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1.1 Background of the Study

There are different methods to evaluate the performance of the bank. Some of them are: capital
adequacy, assets quality management, ratio analysis, liquidity analysis and so on. Liquidity is
one of the financial indicators of the business enterprise. However, this study uses comparative
liquidity analysis of NIBL and PBL.
Harsh, (2014) stated that the banking sector was always deemed to be one of the most vital
sectors for the economy to be able to function. Its importance as the “lifeblood” of economic
activity, in collecting deposits and providing credits to states and people, households and
businesses is undisputable. The researcher chooses this topic because numerous researchers
have conducted the research in related field and also for the partial fulfilment of requirement for
degree of BBS.
Sayers ( 1967), in his book Modern Banking stated that ordinary banking business consists of
changing cash for bank deposits and bank deposits from one person to corporation (one
depositor to another) giving bank deposits in exchange for bill of exchange, government banks,
recurred and unsecured promises businessmen to repay
Pandey (1997), in his book, Financial Management stated that a firm should ensure that it does
not suffer from lack of liquid. And also that it is not too much high liquid. The failure of a
company to meet its obligations, due to lack of sufficient liquidity will result in bad credit
image. Loss of creditor’s confidence, or even in low suits resulting in the closure of the
company. A very high degree of liquidity is also bad; idle assets earn nothing. The firm’s funds
will be unnecessarily tied up in current assets. Therefore, it is necessary to strike a proper
balance between liquidity and lack of liquid.
1.2 Profile of the organization
Nepal Investment Bank Ltd. (NIBL)
Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was established in
1986 as a joint venture between Nepalese and French partners. The French partner (holding 50%
of the capital of NIBL) was Credit Agricole Indosuez, a subsidiary of one of the largest banking
group in the world.
Later in 2002, a group of Nepalese companies comprising of bankers, professionals,
industrialists and businessmen acquired the 50% shareholding of Credit Agricole Indosuez in
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Nepal Indosuez Bank Ltd., and accordingly the name of the Bank also changed to Nepal
Investment Bank Ltd.
At present, the Bank's shareholding pattern is as follows: Promoters - 69% and General Public -
31%. With our team of experienced bankers and professionals with proven track record, we, at
NIBL believe in offering the best of what our customers look for.
Vision and Mission
"To be the most preferred provider of Financial Services in Nepal"
Mission
To be the leading Nepali bank, delivering world class service through the blending of state-of-
the-art technology and visionary management in partnership with competent and committed
staff, to achieve sound financial health with sustainable value addition to all our stakeholders.
We are committed to do this mission while ensuring the highest levels of ethical standards,
professional integrity, corporate governance and regulatory compliance.
Profile of Bank Prabhu Bank
The Bank has gone through the various phases of its growth trajectory over a short period of its
existence. Growth of Prabhu Bank was phenomenal, especially after merger of Grand Bank
Nepal Limited, Kist Bank Ltd, Prabhu Bikash Bank Ltd, Gaurishankar Development Bank Ltd
and Zenith Finance Ltd in, 2016, attaining the status of “A” class financial institution licensed
and regulated by the central bank of Nepal, Nepal Rastra Bank.
The Bank has completed years of journey since the inception and has accommodated seven
different financial institutions in its making.
As the leading banking and financial services group in Nepal, the Bank will be there where
growth is, connecting customers to the opportunities, enabling business to thrive and economies
to prosper and ultimately helping people to fulfill their hopes and realize their ambitions. The
Bank offers the full range of banking and investment services for personal and corporate
customers, backed by the team of highly motivated, young and dynamic professionals.
One of the bank’s primary objectives is to reach out to the common people with a host of helpful
products and services that will assure their future prosperity. Over a very short period of time,
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the bank has achieved a significant degree of success in executing this objective thereby creating
a substantial base of loyal customers.
Personalized service, prompt transactions, wide networks, mobile Banking and real-time account
credit are few of the core strength of the bank. It has been undertaking activities such as variety
of deposit schemes, loans and advances, Foreign exchange facilities, Trade financing,
Inward/outward remittances, market maker for government securities, Non-Fund based service
like issuing guarantees, letter of credits etc.
Mission
To become the leading commercial bank in Nepal by providing the finest quality financial
products and services to our customer; enhance our shareholders’ value, contribute to the
economic prosperity of the country and to create continuous learning and growth opportunities
for our People.
Vision
“To support individuals, families and businesses to attain financial independence and improve
their financial wellbeing”
1.3 Objective of the study
The general objective of this study is to make comparative liquidity analysis between NIBL and
PBL.The specific objectives of this study are as follows:
i. To examine liquidity position of Nepal Investment Bank Limited and Prabhu Bank
Limited.
ii. To analyze the comparative liquidity position of Nepal Investment Bank Limited
and Prabhu Bank Limited.
1.4 Rationale of the study
This study is conducted to comparative analysis of liquidity position of these two banks NIBL
and PBL. The findings of this study will contribute to existing literature on banks liquidity
analysis. This study will also useful to investors for getting information about the liquidity
position of these banks before investment; creditors to know the payable trend of the banks;
banks to know actual liquidity position of bank comparative to others; customers to know the
credit worthiness; and other parties who are related to these two banks to acquire required
information related to liquidity position of banks. Findings of this study facilitate to management
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team to amend the rules and policies of the banks. NRB can use this report for different
purposes.

1.5 Literature Review of the study

Literature review comprises upon the existing literature and research related to the present
study with a view to find out what had already been studied. Literature review is a process of
systematic way of accumulation, analysis and evaluation of facts or knowledge of selected
topic or problem. It provides direction for doing something new with appropriate variables, and
methodology. It is both summary and explanation of current state of knowledge of intended
research questions.
Conceptual Review
Banks play an important role in an economy of the country. Banks’ performance has greatly
affected by the liquidity position of the banks. . Liquidity is crucial in the business like banking
sector. Banks have to maintain liquidity, if the bank has high liquidity it cannot gain desired
profit and if bank has the shortfall of the liquidity it cannot satisfy its customers. Inadequate
liquidity may lead to collapse of the bank while excess liquidity is determinant to banks’
profitability in order to remove demerit’s associated with maintaining inadequate and excess
liquidity, bank should have maintained and optimum level of liquidity. Banks have to maintain
adequate liquidity to smooth running of firm.
Liquidity Ratio reflects the short-term obligation of the firm. This ratio shows that if firm need
cash amount in short period without any notice, can firm fulfil its need or how it manages the
need. Commercial banks need liquidity to meet loan demand and deposit withdrawals.
Liquidity is also needed for the purpose of meeting Cash Reserve Ratio (CRR) and Statutory
Liquidity Ratio (SLR) requirements prescribed by the central Bank. The following ratios are
calculated under the liquidity ratios. Current ratio, Loan to deposit ratio, Cash and bank balance
to total deposit ratio, Cash and bank balance to current & saving deposit ratio, NRB balance to
current and saving deposit ratio, NRB balance to fixed deposit ratio, Fixed deposit to total
deposit ratio, NRB balance to total deposit / Cash Reserve Ratio(CRR).

Review of Previous works

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Many researchers have conducted various research on related topic in past. There are some
previous works are as follows which are related to present study:

Kumbirai & Webb (2010) investigated the performance of South Africa’s commercial banking
sector for the period 2005- 2009. Financial ratios are employed to measure the profitability,
liquidity and credit quality performance of five large South African based commercial banks.
The study found that overall bank performance increased considerably in the first two years of
the analysis. A significant change in trend is noticed at the onset of the global financial crisis in
2007, reaching its peak during 2008-2009. This resulted in falling profitability, low liquidity and
deteriorating credit quality in the South African Banking sector.

Shakya (2010) analysed different ratio of NSBIBL and EBL for the period five years till fiscal
year 2008. In his study, some cases the liquidity position of EBL is slightly stronger than the
NSBIBL where NSBIBL ‘s ratio is higher. It concludes that liquidity position of these banks is
sound. NSBIBL has better utilization of available resource in income generating process than
EBL. In the overall, this study concluded that EBL is better than the NSBIBL and both banks
are highly leveraged.

1.6 Research Methodology

The method which is using in the research to plan the how the data is collected and which
source the study use for getting data is under the research methodology. It includes the Type
of Research, Population and Sample, Types and sources of Data, Data collection Procedure
and Analysis techniques which are as follows:

Types of Research

To fulfil the objectives of the study, certain research type is essential; so the research type of
this study is based on the nature and tools for analysis. To put the objectives stated above into
effect a descriptive analytical research design is employed. Descriptive analytical means discuss
the problem and objectives of the study and analyze the data.

Analysis Techniques

To analyze the liquidity position of these two banks through the financial tools.
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Findings are present in the table, trend line and so on.

Financial Tools

Financial tools are those, which are used for the analysis and interpretation of financial data.
These tools can be used to get the precise knowledge of a business, winch in turn, are fruitful in
exploring the strengths and weaknesses of the financial
policies and strategies. For the sake of comparative liquidity analysis of NIBL and PBL ratio
analysis have been used in order to meet the purpose of the study.
Ratio Analysis

Ratio analysis is very much powerful & widely used tool of financial analysis. It is define as
the systematic use of ratio to interpret the financial statements so that the strength and
weakness of a firm as well as its historical performance and current financial condition can be
determined. It helps the analysis to make qualitative judgment in about the financial position
and performance of the firm.

Liquidity ratio analysis

Ratio analysis is very much powerful & widely used tool of liquidity analysis. It is define as
the systematic use of ratio to interpret the financial statements so that the strength and
weakness of a firm as well as its historical performance and current financial condition can be
determined. It helps the analysis to make qualitative judgment in about the financial position,
performance and liquidity position of the firm.

Liquidity ratio includes current ratio, loan to deposit ratio, Current ratio, loan to deposit ratio,
cash and bank balance to total deposit ratio, cash and bank balance to current & saving deposit
ratio, NRB balance to current and saving deposit ratio, NRB balance to fixed deposit ratio, fixed
deposit to total deposit ratio, NRB balance to total deposit / Cash Reserve Ratio (CRR).

1.7 Limitation of the Study

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This report is held within the following limitations and constraints, they are:

i. The study is limited only in the liquidity analysis of the two banks.
ii. Due to the shortage of the time volume and budget, new method may not be developed.
iii. Report is based on the data of NIBL and PBL.
iv. Certain period’s data (5years.) has been taken for the analysis; result is based on this data.