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CHAPTER I: INTRODUCTION

1.1 Background of the Study

Bank is one of the most important and widely known financial institutions that
act as financial intermediary between depositors and borrowers. The intermediary takes
places when bank accepts deposit from general public corporate bodies and private
organizations and deeply these deposits for profitable purpose in the form of loan and
advances.

There are many viewpoints regarding the origin of the work bank. According to
one viewpoints, the World Bank is derived from the Latin word “Bancus” French word
“Banque” and Italian word “Banca” Which mean accumulation of money or stock. The
first Century Bank was the bank of England established in 1844 A.D.

Different scholars have explained the meaning in their own ways but
commonly concentrating on the functi

ons of banks. According to Crowther, “A Bank is a dealer in debts if his own and other
paper on an outline on money.” As per US law “any institutions offering deposit subject
to withdrawal on demand and making loans of commercial and business nature is a
bank.”

Thus, financial performance analysis includes analysis and interpretations of

financial statements in such a way that it undertakes full diagnosis of the profitability and
financial soundness of the business. Therefore, it is very important to analyze the
financial performance of any company. It reveals the company`s financial strength and
weakness by establishing the strategic relationship between the items of the balance
sheet, profit and loss A/c and other financial statements. And a strong financial positions
lead to batter future performance to any company.
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1.2 Profile of Rastriya Banijaya Bank

RBB ltd. Established on January 23, 1966 a Synonymos of stable and people`s
bank in Nepal is one of the pioneer Bank in country with the history of nearly a century.
Eariler constituted under RBB act 2012 with the full ownership of the government of
Nepal, the Bank has been running under Bank and financial institute Act (BAFLA) and
company Act (CA) 2063 at present. The licensed by NRB as A class commercial Bank of
the country has grown up as on indispensable component of the Nepalese economy.

RBBL which has made glorious history of contributing for the monetization of the
economy, eliminating dual currency in the marked initialing preliminary financial
literacy, help flourish institute of the country the bank with 2600 hands has expanded its
wings in the most part of the country through multiple distribution outlets 217 branches,
17 country, 93 branch less banking (BLB) and 165 ATM. The bank with the highest
public confidence reflected in the highest deposit base and growing demand
establishment in the various parts has stood as pyramid in the financial area of the
country. The bank with as many as 1.7 millions satisfied/ direct customer ranging from
poor to elite ones and millions of indirect ones, has drawn important imprint in the
picture of country`s economy through its significant involvement in the best as of its
resource to enhance the production, income and employment opportunities. The bank is
fully its best for the socio economic development of the country and people days to come.
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1.3 Objective of the Study

The main objective of the study is to analyze financial performance of Rastriya

Banijaya bank limited using different ratios. More specifically, the study will focuses on
the following.

 To assessing the current positions and operational efficiency of the bank.

 To analyze financial performance of Rastriya Banijaya Bank Limited.

1.4 Rationale of the Study

This project study will be prepared to analyze the financial performance of

Rastriya Banijya Bank Limited. This study financial position in market in relation to the
profitability and financial soundness. Financial performance analysis would help to
understand the bank`s financial positions, strength as well as weakness by the use of
items of balance sheet, profit and loss account and other financial statement. Operating
capabilities of bank can be identify through this analysis of data provided by bank.

This analysis will assess the firm`s production and productivity performance
profitability performance, liquidity performance, working capital performance and other
financial ratios. This study will assessing the operational efficiency and managerial
effectiveness of the company. And bank will able to identify its overall strength and
weakness.
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1.5 Review of Literature

Tarawneh(2006)had conducted a study on “A comparison of financial

performance in the banking sector; Some evidence from Omani commercial banks.” The
main objective of the study was to classify the commercial bank in Owen cohesive
categories on the basis of the basis of their financial characteristics revealed by the
financial ratio. For the study five Omani commercial banks with more than 260 branches
were financially analyzed. The simple regression was used to estimate the impact of
assets management. And he found the bank with higher total capital deposit, credits, or
total assets does not always mean that has better profitability performance.

Pinto, Hawaldar, Rehman& T.M. (2017) had conducted a study on “An

evaluation of financial performance of commercial banks.” The main objective of the
study was the financial performance of commercial banks in Bahrain. This study is based
on eight commercial banks for the period from 2005 to 2015.This study t-test to
determine the relationship between different financial parameters. The study also reveals
that enforcement of higher capital adequacy ratio will adversely affects the profitability
of the bank. And they finding of the study indicate that the profitability has an impact on
capital adequacy and financial leverage, whereas the study did not ratify the relationship
between the profitability and efficiency of the bank.

Sharma (poudel) had conducted a study on “The impact of credit risk

management of financial performance of commercial banks in bank.” The main objective
of this study was to explore various parameters pertinent to credit risk management as it
affect banks ‘financial performance’ and to analyze for eleven years (2001-2011)
comparing the profitability ratio to default rate cost of per loan assets and capital
adequacy ratio. For the study which was presented in descriptive, correlations &
regreation was used to analyze the data. The study revealed that all these parameters have
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an inverse impact on banks ‘financial performance’; however , the default rate is the most
predictor of bank financial performance.

Ntuite(2015) had conducted a study on “An analysis of financial performance of

commercial bank in Rwanda.” The main objective of the study was to analyze the
performance of two selected commercial banks over a period of six years 92008-2013) in
the Rwandan banking sector. For the study using the CAMEL approach in order to have
the glimpse of image how the private commercial sector of the bank in the country is
operating financial sector. And the study found that overall bank performance increased
considerably in the first three years analysis.

Karim & Alam (2013) had conducted a study “An evaluations of

financial performance of private commercial banks in Bangladesh ; Ratio analysis.” The
main objective of the study to measure the performance of selected private sector banks
(five) and to measure financial performance of the selected banks. For the study we used
to non-performance loan position, liquidity gap analysis, liquidity ratio, return on assets,
return on equity, net interest margin etc. The hypothesis efficiency and assets
management have significant impact on financial performance of Bangladeshi
commercial banks.

Olawumi, Latteel & Oladeji (2017) had conducted a study on “financial

deepening and bank performance; A case study of selected commercial banks in
Nigeria.”The main objective of the study to examined the extent to which financial
deepening has affected the performance of selected Nigerian commercial banks in terms
of profitability and the study empirical investigate the relationship between financial
deepening. For the study they used to methods of descriptive and empirical analysis were
used to analyze data, while revealed statics were used evaluate the model for consistency
or otherwise with expectations statistical significance and explanatory power. Findings
reveled that each component of financial and statistically significant; this provides
empirical evidence that financial deepening made positive contributions to the level of
profitability of the selected commercial banks in Nigeria.
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Aktar, Sachu & ali (2012)had conducted a study on “The impact

of rewards on employee performance in commercial banks of Bangladesh: an empirical
study.”The main objective of the study to examine the relationship between rewards and
employee performance as well as to identify the relationship between extrinsic and
intrinsic rewards. For the study they used descriptive statistics based frequency table and
graphs. The result indicate that there is a statistical signification relationship between all
of the independent variables with dependent variable employee work performance and all
the independent variables have a positive influence on employee work performance.

Jha & hui (2012) had conducted a study on “A comparison of

financial performance of commercial banks: A case study of Nepal.” The main objective
of the study was compare the financial performance of different ownership structured
commercial banks in Nepal based on their financial characteristics and identify the
determinants of performance exposed by financial ratios. For the study they used to based
on CAMEL model. And they found show that public sector banks are significantly less
efficient than their counter part are;however domestic private banks are equally efficient
to foreign-owned banks. Further more the estimation result reveal that return on assets
was significantly influenced by capital adequacy ratio, intrest expenses to total loan and
net intrest margin; while capital adequacy ratio had considerable effect on return on
equity.

Kamath(2015) had conducted a study “Impact of intellectual capital of

financial performance and market valuation of firms in India.”The main objective of the
study was this paper is to empirically investigate the impact of intellectual capital (CL)
on the financial performance and market valuation of firm in India. For the study he used
TM
the VAIC methodology to evaluate the data and finds that the financial performance
and market value is indeed influenced by the IC of the firms. This result is crucial for
firm’s management and policy makers to make IC disclosure and reporting mandatory in
firms accounting statements as the stakeholder can get the real picture of the true value of
the firm.

Alemu(2017) had conducted a study “Financial performance analysis

of private commercial banks of Ethiopia: CAMEL ratings.” The main objective of the
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study was to check the capital adequacy level of private commercial banks and to
evaluate the liquidity positions of private commercial bank. For the study he used
CAMEL rating approach & elements on bank performance i.e ROA and ROE. The
measure finding for the study determining the profitability indicators –ROA and ROE.
No assets quality indicators were significant in determining the profitability ratios.

1.6 Research Methodology

It explains the methodology used in research to arrive results in the context

of arriving at the objective of the study. Therefore it basically deals with the nature and
sources of data, research design, method of data collection and statistical and financial
tools.

Research Design: Research design is the plan, structure and strategy of

investigations conceived so as to obtain answers to research question and to control
variances. It is the arrangement conditions for collection and analysis of data. To achieve
the objective of this study, descriptive cum analytical research design has been used. As
the research entirely considers about "financial performnce of Rastriya Banijaya Bank."
The main purpose of this study to show financial performance of position RBB.

Population and Sample: Population refers to the group or area of same nature and
its services and product in general. Sample, on the other hand is the representative part of
population selected from it with the objective of investigating its properties. So, all
commercial banks operating in Nepal are population of the study and Rastriya Bbanijaya
Bank will be selected as purposive sampling.

Sources of data: Data are very essential for any kind project. We must consult with
various people, booklets, newspaper and other sources to gain correct data. The data
which are originally collected by a researcher for the first time for the purpose of enquiry
is known as primary data. Secondary data refers to the data already available. It was
collected earlier for another purpose and existed in published from. Secondary data have
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been collected where primary data are not possible . The following sources of secondary
data are considered:

 Annual reports of the selected Rastriya banijaya bank..

 Various publications dealing in the subject matter of the study.
 Various articles published in the newspaper.

Data Analysis Tool: Data are essential tools for the study. Data are collected as
per need of investigation. Valuable and important data should be categorized and
presented in systematic way. And in this report writing ,I will use various tools for the
presentations of data and will the result according to it. The collected data will have been
tabulated, presented in various presentations tools .And these are,

 Pie chart
 Bar diagram
 Line graphs

And also and observed data will analyze bay following various accounting and financial
tools, These are,

 Liquidity ratio
 Profitability ratio
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1.7 Limitations of the Study

This study is simply conducted for the partial fulfillment of the requirement for
the degree of bachelor of business studies (BBS).

The major limitations can be described as follows:

 This study will be based on the published secondary data.

 Data contains mostly of the annual reports of the bank through fiscal year
2014/15.
 This study will cover only the analysis of financial performance of Rastriya
Banijaya Bank.
 The scope of research is only Rastriya Banijaya Bank.