CHAPTER 1: INTRODUCTION

1.1 Background of the Study

The history of banking is closely related to the history of money but banking transactions
probably predate the invention of money. Deposits initially consisted of grain and later
other goods including cattle, agricultural implements, and eventually precious metals
such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were
the safest places to store gold as they were constantly attended and well built. As sacred
places, temples presented an extra deterrent to would-be thieves.

The first banks were the merchants of ancient world that made loans to farmers and
traders that carried goods between cities. The first records of such activity dates back to
around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the
Empire lenders based in temples would make loans but also added two important
innovations; accepted deposits and changing money. During this period there is similar
evidence of the independent development of lending of money in ancient China and
separately in ancient India.

A study on profit is important. While this may sound obvious, the nuances that lie
underneath that statement and the profundity of that importance is often lost on many.
Profit means capital — all the expenses like overhead costs are subtracted from this.
Capital means the means for that organization to invest into its future. And in an
environment where customer demands change often and trends have a very short
lifespan, it’s important for businesses to have the capacity to be able to adapt to those
changes which is only possible through capital funds.

Profitability analysis allows companies to maximize their profit, and thus also
maximizes the opportunities that business can take advantage of in order to keep itself
successful and relevant in a very dynamic, competitive, and vibrant market. Profitability
analysis help businesses identify growth opportunities; since things aren’t as stable yet
as compared to a more established business, profitability analysis can spell the difference
between shutting down and keeping afloat. In the long run, profitability analysis can

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help propel that business into the future, and allow that business to grow the potential
that allowed it to exist in the first place.

1.2 Profile of the Organization

Nepal Rastra Bank had issued Mega Bank its operating license on 4th Shrawan, 2067
and the Bank had commenced banking operation from 7th Shrawan 2067. Now with the
Bank having completed Nine years of operating is on its way to realizing the aspiration
of 2396 promoters who comprise primary from middle class families spread over 63
districts of Nepal. The promoters held the vision to establish a national level class “A”
full service Commercial Bank which was made a reality by an experience and able
Management Team and staff member driven by a Mission to provide Banking services
to the entire economic strata of the Nepalese Society from “Halo to Hydro”.

“Halo to Hydro” or from “Plough to Power” is the slogan which drives the Mega Team
in furthering banking services with excellence.

The Bank has 111 branches, 20 extension counters and 113 automated teller machines
(ATM) throughout the country in addition to 119 Branches Banking and 2500+ Mega
Remit Agents. Mega Bank offer a wide range of Banking product and financial service
to the Corporate, Mid- Corporate, SMS, Consumer and Micro Customer through a verity
of delivery channels.

The Bank is committed to delivering the highest level of professional financial service
with a personal touch, not only to those who are already within the formal banking arena
but also those who till date, have been outside it. Mega Bank is committed to providing
financial solution to not just the top, middle or bottom of the pyramid, but to strive
toward providing financial solution and economic linkages to the “Entire Economic
Pyramid”.

Mega Bank Nepal Limited has been awarded ‘The Banker’s Bank of the Year Award
2019’ presented by The Banker, a highly recognized UK based International Financial
Affairs magazine, owned by the Financial Times Limited. This is the first time that the
bank has received the award.

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‘The Banker’s Bank of the Year Award’ is regarded as the industry standard for
banking excellence. The winners are judged on the basis of their ability to deliver
returns to shareholders and gain strategic advantage, bank’s financial performance,
shareholders’ value and customers’ initiative, among others.

1.2.1 Vision
Fulfilling the needs of the people from 'Halo to Hydro – Plough to Power.
1.2.2 Mission
Providing five star quality banking to Customers, Shareholders, Regulators,
Community and the Staff, creating, building and strengthening relationships of mutual
benefit.

1.2.3 Objectives
• To become the bank of the first choice.
• To introduce new banking tradition and technologies to the customer.
• To introduce modern banking product and services into banking sector.

1.3 Statement of the Problems

There are various commercial banks in Nepal which are operating since decade and some
of their performances are even better comparing to other multinational banks. Mega
Bank Nepal Limited, being one of the renowned commercial bank is showing an
excellent performance comparing to other commercial bank. However, with the increase
in the number of financial institutions, competition in this sector is also neck to neck,
but Mega Bank Nepal is being able to maintain its standard and reputation among its
customer. Hence, at this scenario when more and more financial institutions are
emerging, I would like to find out how Mega Bank Nepal Limited is being able to
maintain its level by analyzing its financial position.

Following questions are to be answered by completing this field work study on

profitability analysis of Mega Bank Nepal Limited:

• What is the overall position of the bank?

• Is it maintaining sufficient liquidity position, profitability position?

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 • What are major problems related to the financial source and how do they solve
it?
• How is the bank handling its financial activities?

1.4 Objectives of the Study

The main objective and purpose of the study are guidelines by which the study can be
conducted in a systematic manner. The objective of the study is as follows,
• To analyze the financial position of Mega Bank.
• To analyze the bank’s profitability position.
• To evaluate their strength, weakness, opportunity and threats.

1.5 Significance of the Study

Banking sector is growing faster and faster in Nepal because it provides quality service
and reasonable lending capital to borrower. May be one reason is it provide reasonable
interest rate to the public. There are many services which is providing by bank, which
is beneficial to general public. The main motive of commercial banking is to invest the
capital and to gain the profit which is really very helpful for development of economy.
There are various schemes which really attract the customer such as opening the
account in a minimum balance. Hence, there is a competition between the banks which
enhance the better quality of services. Therefore, conducting project in banking sector
is very much essential as it is a booming service and profit oriented business sector in
Nepal. In present context of Nepal, banking sector is one of the competitive sectors.

There is a cut-throat competition in the Nepalese Banking sector and Mega Bank Nepal
has always been able to maintain a lead in the primary banking activities and maintain
higher profit. Thus, by doing this project in this organization, it will be beneficial to
improve the managerial skills as well as be familiar with accounting terminologies and
techniques which are highly needed for the management student. In the present context
of Nepal, Mega Bank Nepal has already established its mark as a major well fascinated
financial institution in the economic arena of the country. It has also recognized itself
as an institution having a different banking culture. In brief, from this project, we can
analyze the financial position of the institution .We can also evaluate the hierarchy and

4
activities of the employees and the other level staffs, how it’s working systematically
within the institution. It is definitely beneficial in the increment of practical knowledge.

1.6 Limitations of the Study

There are some limitations in this field work study. They are:
• This report is presented as per the academic qualification of bachelor level and
any higher level analysis is tensed to be more accurate
• The authenticity of the report depends on the authenticity of the data sources
which are secondary by nature
• Only five years data are included in this report
• The study only focuses on the profitability analysis of the bank. It ignores other
area of management such as Human Resource Management, Business
Environment etc.

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 CHAPTER 2: LITERATURE REVIEW

2.1 Brief Review of Literature

The relevant articles were reviewed and various published and unpublished data and
material are also available from different sources are also used for this study. For this
research study the literature survey will be done by consulting libraries, annual report
of company, various journals, articles, textbook and other contemporary materials in
this study.

The research on the profitability analysis of Mega Bank Nepal has been done over the
past years by the different researchers. Though a lot of time gap between those
researches done in past and research by mine, as change in the time and development
coming from the past few years the conclusion they found may be different than mine
due to the time gap.

2.2 Theoretical Review

The financial data involved in the research about the bank will be represented in
different representing styles like bar diagram, pie- chart, charts, tabular form, which
makes easy to understand that what the figures represent about the position of bank and
is effective way of representing the bank overall performance.

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 CHAPTER 3: RESEARCH METHODOLOGY

3.1 Introduction
The basic objective of this study is to gain an insight into the liquidity and profitability
position of the Mega Bank Nepal. Hence, to accomplish this objective a good research
methodology has to be followed.

Research is the process of systematic and in-depth study of any particular subject or
topics; supported by the collection, compilation, presentation and interpretation of the
relevant data. For this, set of methods has to be used and set of methods such as research
design, sources of data, population and sample, methods to analysis of data is called
methodology.

3.1.1 Research Design

Research design is defined as a framework of methods and techniques chosen by a
researcher to combine various components of research in a reasonably logical manner
so that the research problem is efficiently handled. It provides insights about “how” to
conduct research using a particular methodology. Every researcher has a list of research
questions which need to be assessed – this can be done with research design

3.1.2 Population and Sample

At present there are 27 commercial banks operating in Nepal. These all commercial
bank are the population for this study and Mega Bank Nepal Limited has been selected
as a sample.

3.1.3 Sources of the Data

There are two sources from which data can be collected primary source and secondary
source. The data that are originally collected by an investor for the first time for the
purpose of statistical enquiry are knows as primary source data. Thus, the data collected
through the primary source is original in character while the data, which are not
originally collected but obtained from published or unpublished source are secondary
source of data. These types of data are not original in character.
This report is based in secondary sources obtain from the bank, library and internet.
Secondary sources used in this study are listed below:
• Economic survey

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 • Annual report published by bank,
• Books and magazines, internet, etc.

3.1.4 Data Analysis

The present study has used financial tools to access the liquidity and profitability
position of the Mega Bank Nepal under study. The financial tools consist of ratio
analysis under which liquidity and profitability ratios are calculated. The collected data
were processed for analysis.

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 CHAPTER 4: RESULTS AND FINDING

4.1 Data Presentation

Presentation and data analysis of data is the main body of the study. Introduction, review of
literature and research methodology is presented in the previous chapter that provide the basic
inputs to analyze and interpret the data. In this chapter, data are presented and analyzed.

4.2 Financial Analysis

Financial statement analysis generally begins with the calculation of set of financial ratios
designed to reveal the relative strength and weaknesses of a company as compared to other
companies in the same industry and to show weather the firm's position has been improving
or deteriorating over time. It helps the concerned parties to spot out the financial strength and
weakness of the firm.

4.3 Ratio Analysis

Ratio analysis is the systematic use of profitability ratio information of the firm’s strength
and weakness as its historical performance, and current condition can be determined. It
provides the trends of organization's financial performance. Ratios are very useful, essential
and powerful tools to interpret the financial performance of the company. In this report,
following ratios are used:

A. Profit Margin Ratio

It is the ratio of net profit to net sales. It is measured by this formula:
Net Profit
Profit Margin ratio = ×100
Net sales

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 Table 1: Profit margin ratio of MEGA BANK (in Millions)

F/Y NPAT Total Income Ratio in%

2072 551 1360 40.51

2073 795 2091 38.76
2074 1317 2873 45.84
2075 1630 4661 34.97
2076 1586 5140 30.85
Source: Annual Report of MEGA BANK NEPAL.

Figure 1: Profit Margin of MEGA BANK

180000
155446
160000
140000
120000
98766
100000
78919
80000
60000 47743
39866
40000
20000 551 795 1317 1630 1586
1.38 1.67 1.67 1.65 1.02
0
2072 2073 2074 2075 2076

NPAT Total Assets Ratio in %

B. Exchange Gain to Total Income Ratio

The exchange gain to total income ratio measures total income and exchange gain ratio, it is
measure by this formula:

Exchange Gain
Exchange gain to total income Ratio = ×100

Total Income

Table 2: Exchange gain to total income ratio of MEGA BANK (in Millions)
F/Y Exchange Gain Total Income Ratio in %

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 2072 102 1360 7.5

2073 68 2091 3.25

2074 121 2873 4.21

2075 52 4661 1.11

2076 97 5140 1.88

Source: Annual Report of MEGA BANK NEPAL.

Figure 2: Exchange gain to total income ratio

NPAT Total Assets Ratio in %

155446
98766
78919
47743
39866

1630

1586
1317

1.67
1.38

1.67

1.65

1.02
795
551

2072 2073 2074 2075 2076

C. Return on Assets
It is the ratio of net income to total assets measures the return on total assets (ROA) after
interest and taxes. It is measured by this formula:

NPAT
Return on Assets = ×100
Total Assets

Table 3: Return on Assets of MEGA BANK (in millions)

F/Y NPAT Total Assets Ratio in %

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 2072 551 39866 1.38

2073 795 47743 1.67

2074 1317 78919 1.67

2075 1630 98766 1.65

2076 1586 155446 1.02

Source: Annual Report of MEGA BANK NEPAL.

Figure 3: Return on Assets of MEGA BANK

160000

140000

120000

100000

80000

60000

40000

20000

0
1 2 3 4 5

F/Y NPAT Total Assets Ratio in %

D. Return to Equity
It is the ratio of Net Income after Tax to common equity measures the return on equity (ROE)
or Rate of return on the stockholder investment.

NPAT
Return on equity (ROE) = ×100
Equity

Table 4: Return on Equity Ratio (in Millions)

F/Y NPAT Total Equity Ratio in %

2072 551 4326 12.73

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 2073 795 5949 13.36

2074 1317 12634 10.42

2075 1630 13511 12.06

2076 1586 18011 8.80

Source: Annual Report of MEGA BANK NEPAL

Figure 4: Return on Equity Ratio of MEGA BANK

20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2072 2073 2074 2075 2076

NPAT Total Equity Ratio in %

E. Overhead to Total Income Ratio

It is the ratio of Overhead to Net Income, measured by the following formula.
Overhead
Overhead to total income ratio= ×100
Total income

Table 5: Overhead to Total Income Ratio (in Millions)

F/Y Overhead Total Income Ratio in %

2072 540 1360 39.70

2073 698 2091 33.38

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 2074 840 2873 29.23
2075 1147 4661 24.60
2076 1899 5140 36.94
Source: Annual Report of MEGA BANK NEPAL

Figure 5: Overhead to Total Income Ratio of MEGA BANK

2076

2075

2074

2073

2072

0 1000 2000 3000 4000 5000 6000

Ratio in % Total Income Overhead

F. Staff Expenses to Total Income Ratio

It is the ratio of Staff Expenses to Net Income. This ratio compares the efficiency of
company's staffs with the staffs of peer companies, competitors and own historical records in
term of total income. The lower of this ratio indicate more efficiency of the staffs of the
company. It is measured by the formula:

Staff expenses
Staff expenses to total income ratio= ×100
Total income
Table 6: Staff Expenses to Total Income Ratio (in Millions)

F/Y Staff Expenses Total Income Ratio in %

2072 246 1360 18.08

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 2073 487 2091 23.29

2074 698 2873 24.29

2075 1154 4661 24.76

2076 1260 5140 24.51

Source: Annual Report of MEGA BANK NEPAL

Figure 6: Staff Expenses to Total Income Ratio

18.5

18

17.5

17

16.5
EPS
16
2072 2073 2074

EPS

G. Earning per Share

It is the ratio of Net Profit after Tax to No. of Common Share. It is calculated by this formula,

NPAT
Earnings per Share (EPS) = ×100
No. of Common Share

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Table 7: Earning per Share of MEGA BANK
F/Y 2072 2073 2074 2075 2076
EPS 17 18.49 18.01 15.59 15.15

Figure 7: Earning Per Share of MEGA BANK

EPS
20
18
16
14
12
10
8
6
4
2
0
2072 2073 2074 2075 2076

EPS

BIBLIOGRAPHY

Marco A. Sisfontes-monge.(2008). Controlling-profitability Analysis (CO-PA) with

SAP, Galileo Press
Chandra, Prasanna.(1994). Financial Management Theory and Practice, New Delhi,
Tata McGraw-Hill Publishing Co. Ltd.
Sam Goodman.(1970). Techniques of Profitability Analysis, Wiley-Interscience

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 REFERENCE

megabanknepal.com
nrb.org.np
www.nepalstock.com

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18
Contents
CHAPTER 1: INTRODUCTION ............................................................................................... 1
1.1 Background of the Study ...................................................................................................... 1
1.2 Profile of the Organization.................................................................................................... 2
1.2.1 Vision............................................................................................................................. 3
1.2.2 Mission .......................................................................................................................... 3
1.2.3 Objectives...................................................................................................................... 3
1.3 Statement of the Problems .................................................................................................... 3
1.4 Objectives of the Study ......................................................................................................... 4
1.5 Significance of the Study ...................................................................................................... 4
1.6 Limitations of the Study........................................................................................................ 5
CHAPTER 2: LITERATURE REVIEW ................................................................................... 6
2.1 Brief Review of Literature .................................................................................................... 6
2.2 Theoretical Review ............................................................................................................... 6
CHAPTER 3: RESEARCH METHODOLOGY ....................................................................... 7
3.1 Introduction ........................................................................................................................... 7
3.1.1 Research Design ........................................................................................................... 7
3.1.2 Population and Sample ................................................................................................ 7
3.1.3 Sources of the Data ...................................................................................................... 7
3.1.4 Data Analysis ................................................................................................................ 8
CHAPTER 4: RESULTS AND FINDING ................................................................................. 9
4.1 Data Presentation .................................................................................................................. 9
4.2 Financial Analysis ................................................................................................................. 9
4.3 Ratio Analysis ....................................................................................................................... 9
A. Profit Margin Ratio ......................................................................................................... 9
B. Exchange Gain to Total Income Ratio ......................................................................... 10
C. Return on Assets............................................................................................................. 11
D. Return to Equity............................................................................................................. 12
E. Overhead to Total Income Ratio................................................................................... 13
E. Staff Expenses to Total Income Ratio .......................................................................... 14
BIBLIOGRAPHY ....................................................................................................................... 16
REFERENCE .............................................................................................................................. 17

A STUDY
ON
PROFITABILITY ANALYSIS OF MEGA BANK NEPAL LIMITED

A RESEARCH PROPOSAL

Submitted By:
Ramesh Pandit
T.U. Regd. No.: 7-2-478-80-2016
Of
BRILLIANT MULTIPLE CAMPUS
Kathmandu, Nepal

Submitted To:
Office of Controller of Examination
Faculty of Management
Tribhuvan University
In partial fulfillment of the requirements for the degree of
Bachelors of Business Studies (BBS)
JANUARY, 2020