1

CHAPTER-I

INTRODUCTION

1.1 General Background

Interest rate is defined as the proportion of an amount loaned which a lender charges
as interest to the borrower, normally expressed as an annual percentage. It is the rate
a bank or other lender charges to borrow its money, or the rate a bank pays its savers for
keeping money in an account. Interest is payment from a borrower or deposit-taking financial
institution to a lender or depositor of an amount above repayment of the principal sum (i.e.,
the amount borrowed), at a particular rate. Moreover, bank provide interest rate to the
customer and aimed to invest those collected funds in any of the project with intention to earn
a high rate of return in the future. Therefor the interest rate greatly affects the profitability of
the bank so here we discussed about the effect of interest rate on the profitability of the Nepal
SBI Bank Limited.

Profitability means the degree to which a business or activity yields profit or financial
gain. It is the ability of the organization to earn profit. Furthermore, Profit is
a financial benefit that is realized when the amount of revenue gained from a business
activity exceeds the expenses. Every organization goal is to maximize the profit because
profit helps the organization to run smoothly. If the organization do not gain profit than
ultimately these types of organization will be failure so profit plays the vital role in any
organization for its successful operation and survival of business. In addition, Profit is the
final output of the organization so it is very important to preserve the existence of the projects
or business as well as its strengthen and expansion. To measure the effect of change in bank’s
profitability, it is necessary to examine and asses the overall fluctuations of interest rates on
the economy and to depict the implications of the interest rate on cash flow.

1.2 Profile of the Organization

Nepal SBI Bank Ltd. (NSBL) is the first Indo-Nepal joint venture in the financial
sector sponsored by three institutional promoters, namely State Bank of India(SBI),
Employees Provident Fund and Agricultural Development Bank of Nepal through a
Memorandum of Understanding signed on 17 July 1992.NSBL was incorporated as Public
Limited Company at the Office of the Company Registrar on 28 April 1993 under Regn. No.
17-049/50 with an Authorized Capital of Rs.12 Crores and was licensed by Nepal Rastra
 2

Bank on 6 July 1993 under license No. NRB/l.Pa./7/2049/50. NSBL commenced operation
with effect from 7 July 1993 with one full-fledged office at Durbar Marg, Kathmandu with 18
staff members. The staff strength has since increased to more than 500. Under the Banks &
Financial Institutions Act, 2063, Nepal Rastra Bank granted fresh license to NSBL
classifying it as an "A" class licensed institution on 26 April 2006 under license No.
NRB/I.Pra.Ka.7/062/63.[8] The Authorized capital is Rs.300 crore and Paid up Capital is
Rs.235 Crores. The management team consists of Managing Director and CEO, Chief
Operating Officer and Dy.CEO and Chief financial officer from SBI. They are deputed by
SBI for management support as per the Technical Services Agreement. 55 percent of the total
share capital of the Bank is held by the State Bank of India, fifteen percent is held by the
Employees Provident Fund and the balance is held by the general public.

In terms of the Technical Services Agreement between SBI and the NSBL, the former
provides management support to the bank through its expatriate officers including Managing
Director who is also the CEO of the Bank. Central Management Committee (CENMAC)
consisting of the Managing Director, Chief Operating Officer & Dy.CEO, Chief Financial
Officer and Chief Credit Officer oversee the overall banking operations in the Bank. The
Bank was established in July 1993 & is now having 598 Nepalese employees working in 68
branches, 7 extension counters, 3 Regional Offices & the Corporate Office. NSBL Paid of
capital is Rs 3883735565 in year 2073 and Rs 6924892999 in year 2074.

1.3 Objectives of the Study

The main objective to prepare this report is to analyses the effect of interest rate on
profitability of Nepal SBI Bank Limited. It helps to determine the historical and current
performance of the firm. The objective of this study are presented clearly in the followings
points which are mentioned as below:
 To identify the profitability position of the Nepal SBI Bank limited.
 To analysis the relationship between interest income and its profitability of Nepal SBI
Bank Limited.
1.4 Rationale
It is very difficult for the bank to run without profit that’s why profit play the vital
role for its successful operation of the whole banking system. The profit is greatly influence
by the interest rate of the bank. It means that there is a great relationship between interest rate
and the profitability position of the bank. This report is based on an analysis of the effect of
interest rate on the profitability position of Nepal SBI Bank Limited. Moreover, this study is
 3

useful for the manager of the bank to take a financial decision and also useful for the new
researcher for the further study on the same topic.
1.5 Review of literature
A literature review is an evaluative report of information found in the literature
related to the selected area of study. A literature review is a text of a scholarly paper, which
includes the current knowledge including substantive findings, as well as theoretical and
methodological contributions to a particular topic. It is a secondary sources and do not report
new or original experimental work. While preparing this report, researcher has used the
different books, others researcher’s report ideas and company’s records which helps in
presenting the clear objectives of the study.
1.5.1 Conceptual review
In this part the researcher gives the critical analysis of the most relevant theories, from
the classical to the modern approaches. Moreover, the researcher will present the theoretical
concept of his studied report and the definition of the main variables relating to the effect of
interest on the profitability of Nepal SBI Bank Limited.

Independent Variables Dependent Variables

Interest Rate Profitability

 Return on assets(ROA)
 Return on shareholder equity
(ROE)
 Earnings Per Share(EPS)
 Net Profit Margin(NPM)
 Net Interest Margin(NIM)
 Net Operating Margin(NOM)

1.5.2 Review of Previous Works

Previous studies relating to Nepalese banking sector have been most important
and relevant for my study. Some of the earlier studies about the interest rate and profitability
have been reviewed. Reference of these studies has become very useful for me to complete
 4

this dissertation. Moreover, Review of previous work is very beneficial for the effective study
because it gives the ideas, ways to accomplish the report. Many reviews of previous work
report have been studied while preparing this report and some of them are as follows:

Nepali (2017) under the topic effect of interest rate on profitability position of NMB
Bank, Butwal with objectives to find out the relationship between interest income and the
profitability position.

Thapa (2015) study about banks profitability in Nepal, they found a significant
relation between asset management ratios, capital and economic growth and ROA, the
operating efficiency, assets management and economic growth are Significant with ROE. On
the other hand, domestic banks are determining to have a lesser adequacy ratio than foreign
bank

Rana (2009) under the topic profitability analysis of Nabil Bank Limited, Butwal with
objective to find out importance of profit in an organization and found the net profit margin
goes on increasing every year.

Tandon (2010) under the topic profitability analysis of Himalayan Bank Limited,
Butwal with objective of finding the strengthens and weakness of an organization and found
that earning per share of that bank was on increasing order every year.

1.6 Research Methodology

Research methodology reflects how the data are presented by using various tools and
techniques. The main methods that will be used for the study in order to prepare this report
will as follow:

1.6.1 Research Design

Research design is a master plan, regarding the method and procedure of
investigation. Analytical and comparative research designs will be done by the researcher to
gain a better understanding of a topic or to meet the objective of the research.
1.6.2 Population and Sampling
Sampling is the process of selecting units (e.g., people, organizations) from a
population of interest so that by studying the sample the researcher may fairly generalize their
results back to the population from which they were chosen. the researcher will have sample
selection of the Nepal SBI Bank Limited on the topic of interest rate on profitability from the
five fiscal year i.e. 2069/70 to 2073/74.
 5

1.6.3 Sources and Techniques of Data Collection

To prepare this report, the researcher will select secondary sources which are already
collected from pre-published data sources. Furthermore, quantitative data techniques will be
used by the researcher to analyze the effect of interest rate on profitability of the Nepal SBI
Bank Limited. The secondary data sources used in this study are as follows:

(A) Secondary sources

 Annual report of NSBL

 Interim performance report of Nepal NSBL
 Articles from newspapers
 Books publication, Journals
 Previous research work
 Websites
1.6.4 Instrument
The purpose of the instrument selection is to give readers a detailed explanation of
how the key variable were conceptualize and measured in this study. Since the instrument
have already been adapted or developed, this section is simply to describe the instrument that
have already been produced. Under this report the researcher has used various statistical and
financial tools that are presented in the table, figure and the trend line to show the relation
between the different variable of research report. In this study main instrument are computer,
Previous research work, Books Publication, annual report of the bank etc.
1.6.5 Data presentation and Data Analysis Tools
The data will be processed, tabulated and graphed to analyze and achieve objectives
of the study. Some of the tools and techniques which will be use in this study for the easy
understanding are as follows:

 Table
 figure
 Ratio
 Trend line
 percentage
 Correlation coefficient
 6

1.7 Limitation of the study

There are some limitation of the study and they will be as follows:

 This study only covers the data from fiscal year 2069/70 to 2073/74.
 The data, information and facts is based on secondary data.
 Only limited statistical tools are used to analyze the data.

 The result obtain from study can’t be generalized for all similar organization due to
varying nature of their operation and business.

1.8 Organization of the Study

This study comprises of three chapters. Given below are the headings under which the
entire study has been categorized:

Chapter – I: Introduction

The first chapter includes background, profile of organization, objectives, rationale,

review, methods, data collection procedure, instruments, techniques of analysis, limitation
and report structure of the study.

Chapter- II: Results and Analysis

The second chapter includes presentation of data in tables and figure and their
analysis and major findings.

Chapter- III: Summary and Conclusion

The third chapter includes summary and conclusion.

Lastly, bibliography and appendices are added at the end of this report.
 7

CHAPTER-II

REASULTS AND ANALYSIS

2.1 Presentation of Data in Tables and Figures and Their Analysis

Presentation of data is the inner core of the report where true date is presented and
analyzed in the forms of tables, diagram, charts, graphs in an effective way. To generalize the
economic condition of any organization, the researcher first should collect the relevant data’s
and information of the organization. The collected by the researcher are in the raw form,
which is difficult to understand and have vague meaning and cannot be used to generate
accurate analysis of the organization. So raw data should be arranged in appropriately using
certain techniques such as editing, coding classification and so on. The data and information
collected has been presented by using charts, graphs, tables, diagrams, and analyze by using
various formulas as presented earlier.

2.1.1 Profitability Ratio

Profitability ratios are a class of financial metric that are used to assess a business's
ability to generate earnings compared to its expenses and other relevant costs incurred during
a specific period of time. For most of these ratios, having a higher value relative to a
competitor's ratio or relative to the same ratio from a previous period indicates that the
company is doing well. Some examples of profitability ratios are profit margin, return on
assets (ROA) and return on equity (ROE). 

A. Return on Assets(ROA)

Return on assets (ROA) is a financial ratio that shows the percentage of profit a

company earns in relation to its overall resources. It is commonly defined as net income
divided by total assets. Net income is derived from the income statement of the company and
is the profit after taxes. Return on assets is a key profitability ratio which measures the
amount of profit made by a company per dollar of its assets. It shows the company's ability to
generate profits before leverage, rather than by using leverage.

It is calculated by using formula.

 8

Return on Assets= Net Income/Total Assets

Table 2.1

Return on Assets of (ROA)

(RS. In crore)

Fiscal year Net profit Total assets ROA %

2069/70 77.15 6483.19 1.19
2070/71 92.30 6153.33 1.50
2071/72 106.54 6266.47 1.70
2072/73 133.19 6659.5 2.00
2073/74 152.32 9066.67 1.68
(Source: Annual Report of Nepal SBI Bank
Ltd)

In the above 2.1 table the total assets and the profit of the Nepal SBI Bank Ltd. is in
increasing trend. The percentage of ROA from fiscal year 2069/70 to 2073/74 are 1.19%,
1.50%, .1.70%, 2.00% and 1.68% respectively. The ROA shows the fluctuation which
indicates that there is necessary of the proper management to utilize available assets
effectively and efficiently.

2.5

2
2
1.7 1.68
1.5
1.5
ROA %

1.19
1

0.5

0
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISCAL YEAR
 9

Figure 2.1: Return On Assets (ROA)

In the above figure 2.1 shows the total assets and the total profit of the Nepal SBI Bank
Ltd. is in increasing trend up to fiscal year 2072/7 than he has decreased in 2073/74 it means
there is necessary of proper management to utilize available assets effectively and efficiently.

B. Return On Shareholder Equity

Return on equity (ROE) is the amount of net income returned as a percentage of

shareholder’s equity. Return on equity measures a corporation's profitability by revealing
how much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity

Table 2.2

Return On Shareholder Equity (ROE)

(RS. In crore)

Fiscal year Net profit Shareholder Equity ROE %

2069/70 77.15 379.9 20.31
2070/71 92.30 453.58 20.35
2071/72 106.54 564.59 18.87
2072/73 133.19 692.04 19.25
2073/74 152.32 1039.81 14.64
(Source: Annual Report of Nepal SBI Bank Ltd)
 10

The above 2.2 table shows the Return on Shareholder equity of Nepal SBI Bank Ltd.
The ROE between 2069/70 to 2073/74 are in decreasing order
20.31%,20.35%,18.87%,19.25% and 14.64% respectively. The return on shareholder equity
seems to be decreasing year by year up-to 2074. This result of ROE proves that the way to
deteriorate the enthusiasm of present and potential investors of equity. Moreover, it directly
affects the market value of the share and the goodwill of the bank too.

25

20.31 20.35
20 18.87 19.25

14.64
15
ROE%

10

0
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISCAL YEAR

Figure 2.2: Return On Shareholder Equity (ROE)

The above 2.2 table shows the Return on Shareholder equity of SBI Bank Ltd. This
result of ROE proves that the way to deteriorate the enthusiasm of present and potential
investors of equity. Moreover, it directly affects the market value of the share and the
goodwill of the bank too.

C. Earnings per Share (EPS)

Earnings per share (EPS) is the portion of a company's profit allocated to each
outstanding share of common stock. Earnings per share serves as an indicator of a company's
profitability. While calculating EPS, retained earnings should be considered, i.e. only earning
of the year should be considered. It shows the relationship between net profit and after
preference dividend dividing by the number of equity share outstanding.

EPS is calculated as:

EPS = (Net Income - Dividends on Preferred Stock) /No of Outstanding Shares

 11

Table 2.3

Earnings Per Share Equity (EPS)

Fiscal year Net profit No. of outstanding shares EPS (RS.)

2069/70 771500000 2355700000 32.75

2070/71 923000000 2650000000 34.83

2071/72 1065400000 3058000000 34.84

2072/73 1331900000 3884200000 34.29

2073/74 1523200000 4976200000 30.61

(Source: Annual Report of Nepal SBI Bank Ltd)

The EPS of Nepal SBI Bank Ltd. has been increasing continuously apart from
2073/74 as a result of the effective and efficient management of the firm. This has resulted
the growth in the market price per share in the fiscal year 2069/70 Rs 32.75 to 2073/74 Rs
30.61. The management of the firm is able to maximize the value of the share which is the
good sign for the common stockholders, Banks and potential investor but looking the EPS of
2073/74 the firm need to change in its management style because its EPS is less in this fiscal
year as compare to previous year.
 12

36 Figure 2.3: Earnings Per

34.83 34.84
35 34.29
Share Equity (EPS)
34
32.75
33
In the above figure
32
EPS

31 30.61 2.3, the x axis represent the

30
fiscal year and y axis
29
28 represent the y-axis earning
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISACL YEAR per share. The curve shows
the increasing in decreasing
order of EPS in 2069/70 to 2073/74. The EPS between 2069/70 to 2073/74 are Rs. 32.75,
Rs.34.83, Rs 34.84, Rs. 34.29 and Rs. 30.69 respectively. In fiscal year 2073/74 the EPS is
minimum as compare to previous EPS which shows that there is needed efficient and
effective management.

D. Net Profit Margin

Net profit margin is the ratio of net profits to revenues for a company or business
segment. Typically expressed as a percentage, net profit margins show how much of each
dollar collected by a company as revenue translates into profit.

The equation to calculate net profit margin is:

Net Profit Margin= Net Income/Operating Profit

Table 2.4

Net Profit Margin (NPM)

(RS. In crore)

Fiscal year Net profit Operating Profit Net profit Margin %

2069/70 77.15 117.51 65.65
2070/71 92.30 135.84 67.95
 13

2071/72 106.54 163.05 65.34

2072/73 133.19 205.93 64.68
2073/74 152.32 234.00 65.09
(Source: Annual Report of Nepal SBI Bank Ltd)

In the above table 2.4, the net profit margin of Nepal SBI Bank Ltd. in different fiscal
year. The net profit margin between fiscal year 2069/70 to 2073/74 are 65.65%, 67.95%,
65.34%, 64.68% and 65.09% respectively. From the above calculation is it shown that the net
profit margin is fluctuating year by year.

69

67.95
68

67
NPM%

66
65.65
65.34
65.09
65 64.68

64

63
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISCAL YEAR

Figure

The above 2.4: figure shows the net profit margin of Nepal SBI Bank Ltd. in different
fiscal year. The net profit margin between fiscal year 2069/70 to 2073/74 are 65.65%,
67.95%, 65.34%, 64.68% and 65.09% respectively which is fluctuating year by year.

E. Net Interest Margin (NIM)

Net interest margin is a performance metric that examines how successful a firm's

investment decisions are compared to its debt situations. A negative value denotes that the
firm has not made an optimal investment decision because interest expenses exceed the
amount of returns generated by investments.

Net interest margin is calculated as:

 14

Net Interest Margin= Net Interest Income/ Interest Earning Assets

Table 2.5
Net Interest Margin (NIM)
(RS. In crore)
Fiscal year Net Interest Income Interest Earning Assets Net Interest Margin %

2069/70 162.35 2878.81 5.64%

2070/71 174.50 3527.96 4.95%

2071/72 204.75 3997.92 5.12%

2072/73 241.61 4697.55 5.14%

2073/74 291.67 6302.48 4.63%

(Source: Annual Report of Nepal SBI Bank Ltd)

In the above table 2.5, the Net Interest Margin in different fiscal year between
2069/70 to 2073/74 are 5.64%, 4.95%, 5.12%, 5.14% and 4.63. According to the table the
Net Interest Margin of bank are fluctuating reach to minimum in 2073/74 i.e. 4.63%.
 15

6.00%
5.64%
5.12% 5.14%
4.95%
5.00% 4.63%

4.00%
NIM %

3.00%

2.00%

1.00%

0.00%
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISCAL YEAR

Figure 2.5: Net Interest Margin (NIM)

In the above 2.5 figure the Net Interest Margin in different fiscal year between 2069/70 to
2073/74 are fluctuating to 5.64%, 4.95%, 5.12%, 5.14% and 4.63% respectively.

F. Net Operating Margin (NOM)

Net operating margin shows the relation between operating income and operating
expenses. It is calculated by subtracting operating expenses from operating income.

It can be calculated as:

Net Operating Margin= (Operating income – Operating expenses)/Total Assets

Table 2.6

Net Operating Margin (NOM)

(RS. In crore)
 16

Fiscal Year Operating Operating Total Assets Net Operating (S

ou Income Expenses Margin % rc
e: 2069/70 219.69 47.72 6483.19 2.65
2070/71 239.05 50.60 6153.33 3.06
2071/72 281.51 51.58 6266.47 3.67
2072/73 333.64 61.68 6659.5 4.08
2073/74 407.31 75.47 9066.67 3.66

Annual Report of Nepal SBI Bank Ltd)

In the above table 2.6, the net operating margin is calculated by subtracting operating
expenses from operating income and then dividing by the total assets. The net operating
margin in different fiscal year between 2069/70 to 2073/74 are 2.65%, 3.06%, 3.67%, 4.08%
and 3.66% respectively which is fluctuated between the following fiscal years so the bank
need to do effective management.

4.5
4.08
4
3.67 3.66
3.5
3.06
3
2.65
(NOM %)

2.5

1.5

0.5

0
2069/2070 2070/2071 2071/2072 2072/2073 2073/2074
FISCAL YEAR

Figure 2.6: The Net Operating Margin(NOM)

In the above 2.6 figure the net operating margin is in increasing in decreasing order
between the fiscal year 2069/70 to 2073/74 i.e. from year 2069/70 to 2072/2073 is increasing
than after it starts to decreasing. The net operating margin in different fiscal year between
2069/70 to 2073/74 are 2.65%, 3.06%, 3.67%, 4.08% and 3.66% respectively which is
fluctuated.
 17

2.1.1 Status of Annual Interest Rates for Investment of Nepal SBI Bank
Limited

The Nepal SBI Bank Ltd. provides different areas investment for profit so the profit is
taking from interest rate so the interest rates of Nepal SBI Bank Ltd. are presented in the
following:

Table 2.7

Status of Annual Interest Rate for Investment of SBI Bank Ltd.

Loan & Advances Schemes  Interest Rate(p.a)

w.e.f  16th July, 2017 (1st  Shrawan,
2074)
    
Corporate Prime  Other
Customers Customers Customers 
Working Capital / Cash Credit BR+1.00% BR+2.75% BR+3.75%
to to to
BR+4.50% BR+5.00% BR+6.00%
Trust receipt BR+0.50% BR+1.25% BR+3.25%
 18

to to to
BR+3.00% BR+4.00% BR+6.00%
Short Term Demand Loan BR+1.00% BR+2.75% BR+3.75%
to to to
BR+4.50% BR+5.00% BR+6.00%
Term Loan / Project Finance BR+1.25% BR+2.75% BR+3.75%
to to to
BR+4.50% BR+5.00% BR+6.00%
Working Capital / Cash Credit –Multinational BR+0.75% to BR+4.00%
Pre shipment / Post shipment Loan BR+0.50% BR+1.25% BR+3.25%
to to o
BR+3.00% BR+4.00% BR+6.00%
Consortium Lending As per Consortium decision subject to
applicable Base Rate of NSBL
Loan Against FDR FD Rate FD Rate FD Rate
+1.00% +1.50% +2.00%
Or applicable Base Rate whichever is
higher
Deprived Sector Lending(MFI,NBFC) BR+0.75% to BR+4.00%
Deprived Sector Lending(Individuals/ Retail) BR+1.75% to BR+6.00%
Personal Loan/Overdraft/Mortgage Loan BR+3.25% to BR+6.50%
SME Loan BR+2.75% to BR+6.00%
Education Loan BR+2.75% to BR+5.00%
Home Loan BR+2.25% to BR+6.00%
Auto Loan / Hire Purchase Loan BR+2.25% to BR+6.00%
Bhu. Puu Loan BR+5.50% to BR+6.00%
Loan against share / margin lending BR+1.75% BR+2.75% BR+3.75%
to to to
BR+4.00% BR+5.00% BR+6.00%
Loan against Bonds (Govt. & Other) Coupon Coupon Coupon
Rate Rate Rate
+1.00% +1.50% +2.00%
Or applicable Base Rate whichever is
higher
Land Loan / Real Estate Loan BR+2.75% BR+3.75% BR+4.75%
to to to
BR+5.00% BR+6.00% BR+6.25%
Gold Loan BR+3.75% to BR+6.00%
FCY Loans LIBOR Rate + upto 4.00%
Base Rate (BR) (Poush 2074): 9.50%
Interest Spread Rate (Poush 2074): 4.78%
 19

2.1.2 Correlation between Net Income and Interest Income of Nepal SBI
Bank Ltd.
The relationship between net income and interest income can be known by calculating
Karl Pearson’s correlation coefficient. It measures the interrelation between two variables and
symbolized as “r” while calculating. Moreover, if the result is +1 than it is said to be positive
relation and if the result is -1 than it represents the negative relation between two variables.
Here for measuring the relationship between interest income and net income correlation
coefficient is used.

Table 2.8
Correlation between Net Income and Interest Income
(RS. In crore)
F/Y X Y X2 Y2 XY
2069/70 77.15 162.35 5952.12 26357.52 12525.30
2070/71 92.30 174.50 8519.29 30450.25 16106.35
2071/72 106.54 204.75 11350.77 41922.56 21814.07
2072/73 133.19 241.61 17739.58 58375.39 32180.04
2073/74 152.32 291.67 23201.38 85071.39 44427.17
∑X=561.5 ∑Y=1074.88 ∑X2=66763.14 ∑Y2=242177.11 ∑XY=127052.9

We have,
Let,
X be the Net Income and Y be the Net Interest Income
N ∑ XY −∑ X . ∑ Y
2 2
Correlation coefficient (r) = √ N ∑ X −( ∑ X ) √ N ∑ Y −( ∑ Y )
2 2

= 5×127052.9 - 561.5×1074.88
√ [5 ×66763.14−315282.25][5 ×242177.11−1155367.01¿]¿
= 31719.38 .
 20

√ 18533.45× 55518.54
= 0.99
Here, the correlation coefficient (r)= +0.99, which means there is a highly positive
relationship between Net Income and Net Interest Income i.e. if the Net Interest Income
increases than the Net Profit will also increase where as if the Net Interest Income will
decrease than the Net Income will also decrease.

2.2 Major Findings.

From the presentation and analysis of data made above, many results or findings of the bank
has found. Some of the major findings are presented as follows:

 The ROA of Nepal SBI Bank between the fiscal year 2069/70 to 2073/74 are found to
be 1.19%, 1.50%, .1.70%, 2.00% and 1.68% respectively
 The ROE of Nepal SBI Bank between the fiscal year 2069/70 to 2073/74 are found to
be 20.31%,20.35%,18.87%,19.25% and 14.64% respectively
 The EPS of Nepal SBI Bank between the fiscal year 2069/70 to 2073/74 are found to
be Rs. 32.75, Rs.34.83, Rs 34.84, Rs. 34.29 and Rs. 30.69 respectively
 The Net Profit Margin between fiscal year 2069/70 to 2073/74 are to be 65.65%,
67.95%, 65.34%, 64.68% and 65.09% respectively
 The Net Interest Margin between fiscal year 2069/70 to 2073/74 are to be 5.64%,
4.95%, 5.12%, 5.14% and 4.63
 The Net Operating Margin in different fiscal year between 2069/70 to 2073/74 are
2.65%, 3.06%, 3.67%, 4.08% and 3.66% respectively

 The correlation coefficient (r)= +0.99, which means there is a highly positive
relationship between Net Income and Net Interest Income
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CHAPTER-III
SUMMARY AND CONCLUSION

3.1 Summary

Profitability means the degree to which a business or activity yields profit or financial
gain. It is the ability of the organization to earn profit. Profit is a financial benefit that is
realized when the amount of revenue gained from a business activity exceeds the expenses.
This study is about the analysis of interest rate on the profitability of Nepal SBI Bank
Limited. The existence of the business is only possible when they get the profit in their
business. There might be the various reasons which can affects the profitability of the
business Among them here we do analysis of interest rate on profitability of NSBL. The data
is collected on the basis of secondary sources and the time period is five fiscal years from
2069/70 to 2073/74. In this report, out 28 commercial banks we have selected only one
commercial bank as sample banks i.e. Nepal SBI Bank Limited to fulfill the objective of
studying interest rate on profitability position.

Nepal SBI Bank Ltd. (NSBL) is the first Indo-Nepal joint venture in the financial
sector sponsored by three institutional promoters, namely State Bank of India(SBI),
Employees Provident Fund and Agricultural Development Bank of Nepal through a
Memorandum of Understanding signed on 17 July 1992.NSBL was incorporated as Public
Limited Company at the Office of the Company Registrar on 28 April 1993 under Regn. No.
17-049/50 with an Authorized Capital of Rs.12 Crores and was licensed by Nepal Rastra
Bank on 6 July 1993 under license No. NRB/l.Pa./7/2049/50. To meet the objective different
profitability ratio has used like ROA, ROE, EPS, NIM, NPM, NOM for the clear presentation
of data as well as to show present market condition of the bank through different trend line
 22

and figures. Moreover, to find out the relationship between the interest rate on profitability
position the correlation coefficient is used in this report.

3.2 Conclusion

In this report the researcher analysis the effects of interest on profitability of the bank.
Here the researcher analysis the effect of interest on profitability of Nepal SBI Bank Limited
between the fiscal year 2069/70 to 2073/74. For this the researcher has calculated Return on
assets(ROA) of Nepal SBI Bank between the fiscal year 2069/70 to 2073/74 are found to be
1.19%, 1.50%, 1.70%, 2.00% and 1.68% respectively which is fluctuating year by year, the
ROE are found to be 20.31%,20.35%,18.87%,19.25% and 14.64% respectively which is
decreasing so the bank need to take an effective step for the management. Similarly, the EPS
are found to be Rs. 32.75, Rs.34.83, Rs 34.84, Rs. 34.29 and Rs. 30.69 respectively which is
increasing in decreasing order which shows the fluctuation in the market growth rate, the Net
Profit Margin to be 65.65%, 67.95%, 65.34%, 64.68% and 65.09% respectively, the Net
Interest Margin to be 5.64%, 4.95%, 5.12%, 5.14% and 4.63 respectively which are
fluctuating between the fiscal years. Moreover, the Net Operating Margin in different fiscal
year 2069/70 to 2073/74 are found to be 2.65%, 3.06%, 3.67%, 4.08% and 3.66%
respectively.

Furthermore, the correlation coefficient (r)= +0.99, which means there is a highly
positive relationship between Net Income and Net Interest Income i.e. if the Net Interest
Income increases than the Net Profit will also increase where as if the Net Interest Income
will decrease than the Net Income will also decrease. Hence this report will be helpful for the
bank, new researcher and many stakeholder of the organization.