the dividend?

 To analyze and compare solvency ratio such as capital adequacy ratio.

1.4 Objective of the Study

The basic objectives of the study are to examine the financial performance of the selected
three commercial banks. The objective has been further specified in the following sub-
objectives:

 To analyze the financial strengths and weakness as of the sample banks.

 To evaluate its overall financial position, profitability and cash flow on the basis
of sampled data.

 To find the relationship of EPS and DPS of sample banks.

1.5 Significance of the Study

Banking sectors has been one of the major contributors to national economy by providing
variety of disbursement to different sectors, enabling to boost the GDP. Hence, the
performance of this sector needs to be above the par to any other field. The financial
performance of development banking sector should be very much capable in enhancing
the capital market as well. It is therefore, imperative that this study bears importance to
the following main people:

 Lenders and borrowers of these banks.

 Management of these banks.

 Policy makers of these banks.

 Shareholders, customers and general public.

  Others financial users.

1.6 Limitations of the Study

Despite the ample efforts on the part of the researcher, this study is also not free form
limitations. This is mainly due to time and resource constraints on the part of the
researcher. The study has the following limitations:

 This study has been focused on the comparative study of financial performance of
three commercial banks i.e. Himalayan Bank Limited, Everest Bank Limited and
Nepal Bangaladesh Bank Limited with the help of financial tools and it may not
represent the financial performance of all the commercial banks operating in
Nepal
 The study focuses only on the financial performance and thus does not cover the
other financial aspects.
 Due to difficulties of data available ordinary and simple technique have been used
for the analysis of the data.
 The study covers only 5 years of study spanning from the fiscal years 2013/14 to
2017/18.
 The study has been based on the secondary data only.

1.7 Organization of the Study

The present research has been organized into the following chapters.

Chapter – I: Introduction

This chapter includes background of the study, focus of the study, statement of the
problems, objectives of the study, significance of the study and limitations of the study.

Chapter - II: Review of Literature

This chapter reviews the existing literature on the concept of financial performance
analysis. It also contains reviews of journals and articles, and earlier thesis related to the
subject.
Chapter - III: Research Methodology

This chapter expresses the way and technique of the study applied in the research
process. It includes research design, population and sample, data collection procedure and
processing, tools and method of analysis.

Chapter - IV: Data Presentation and Analysis

In this chapter collected and processed data are presented, analyzed and interpreted with
using financial tools and statistical tools such as mean, standard deviation and coefficient
of variation.

Chapter - V: Summary, Conclusion and Recommendations

In this chapter, summary of whole study, conclusions and recommendations are made. At
the end of the study, Bibliography and appendices have also been incorporated.