LIQUIDITY OF SIDDHARTHA BANK LIMITED

BY

SMRITI SHARMA

A Summer Project Report Submitted to

Faculty of Management, Tribhuvan University

in the partial fulfillment of requirements for the degree of

Bachelor of Business Administration (BBA)

At the

Mahendra Multiple Campus

Tribhuvan University

Nepalgunj, Banke

FEBRUARY 2021
 STUDENT DECLARATION

This is to certify that I have completed the summer project and prepared this report
entitled . “Liquidity of Siddhartha Bank Limited'' under the supervision and
guideline of Mr. LAXMAN POKHREL in partial fulfillment of the requirements for
the degree of Bachelors of Business Administration (BBA) at Faculty of
Management, Tribhuvan University. This is my original work and I have not
submitted it earlier elsewhere for any other purposes.

Signature:

SMRITI SHARMA

TU Reg no. (7-2-55-60-2016)

Date:-
 CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled “Liquidity of Siddhartha Bank
Limited'' is an academic work done by SMRITI SHARMA . (T.U reg. No. 7-2-55-
60-2016) submitted in partial fulfillment of the requirements for the degree of
Bachelors of Business Administration (BBA) at Faculty of Management, Tribhuvan
University under my supervision and guidance. To the best of my knowledge, the
summer project is an original work of the student and the information presented by
her in the summer project report has not been submitted earlier anywhere for any
other purposes.

………………………

Signature:

MR. LAXMAN POKHREL

Designation:

Date

i
 ACKNOWLEDGEMENT

I feel immense pleasure in presenting this summer project report on the topic
“Liquidity of Siddhartha Bank Limited''. While preparing this report, I was able to
know various types of factors that have impacts employees working behavior. It was
great pleasure of me to express my feelings and experiences of report writing as
partial fulfillment of the requirement of BBA 7th Semester from Mahendra Multiple
Campus.

At first I would like to express my deep sense of gratitude to our research supervisor
Mr. Laxman Pokhrel for guiding and providing knowledge while carrying out this
summer project report in a systematic manner and also for a great encouragement,
motivation and suggestion also.

At last I would like to express my gratitude to all of our teacher and friends who have
fully supported and encouraged me while doing this summer project report.

Smriti Sharma

ii
 TABLE OF CONTENTS

Title Page … … … …… … … … … … … … … … … … … … … … … … … … … …
….. i

Declaration … … … … … … … … … … … … … … … … … … … … … … … … …
….. ii

Supervisor’s Recommendation … … … … … … … … … … … … … … … … … …
…... iii

Endorsement … … … … … … … … … … … … … … … … … … … … … … … … …
… iv

Abstract … … … … … … … … … … … … … … … … … … … … … … … … … … …
…v

Acknowledgement … … … … … … … … … … … … … … … … … … … … … … …
… vi

Table of Contents… … … … … … … … … … … … … … … … … … … … … … … …
vii

List of Tables … … … … … … … … … … … … … … … … … … … … … … … …
…… ix

List of Figures… … … … … … … … … … … … … … … … … … … … … … … … …
…x

Abbreviations … … … … … … … … … … … … … … … … … … … … … … … … …
xi

iii
CHAPTER I: INTRODUCTION.....................................................................................1

1.1 Background...........................................................................................................1

1.2 Statement of Problem............................................................................................2

1.3 Objectives of the Study.........................................................................................3

1.4 Rationale...............................................................................................................3

1.5 Report Structure....................................................................................................4

CHAPTER II: REVIEW OF LITERATURE.................................................................5

2.1 Conceptual Framework.........................................................................................5

2.2 Review of Previous Works...................................................................................6

2.3 Research Gap........................................................................................................8

CHAPTER III: RESEARCH METHOD......................................................................10

3.1 Research Design..................................................................................................10

3.2 Population and Sample........................................................................................10

3.3 Types of Data......................................................................................................10

3.4 Data Collection Procedure..................................................................................10

3.5 Instruments..........................................................................................................10

3.6 Techniques of Analysis.......................................................................................11

3.7 Limitations..........................................................................................................12

CHAPTER IV: RESULTS AND FINDINGS................................................................13

4.1 Cash Reserve Ratio (CRR).................................................................................13

4.2 Cash and Bank Balance to Current Deposit Ratio..............................................14

4.3 Cash Position Indicator.......................................................................................16

4.4 Capacity Ratio.....................................................................................................18

4.5 Loan & Advance to Total Deposit Ratio............................................................20

4.6 Karl Pearson’s Correlation Coefficient...............................................................22

iv
 4.7 Trend Analysis of Net Liquid Assets..................................................................25

4.8 Major Findings....................................................................................................28

CHAPTER V: DISCUSSION AND CONCLUSION...................................................30

5.1 Discussions..........................................................................................................30

5.2 Conclusion and Implications...............................................................................31

5.2.1 Conclusion.......................................................................................................31

5.2.2 Implications.....................................................................................................32

BIBLIOGRAPHY............................................................................................................33

APPENDIX.......................................................................................................................35

v
 LIST OF TABLES

Page
Table 4.1 Cash Reserve Ratio 13
Table 4.2 Cash and Bank Balance to Current Deposit Ratio 15
Table 4.3 Cash Position Indicator 17
Table 4.4 Capacity Ratio 19
Table 4.5 Loan & Advance to Total Deposit Ratio 21
Table 4.6 Correlation Coefficient between Total Credit and Total Deposit 24
Table 4.7 Trend Analysis of Net Liquid Assets 26

vi
 LIST OF FIGURES

Page
Figure 4.1 Bar Diagram of Cash Reserve Ratio 14
Figure 4.2 Bar Diagram of Cash and Bank Balance to Current Deposit Ratio 16
Figure 4.3 Bar Diagram of Cash Position Indicator 18
Figure 4.4 Bar Diagram of Capacity Ratio 20
Figure 4.5 Bar Diagram of Loan & Advance to Total Deposit Ratio 22
Figure 4.6 Trend Analysis of Net Liquid Assets 28

vii
 ABBREVIATION

BBA Bachelor in Business Administration

BOK Bank of Kathmandu

CCDR Cash and Bank Balance to Current Deposit Ratio

CRR Cash Reserve Ratio

F/Y Fiscal Year

HBL Himalayan Bank Limited

i.e. That is

NEPSE Nepal Stock Exchange

NIC Nepal Industrial and Commercial Bank

PE Probable Error

SBL Siddhartha Bank Limited

TU Tribhuvan University

& And

viii
 CHAPTER I: INTRODUCTION
1.1 Background
A financial institution is an establishment that conducts financial transactions such as
investments, loans and deposits. A Bank is a financial institution that accepts deposits
from the public and creates credit (Wikipedia). Bank and financial institutions play a
pivotal part in mobilization of fund. It plays an intermediary role in the economy by
mobilizing the financial resource from surplus economic sectors to deficit sectors.
Liquidity for a bank means the ability to meet its financial obligations as they come
due. Various scholars and institutions has defined Liquidity in following manner.

Liquidity is the ability of bank to fund increases in assets and meet obligations as they
come due, without incurring unacceptable losses. (Bank for International
Settlements/BIS 2008).

Liquidity can be defined as the ability of a financial institution to meet all legitimate
demands for funds (Yeager and Seitz 1989).

Liquid assets are defined as: Liquid Assets is the sum of, Cash, Bank Balance, and
money at calls at short notice, Investment in Government Securities and Reverse
Repo and Placement up to 30 days. Liquid assets should include unencumbered liquid
assets only. Unencumbered assets are those assets which are free from any debt
obligation and can be easily sold or mortgaged (NRB, Liquidity Monitoring Reporting
Requirements for Nepalese Banks and Financial Institutions).

1
1.2 Statement of Problem
Commercial bank needs to follow a suitable liquidity policy to generate maximum
profit and to keep organization financially healthy. A higher liquidity will not
generate desired profit whereas when there is a shortfall in liquidity the bank can no
longer satisfy its customers. Inadequate liquidity may lead to collapse of the bank
while excess liquidity is detrimental to its profitability. Thus liquidity status of bank
should be properly maintained and optimized. This can be achieved only with proper
planning and budgeting. The bank should use different available tool to properly
predict its cash inflows and outflows. In case of any changes in the demand and
supply, the bank should be prepared to cover shortfall or invest the excess funds. So
in order for the bank to generate income and at the same time not compromise
liquidity, bank needs to predict liquidity needs in the form of primary and secondary
reserves.

This study tries to solve the following research questions.

1. Does the bank have proper cash reserve ratio?

2. What is the relation between cash and bank balance with current deposit?
3. What is the relation between loan and advance with deposit?
4. Whether there is correlation between credit and deposit?
5. What is the optimum level of liquidity?
6. Is there any trend in cash position indicator, net liquid assets?

1.3 Objectives of the Study

The main objectives of the study is to analyze, examine and interpret the liquidity
position of the Siddhartha Bank Limited. Other objectives and features of this study
are:

1. To analyze whether the cash reserve ratio of the bank is adequate.

2. To show the relation between cash and bank balance with current deposit.
3. To determine the relation between loan and advance with deposit.
4. To find out the correlation between credit and deposit.
5. To show the relation between cash and bank balance with current deposit
6. To show the trend of cash position indicator and net liquid assets.
1.4Rationale
The rationales are as follows:

i. This report is prepared for partial fulfillment of the requirement for the degree
of Bachelor of Business Studies.
ii. This study has certain contribution to the existing knowledge in determining
liquidity of a commercial bank and its impact.
iii. The major beneficiary from this study are commercial bank, regulatory bodies,
academic staff and society as a whole.
1

1.5 Conceptual Framework

Liquidity level refers to the ability to have enough funds to meet the long-term and
short-term obligations. Liquidity ratios indicate the ability of the firm to meet
recurring financial obligations. Liquidity is important for the firm to avoid defaulting
on its financial obligations and, thus, to avoid experiencing financial distress (Ross,
Westerfield, Jaffe 2005). Liquidity can be defined as the ability of a financial
institution to meet all legitimate demands for funds (Yeager and Seitz 1989). It can
also be defined as the ability of bank to fund increases in assets and meet obligations
as they come due, without incurring unacceptable losses (Bank for International
Settlement 2008). Liquidity is the banker’s ability to satisfy demand for cash in
exchange for deposit (R.S. Sayers, 1992, 231). An Asset is complete liquid if its
owner can count with absolute certainty on leaning into cash at a very short notice and
without loss (Manning Decay, 1989). Investopedia defines Liquidity as the ability to
convert an asset to cash quickly. It is also known as marketability. Further it also
states that, liquidity is the degree to which an asset or security can be bought or sold
in the market without affecting the asset's price and it is characterized by a high level
of trading activity. Robert Waldmann (2009) in his article Liquidity explains what
does this term mean to the banking system. In the first definition liquidity is described
as the property of an asset which indicates that it can be converted into money quickly
and with low transaction costs. Robert Waldmann (2009) gives as an alternative
meaning of the term Liquidity, as the property of a price being as high as sellers think
it should be. For it to be possible to sell a lot of an asset quickly at its current price it
is necessary that trading volume be high so that many are bidding and asking at near
the current price. Liquidity is a property of an asset which indicates that a large
amount of it can be converted into money quickly at a price close to its current price
(Waldmann 2009). Waldmann (2009) also defines liquidity as the property of a
market in which assets are traded and large amounts of those assets can be sold and
bought quickly at the current market price. Constantinides (1986) defines the liquidity
premium to be the compensation to investor so that he is indifferent between a perfect
liquid asset and an asset with certain liquidity risk. For the liquidity monitoring
purpose, Liquid assets are defined as: Liquid Assets is the sum of, Cash, Bank
Balance, and money at calls at short notice, Investment in Government Securities and

4
Reverse Repo and Placement up to 30 days. Liquid assets should include
unencumbered liquid assets only. Unencumbered assets are those assets which are
free from any debt obligation and can be easily sold or mortgaged (NRB, Liquidity
Monitoring Reporting Requirements for Nepalese Banks and Financial Institutions).
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of
customers, which commercial banks have to hold as reserves either in cash or as
deposits with the central bank (Economic times, India).

1.6 Review of Previous Works

Various studies have been done by individuals as well as organization in the topic of
Liquidity of an organization. These studies have their own status because of the nature
of study, objectives of study, area of study and various other variables.

A study done was done by Paudel (2012) entitled “Liquidity Analysis of Nepal
Investment Bank Ltd.” for the partial fulfillment of the requirements for the degree of
Bachelor of Business Administration(BBA). The main objective of the study was to
analyze the liquidity position of Nepal Investment Bank Limited. The researcher used
various ratios like liquidity ratio, Cash and Bank Balance to Total Deposit Ratio,
Fixed Deposit to Total Deposit Ratio, NRB Balance to Total Deposit, NRB Balance
to Fixed Deposit Ratio and Liquid Assets to Total Deposit Ratio. The secondary data
was used for the study which were collected from annual reports from the Nepal
Investment Bank’s web sites and various other journals and published reports and
bulletins. The researcher analyzed the liquidity of the NIBL and recommended certain
steps to improve the current financial condition of the bank. The researcher
recommended to utilize amount collected from saving deposits in proper manner.
Balance with NRB to current plus saving deposit was suggested to be maintained at a
level below than 0.11 times. It was recommended not to invest too much in fixed
assets as it yielded no return.

Similarly, study done by Karki (2012) entitled “Liquidity and Profitability Position of
Commercial Banks of Nepal” which included Banks like SBL, NABIL, HBL and
NIBL for the partial fulfillment of the requirements for the degree of Master in
Business Administration (MBA). The researcher used two different business ratios for
conducting financial analysis i.e. Liquidity and Profitability. The objective of the
study was to examine & analyze the liquidity position and profitability position of the
commercial banks of Nepal. In the study liquidity position of various banks were
compared and analyzed. All the data and information are based on the past
performance and annual reports. The study evaluated the liquidity of the bank using
various tools like liquidity ratios which included Cash Reserve Ratio, Statutory Liquid
Ratio, Current Assets to Current Liability Ratio, Working Capital Ratio, various
Statistical tools. Various other ratios for analyzing the profitability of the banks were
also used in the study. As per the study, Liquid assets of SCBL was found to be
highest whereas Cash Reserve Ratio of NIBL was found to be most satisfactory. The
researcher suggested HBL to increase liquid assets considering the short-term
liabilities requirement. The researcher also recommended NABIL and HBL to
maintain CRR in proper manner so as to not jeopardize the credibility of the bank.

1.7 Research Design

To analyze the liquidity position of SBL, this study is based on descriptive and
analytical method. The secondary has been used for analysis for the period of five
years starting from 2010/11 to 2015/16.

1.8 Population and Sample

Among 28 Commercial Banks, only one bank has been taken using convenience
sampling method for the study i.e. Siddhartha Bank Limited.

1.9 Types of Data

The study is based on secondary data. The secondary data are collected from
respective annual reports from the Siddhartha Bank Ltd.’s web sites and various other
journals and from security bond Nepal (SUBO) and Nepal stock exchange (NEPSE).

1.10 Data Collection Procedure

The secondary data has been collected from the official website of Siddhartha Bank
Limited. Annual Financial Report for the last five years have been used to gather and
tabulate the data that was required for the preparation of this report.

1.11 Instruments

In this analysis, secondary data have been used. Following sources of data are used
for preparation of the report.

a. Audit Reports of SBL.

b. Annual reports and financial statements of SBL.
 c. Websites.

1.12 Techniques of Analysis

In this study, following financial and statistical tools are used to analyze the collected
data:

Financial Tools: Financial tools are used to examine the strength and weakness of the
bank. Financial ratio is the mathematical relationship between two accounting figures.
It is important analytical tool to valuate one variable over another. Financial tools
includes various ratios like:

a. Liquidity ratio
b. Cash and Bank Balance to Current Deposit Ratio
c. Cash Position Indicator
d. Cash and Bank Balance to Total Deposit Ratio
e. Activity ratio

Statistical Tools: Statistical tools help to find the trends of financial position and
analyze the relationship between various variables. Following statistical tools are
used:

a. Mean
b. Trend analysis

1.13 Limitations
The limitations of this study are as follows:

1. The study has been carried out for five year from 2068/69 to 2072/73.
2. Only secondary data have been used.
3. Only one single sample unit is used i.e. SBL.
4. This study is only concerned with the liquidity factors i.e. Cash Reserve Ratio,
Cash and Bank Balance to Current Deposit Ratio, Capacity Ratio, Loan.
 CHAPTER II : DATA PRESENTATION AND ANALYSIS
2

4.1 Cash Reserve Ratio (CRR)

CRR measures the bank’s liquidity funds to meet its uncertain demand on deposits.
This ratio is calculated as follows:

Cash∧Bank Balance
CRR=
Total Deposit

Table 4.1
Cash reserve ratio
Fiscal Year Cash and Bank Balance Total Deposit CRR %
2068/69 4,291,890,766.00 25,948,505,780.00 16.54%
2069/70 3,485,776,173.00 28,392,822,287.00 12.28%
2070/71 7,257,046,363.00 35,414,007,591.00 20.49%
2071/72 5,107,789,256.00 44,740,731,784.00 11.42%
2072/73 6,274,807,364.00 64,934,358,551.00 9.66%
Average 14.08%
Source: Annual Report of Siddhartha Bank Ltd.

The table 4.1 shows the CRR of the bank for last 5 years. It can be observed that the
bank has 16.54%, 12.28%, 20.49%, 11.42% and 9.66% CRR in the F.Y. 2068/69,
2069/70, 2070/71, 2071/72 and 2072/73 respectively. The bank has maximum CRR in
the FY 2070/71 and minimum is in the F .Y. 2072/73. The average CRR is 14.08%
for 5 years.
 70,000,000,000.00

60,000,000,000.00

Amount 50,000,000,000.00

40,000,000,000.00

30,000,000,000.00

20,000,000,000.00

10,000,000,000.00

0.00
2068/69 2069/70 2070/71 2071/72 2072/73
Fiscal Year

Cash and Bank Balance Total Deposit

Figure 4.1 Bar Diagram of Cash Reserve Ratio (CRR)

The figure 4.1 shows the deposit is in increasing trend. The total deposit kept in the
Bank is increasing in consistent basis. Whereas there is fluctuation in cash and bank
balance maintained by the bank. It can be observed that during the year 2069/70, cash
and bank balance falls from Rs. 4,291,890,766 to Rs. 3,485,776,173. Similarly, the
balance increased during 2070/71 to maximum for our project period amounting to
Rs. 7,257,046,363. Thus Cash and Bank Balance is fluctuating during various periods.

4.2 Cash and Bank Balance to Current Deposit Ratio

This ratio (CCDR) measures the banks abilities to meet the current obligation to its
current depositors must be paid whenever demanded. CCDR is calculated as follows:

Cash∧Bank Balance
CCDR=
Current Deposit
Table 4.2
Cash and Bank Balance to Current Deposit Ratio
Fiscal Year Cash and Bank Balance Current Deposit CCDR %
2068/69 4,291,890,766.00 702,674,456.00 610.79%
2069/70 3,485,776,173.00 895,029,086.00 389.46%
2070/71 7,257,046,363.00 2,166,994,386.00 334.89%
2071/72 5,107,789,256.00 2,589,936,175.00 197.22%
2072/73 6,274,807,364.00 3,548,461,066.00 176.83%
Average 341.84%
Source: Annual Report of Siddhartha Bank Ltd.

The table 4.2 shows that the cash and bank balance to pay current deposit of the bank.
The bank has the highest CCDR ratio in F.Y. 2068/69 and the lowest in the F.Y.
2072/73 over the last 5 years. It can be observed that during the years CCDR were
610.79%, 389.46%, 334.89%, 197.22% and 176.83% in 2068/69, 2069/70, 2070/71,
2071/72 and 2072/73 respectively. The average CCDR is 341.84%.

8,000,000,000.00

7,000,000,000.00

6,000,000,000.00

5,000,000,000.00
Amount

4,000,000,000.00

3,000,000,000.00

2,000,000,000.00

1,000,000,000.00

0.00
2068/69 2069/70 2070/71 2071/72 2072/73
Fiscal Year

Cash and Bank Balance Current Deposit

Figure 4.2 Bar Diagram of Cash and Bank Balance to Current Deposit Ratio

The bar diagram shows that cash and bank balance is fluctuating in nature. Whereas
current deposit is in increasing trend. Cash and Bank balance is in highest position
during the F.Y. 2070/71 whereas it is lowest in the F.Y. 2069/70. Current deposit is in
increasing trend throughout our project period. It is lowest in the F.Y. 2068/69 and
highest in the F.Y. 2072/73.
4.3 Cash Position Indicator
The cash position indicator shows the ratio between cash and bank assets. It indicates
that a greater proportion of cash implies that the bank is in a strong position to handle
inmate cash need. It is calculate as follows:

Cash Position Indicator =Cash∧Deposit due ¿ Depository ¿

Total Assets

Table 4.3
Cash Position Indicator
Fiscal Year Cash and Deposit Total Assets Ratio %
2068/69 30,240,396,546.00 29,579,198,888.00 102.24%
2069/70 31,878,598,460.00 33,653,855,758.00 94.72%
2070/71 42,671,053,954.00 40,277,752,199.00 105.94%
2071/72 49,848,521,040.00 50,647,295,616.00 98.42%
2072/73 71,209,165,915.00 74,402,915,402.00 95.71%
Average 99.41%
Source: Annual Report of Siddhartha Bank Ltd.

In the table 4.3 the cash position indicator is in decreasing order from in F.Y. 2069/70
as compared with F.Y. 2068/69. It again increases during the F.Y. 2070/71 and then
decreases during later 2 years. The cash position indicator in the fiscal year 2068/69,
2069/70, 2070/71, 2071/72 and 2072/73 are 102.24% 94.72%, 105.94%, 98.42% and
95.71% respectively.
 80,000,000,000.00
70,000,000,000.00
60,000,000,000.00
50,000,000,000.00
Amount

40,000,000,000.00
30,000,000,000.00
20,000,000,000.00
10,000,000,000.00
0.00
2068/69 2069/70 2070/71 2071/72 2072/73
Fiscal Year

Cash and Deposit Total Assets

Figure 4.3 Bar Diagram of Cash Position Indicator

The figure 4.3 shows Cash and Deposit as compared with Total Assets of the Bank
from F.Y. 2068/69 to 2072/73. Both Cash and Deposit and Total Assets are in
increasing Trend. Total of Cash and Deposit amounted to Rs. 30,240,396,546, Rs.
31,878,598,460, Rs. 42,671,053,954, Rs. 49,848,521,040 and Rs. 71,209,165,915
during the years 2068/69, 2069/70, 2070/71, 2071/72 and 2072/73 respectively.
Whereas Total Assets amounted to Rs. 29,579,198,888, 33,653,855,758, Rs.
40,277,752,199, Rs. 50,647,295,616 and Rs. 74,402,915,402 during the years
2068/69, 2069/70, 2070/71, 2071/72 and 2072/73 respectively.

4.4 Capacity Ratio

The capacity ratio shows the relationship between net loans and total assets of bank. It
is a negative liquidity indicator, because the loans and leases are often among the
most illiquid assets a bank can hold. It means greater the ratio net the bank has
liquidity. It is calculated as follows.

Net loans
Capacity Ratio=
Total Assets
Table 4.4
Capacity Ratio
Fiscal Year Net Loans Total Assets Ratio %
2068/69 20,172,584,589.00 29,579,198,888.00 68.20%
2069/70 22,299,097,508.00 33,653,855,758.00 66.26%
2070/71 27,080,490,349.00 40,277,752,199.00 67.23%
2071/72 36,274,796,450.00 50,647,295,616.00 71.62%
2072/73 54,440,891,229.00 74,402,915,402.00 73.17%
Average 69.30%
Source: Annual Report of Siddhartha Bank Ltd.

The table 4.4 shows the liquidity capacity of the bank. From the year 2069/70,
capacity ratio is in increasing order which indicates that the liquidity is in decreasing
order. As shown in above table, capacity ratios are 68.20%, 66.26%, 67.23%, 71.62%
and 73.17% respectively for F.Y. 2068/69, 2069/70, 2070/71, 2071/72 and 2072/73.

80,000,000,000.00
70,000,000,000.00
60,000,000,000.00
50,000,000,000.00
Amount

40,000,000,000.00
30,000,000,000.00
20,000,000,000.00
10,000,000,000.00
0.00
2068/69 2069/70 2070/71 2071/72 2072/73
Fiscal Year

Net Loans Total Assets

Figure 4.4 Bar Diagram of Capacity Ratio

The figure 4.4 shows the bank net loans and total assets from fiscal year 2068/69 to
2072/73. The net loan of the bank in 2068/69 is Rs. 20,172,584,589 and total assets is
Rs. 29,579,198,888. Similarly, the Bar Diagram shows this figure up to fiscal year
2072/73. Both the net loan and total assets of the bank have been in increasing trend.

4.5 Loan & Advance to Total Deposit Ratio

This ratio shows the amount existing in the bank after providing loan of deposit
collected. It indicated the deposit management of bank. It is calculated as follows
 Loan∧ Advance
Loan∧ Advance ¿ Total Deposit Ratio=
Total Deposit

Table 4.5
Loan & Advance to Total Deposit Ratio
Fiscal Year Net Loan Total Deposit Ratio %
2068/69 20,172,584,589.00 25,948,505,780.00 77.74%
2069/70 22,299,097,508.00 28,392,822,287.00 78.54%
2070/71 27,080,490,349.00 35,414,007,591.00 76.47%
2071/72 36,274,796,450.00 44,740,731,784.00 81.08%
2072/73 54,440,891,229.00 64,934,358,551.00 83.84%
Average 79.53%
Source: Annual Report of Siddhartha Bank Ltd.

The table 4.5 shows the ratio of Loan and Advance to Total Deposit for the last 5
years. The total credit to total deposit ratio for the study was found to be remained
77.74%, 78.54%, 76.47%, 81.08% and 83.84 % for F.Y. 2068/69, 2069/70, 2070/71,
2071/72 and 2072/73 respectively. The average ratio is 79.53%.

70,000,000,000.00

60,000,000,000.00

50,000,000,000.00
Amount

40,000,000,000.00

30,000,000,000.00

20,000,000,000.00

10,000,000,000.00

0.00
2068/69 2069/70 2070/71 2071/72 2072/73
Fiscal Year

Net Loan Total Deposit

Figure 4.5 Bar Diagram of Loan & Advance to Total Deposit Ratio

The figure 4.5 shows the total deposit and total credit of the bank from fiscal year
2068/69 to 2072/73. The total credit or net Loan of the bank is Rs. 20,172,584,589,
Rs. 22,299,097,508, Rs. 27,080,490,349, Rs. 36,274,796,450 and Rs. 54,440,891,229
in the year 2068/69, 2069/70, 2070/71, 2071/72 and 2072/73 respectively. Similarly,
total Deposit is Rs. 25,948,505,780, Rs. 28,392,822,287, Rs. 35,414,007,591, Rs.
44,740,731,784 and Rs. 64,934,358,551 during the years 2068/69, 2069/70, 2070/71,
2071/72 and 2072/73 respectively. There is increasing trend in bank’s total credit and
total deposit during the period of our study. The amount of total credit is less than that
of total deposit in every fiscal year.

4.6 Trend Analysis of Net Liquid Assets

Trend Analysis enables us to estimate or forecast the future behavior of variables
under study, which is essential for business planning.

The formula for least square method is as under:

Y c =a+bx

Where,
❑ ❑
∑ Y ∑ xy
a= ❑
∧b= ❑
N ❑
∑ x2
❑

Here, Y c is indicated as the trend value to distinguished from actual values, a is the Y c
intercept as the computed trend figure of the trend line or the amount of changes in y
variables that is associated with the changes of one unit on x variable. The x variable
represents the time and b represents the scope of trend line of annual growth.
Table 4.7

Trend Analysis of Net Liquid Assets

Net
Fiscal x=X-
Liquid y=Y-Ý x2 y2 xy
Year X́
Assets
(X) (Y)
(2,596.66
2068/69 7,567.64 -2 4.00 6,742,641.47 5,193.32
)
(2,708.69
2069/70 7,455.61 -1 1.00 7,337,012.57 2,708.69
)
2070/71 10,528.46 0 364.16 - 132,612.07 -
2071/72 11,010.49 1 846.19 1.00 716,029.11 846.19
16,769,084.6
2072/73 14,259.31 2 4,095.01 4.00 8,190.01
8
Ʃy2 =
ƩY = Ʃxy =
Ʃx = 0 Ʃx2 = 10 31,697,379.8
50821.52 16,938.21
9
Source: Annual Reports of Siddhartha Bank

Here,
❑
∑ x =0
❑

❑
∑ Y
50,821.52
a= ❑
= =10,164.30
N 5
❑
∑ xy
16,938.21
b= ❑
= =1,693.82
❑
10
∑ x2
❑

Now, the trend line Equation is:

Y c =a+bx

i.e. Y c =10164.30+1693.82 x

Y 1=10164.30+1693.82 (−2 )=6776.66

Y 2=10164.30+1693.82 (−1 )=8470.48

Y 3=10164.30+1693.82 ( 0 ) =10164.3
Y 4 =10164.30+1693.82 ( 1 ) =11858.12

Y 5=10164.30+1693.82 ( 2 )=13551.94

As per above calculation, Trend value for year 1 (2068/69) is 6776.66, year 2
(2069/70) is 8470.48, year 3 (2070/71) is 10164.3, year 4 (2071/72) is 11858.12 and
year 5 (2072/73) is 13551.94. The trend value is increasing throughout the period of
our study. The net liquid asset is in increasing trend.
 Yc = a + bx
16000

14000

12000

10000

8000

6000

4000

2000

0
2068/69 2069/70 2070/71 2071/72 2072/73

Figure 4.6 Trend Analysis of Net Liquid Assets

The above chart clearly show the Y c is upward sloping which means that the net
liquidity of the bank is in increasing trend which are calculated by least square
method at the chart shown above.

4.7 Major Findings

The major findings of this research report have been summarized as follows:

1. Cash reserve ratio is found to be high in 2070/71 with 20.49% and low in
2072/73 with 9.66%.
2. Cash and bank to current deposit ratio is found to be high in 2068/69 with
610.79% and low in 2072/73 with 176.83%.
3. Cash position indicator is found to be high in 2068/69 with 102.24% and low
in 2069/70 with 94.72%.
4. Capacity ratio is found to be high in 2072/73 with 73.17% and low in 2069/70
with 66.26%.
5. Loan and advance to total deposit ratio is found to be high in 2072/73 with
83.84% and low in 2070/71 with 76.47%.
6. Correlation coefficient between total credit and total deposit for last 5 years is
found to be 0.999062.
7. Net Liquid Assets of SBL was found to be in increasing trend.
 CHAPTER III: DISCUSSION AND CONCLUSION
4

4
5.1 Discussions
Siddhartha Bank Limited has maintain appropriate liquidity. Cash reserve ratio
measures the bank’s liquidity funds to meet its uncertain demand on deposits. Cash
reserve ratio of SBL is found to be high in 2070/71 with 20.49% and low in 2072/73
with 9.66% with average of 14.08% for last 5 years. Cash and Bank to Current
Deposit Ratio measures the ability of the bank to meet its current obligation to the
depositors. The analysis shows that CCDR is found to be high in 2068/69 with
610.79% and low in 2072/73 with 176.83% and average of 341.84%. It is found to be
in decreasing trend. The Cash Position Indicator shows the ratio between cash and
bank assets. It indicates that a greater proportion of cash implies that the bank is in a
strong position to handle inmate cash need. Cash Position Indicator of SBL is found
to be high in 2068/69 with 102.24% and low in 2069/70 with 94.72% and average of
99.41%. Cash and deposit and total assets are in increasing trend. The capacity ratio
shows the relationship between net loans and total assets of bank. It is a negative
liquidity indicator, because the loans and leases are often among the most illiquid
assets a bank can hold. It is found to be high in 2072/73 with 73.17% and low in
2069/70 with 66.26% with an average of 69.30%. It is in increasing trend after the
year 2068/69. Loan and Advance to Total Deposit Ratio shows the amount existing in
the bank after providing loan of deposit collected. It indicated the deposit
management of bank.to total deposit ratio is found to be high in 2072/73 with 83.84%
and low in 2070/71 with 76.47% with an average of 79.53%. Correlation coefficient
between total credit and total deposit for last 5 years of SBL is found to be
+0.999062. As the correlation is near to +1, there is highly positive correlation
between the variables i.e. total credit and total deposit.

5.2 Conclusion and Implications

5.2.1 Conclusion
Liquidity position of SBL is found to be satisfactory. The study of liquidity condition
of SBL helps to find out the ability of the bank to meets its current obligations. The
research concludes the following points:
 a) The bank has maintained its CRR as per the directions. The average CRR of
the bank is 14.08% for the past five years. It indicates that bank has
maintained NRB’s directives and requirements which requires that
commercial bank maintain CRR at 5%.
b) Cash and Bank Balance to Current Deposit Ratio has an average of 341.84%
i.e. there is appropriate Cash and Bank Balance to meet the demand of Current
Deposit.
c) Loan and Advance to Total Deposit Ratio of SBL has an average of 79.53%.
With the increase in Total Deposit, Loan and Advances provided by SBL also
increased.
d) The average cash and deposit to total assets ratio i.e. cash position indicator of
the bank shows an average of 99.41%. Thus the bank is in strong position to
handle inmate cash need.
e) The average advance and loan disbursed by bank in past 5 years is 69.30%.

f) The correlation of total credit and total deposit is highly positive i.e.
+0.999062. This shows that bank has satisfactory credit management.
g) The efficiency of bank is managing its researches can be found by observing
in its activity ratio. The total deposit of Siddhartha Bank Ltd. is in increasing
trend.

5.2.2 Implications
The liquidity position of the bank is found to be favorable condition. As per my study,
SBL should give continuity to its liquidity management. SBL should manage its
liquidity in optimal manner so as to maximize its utilization and reduce the cost of
maintaining it. SBL should introduce policies to enhance its ever-growing depositors
so that ample fund is available to be used in appropriate sector.
 BIBLIOGRAPHY
Books

ACCA Study Text. (2007). Managerial Finance. London: London BPP Publishing.

Barua, A. (2001). Liquidity Scenario in Commercial Banks of Bangladesh. Journal of

business research, 3, 1-16.

Karki, (2012). Liquidity and Profitability Position of Commercial Banks of Nepal.

Unpublished MBAproject report, Tribhuvan University.

Kothari, C. R. (1998). Research Methodology: Methods and Techniques (7th ed.).

New Delhi, India.

Nordic Investment Policy, (2009). Liquidity policy of commercial banks. Retrieved

from http://www.nib.int/filebank/755-LiquidityPolicy.pdf

Paudel, (2012). Liquidity Analysis of Nepal Investment Bank Ltd. Unpublished BBA
project report, Tribhuvan University.

Shilpakar, (2010). A Study on Liquidity Position of Nepal Credit and Commerce Bank
Ltd.

Unpublished BBA project report, Tribhuvan University.

Shin. H., & Adam T. (2007). Liquidity and leverage position of commercial banks.
Retrieved from http://www.princeton.edu

APPENDIX
Comparative Balance Sheet

Siddhartha Bank Limited

Capital and Liabilities 2011/12 2012/13 2013/14 2014/15 2015/16

1,619,244,30 1,813,553,61 2,031,180,03
Share Capital 2,437,416,038 4,496,143,266
0 6 2
Reserve and Surplus 564,028,200 688,646,434 969,200,600 1,308,664,263 1,745,651,012
Debenture and Bonds 627,770,000 931,290,000 931,290,000 1,431,290,000 1,203,520,000
Borrowings 45,000,000 787,465,822 106,415,000 65,000,000 910,000,000
25,948,505,7 28,392,822,2 35,414,007,5
Deposit Liabilities 44,740,731,784 64,934,358,551
80 87 91
Bills Payable 7,721,141 13,018,950 104,740,547 12,750,802 40,019,603
Proposed Dividend 136,357,415 163,628,898 202,354,402 21,380,842 -
Income Tax Liabilities 27,470,539 7,078,003 - -
Other Liabilities 603,101,514 856,351,748 518,564,027 630,061,887 1,073,222,970
Total Capital & 29,579,198,8 33,653,855,7 40,277,752,1
50,647,295,616 74,402,915,402
Liabilities 88 58 99
Assets
1,121,761,91
Cash Balance 813,180,031 761,809,818 1,155,856,745 1,940,584,292
0
Balance with Nepal 2,925,084,33 2,656,846,86 5,953,656,42
3,753,171,906 3,847,268,039
Rastra Bank 6 3 2
Balance with Bank and
553,626,399 67,119,493 181,628,032 198,760,605 486,955,033
Financial Institutions
Money at Call & Short 1,375,253,33 1,150,000,00
647,479,500 1,130,000,000 950,700,000
Notice 7 0
3,393,868,13 4,472,790,40 3,327,655,03
Investment 6,641,681,645 9,822,606,937
3 8 8
Loans, Advances & 20,217,584,5 23,086,563,3 27,186,905,3
36,339,796,450 55,350,891,229
Bills Purchased 89 30 49
Fixed Assets 358,712,869 453,510,172 440,491,043 409,852,296 618,825,074
Non-Banking Assets - - -
Other Assets 669,663,031 779,962,337 915,654,405 1,018,175,969 1,385,084,796
29,579,198,8 33,653,855,7 40,277,752,1
Total Assets 50,647,295,616 74,402,915,402
88 58 99
 Comparative Income Statement

Siddhartha Bank Limited

Particulars 2011/12 2012/13 2013/14 2014/15 2015/16

2,906,265, 2,898,414,6 3,056,286, 3,295,249 4,118,493
Interest Income
458 98 677 ,733 ,985
2,048,913, 1,742,838,6 1,708,865, 1,859,406 2,000,901
Interest Expenses
705 25 575 ,575 ,991
857,351, 1,155,576,0 1,347,421, 1,435,843 2,117,591
Net Interest Income
753 73 102 ,157 ,994
Commission & 108,180, 113,066,7 159,355, 187,707, 173,917,
Discount 648 01 124 740 476
Other Operating 94,506, 182,092,8 204,085, 243,595, 316,589,
Income 710 30 093 715 540
Exchange Fluctuation 115,626, 156,644,5 132,327, 142,341, 167,085,
Gain 926 86 198 336 097
Total Operating 1,175,666, 1,607,380,1 1,843,188, 2,009,487 2,775,184
Income 037 90 517 ,948 ,107
173,883, 216,516,3 242,446, 328,131, 372,849,
Employees Expenses
774 61 594 103 883
Other Operating 336,339, 376,891,0 436,309, 459,806, 489,862,
Expenses 828 63 023 993 673
Exchange Fluctuation
Loss -
Operating Profit
665,442, 1,013,972,7 1,164,432, 1,221,549 1,912,471
Before Provision for
435 66 900 ,852 ,551
Possible Loan Loss
Provisions for possible 155,526, 245,494,5 423,229, 249,086, 259,340,
losses 474 74 271 366 384
509,915, 768,478,1 741,203, 972,463, 1,653,131
Operating Profit
961 92 629 486 ,167
Non- Operating 912, 943,5 93,180, 38,853, 160,380,
Income/(Expenses) 683 81 277 623 506
Possible Loss Provision 8,100, 266,402, 197,952, 157,363,
Written Back 000 956 367 836
Profit from Regular 518,928, 769,421,7 1,100,786, 1,209,269 1,970,875
Activities 644 73 862 ,476 ,509
Income/Expenses from
(12,794, (24,2 1,002, 572,
Extraordinary
019) 85) 663 084
Activities
Net Profit after 518,928, 756,627,7 1,100,762, 1,210,272 1,971,447
including all activities 644 54 577 ,139 ,593
Provision for Staff 47,175, 68,784,3 100,069, 110,024, 179,222,
Bonus 331 41 325 740 508
Provision for Income 141,296, 205,286,9 300,158, 333,166, 537,307,
Tax (a+b-c) 927 65 253 888 081
146,623, 214,877,7 305,439, 348,641, 535,104,
a. Current Year Tax
063 04 974 794 839
844, 754,8 2,594,2 1,079, 3,254,
b. Prior Period Tax
589 35 50 030 415
c. Deferred Tax 6,170, 10,345,5 7,875,9 16,553, 1,052,
Income/(Expenses) 725 74 71 936 173
330,456, 482,556,4 700,534, 767,080, 1,254,918
Net Profit/ (Loss)
383 48 999 511 ,004