A STUDY ON

PROFITABILITY AND SOLVENCY POSITION OF SIDDHARTH

BANK LIMITED
KATHMANDU NEPAL

A Research Proposal

Submitted By :
Kabita Badal
Symbol No. :
Camus Roll.No. :
T.U.Redg. No. :
Nepal Commerce Campus

Submitted To:
 The Faculty of Management
Tribhuvan University
Kathmandu

In particular fulfillment of the requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu Nepal
December ,2017

TABLE OF CONTENT

Chapter: 1 Introduction Page No.

Background 1
Introduction(Profile of the company) 2
Problem statement 3
Objective of the Study 4
Rational of the study 5
Review 6
Methods 7
Limitations 8

CHAPTER :2 RESULTS AND ANALYSIS………………………………….. 9

Data Presentation 10
Analysis of Results 11
Finding 12

CHAPTER :3 SUMMARY AND CONCLUSION………………………....13

Summary 14
Conclusion 15
BIBLIOGRAPHY………………………………………………………………………16
APPENDICES…………………………………………………………………..……..17
(NOTE: The page numbers assigned above do not indicate the
size of the chapter: section, or subsection).

1-Background of the Study:

Nepal is one of the least developing country in the world,

which exhibits a lot of characteristics of economic
backwardness such as, low income, low use of resources, over
population pressure, wide spread unemployment, weak human
resources, insufficient capital, primitive backwardness
predominance of agriculture, institution inadequacies and
market imperfectness. Now days, many bank have been
established, we should have to study many historical data and
information. So bank is financial institution where daily
transaction is held by depositing the money and withdrawing of
money. It is assumed that the word bank was originated from
the Latin word ‘bancus', Italian word ‘banco’ and French word
‘banque’ which all means bench. Bank provides security to
people by keeping peoples money/valuables safety and
repayment on demand of customers. The banking system was
introduced in Nepal only just before the Second World War.
Nepal Industrial Development Corporation is the fisrt
development Bank of Nepal established in 1959 AD.

Accordingly to Banking Regulation of India, “Banking means

accepting for the purpose of leading or investment of money
from public repayable on demand or, draft of otherwise.”
Finally the banks are those financial institutions that collect
deposits from general public and advances loans, provide wide
range of services to its customers. Profit maximization is the
main objectives of every bank by satisfying customers.

II.Introduction of Siddhartha banks

(Profile of the Company):

Siddhartha Development Bank limited (SDBL) is the First

development bank of western region of Nepal, established
formally in the year 2056 which commenced operation on 11th
Ashad, 2057. The Bank has been established solely with the aim
of getting exclusive confidence of Nepalese market by
rendering global standards of services through professional &
quality management. In all over the 87 development banks in
Nepal, SDBL is one of them.
SDBL is committed to provide superior banking products and
financial to its customers through efficient and cost-effective
service delivery; offering of new innovative products and
friendly customer service; and at the same time maintaining
confidentially, professionalism & good governance. The Bank
believes in continuously offering new and value added services
to customers with commitment to quality and value to clients.
Accordingly, the Bank has been in the forefront in launching
Superior products with unique customer friendly features with
immense success.

VISION:
Its core mission is to collect the financial liquidity of the country
in the form of deposit and to prop up the economic
development of the country by investing on the locale like
industry, business, agriculture and the other entire possible
production sector which are fit in the outlook of business. It
also tries to provide the international level of banking and
financial service to its customers. SDBL aspires to be the best
development bank in Nepal with global network.

Mission :
The Bank desires to be one of the leading banks of the industry
by fulfilling the interest of the stakeholders and also aims to
provide total customer satisfaction by way of offering
innovative products and by developing and retaining highly
motivated and committed staffs.

1.2. Statement of problem:

Nepal is an Underdeveloped country characterized with

political instability, low gross domestic production, corruption,
low industrialization, load shedding, shortage of health and
education facilities and so many other problems. This research
seeks our weaknesses and inefficiencies with the analysis of
financial statement of this bank. Attempts have been made to
answer the following questions:
 How sound are operational results in terms of
profitability?
 How far have SDB been able to transfer saving from savers
to users?
 How much of the deposit collected from this region has
been utilized for this region?
 What is the degree of financial risk in terms of financial
leverage?

1.3 Objectives of the study:

The main objective of the study is to analyze profitability
and solvency position of SDB with the help of different financial
and statistical tools and techniques. The main objectives are:

 To reflect the profitability of the bank.

 To evaluate solvency position of bank.
 To find out weaknesses and inefficiencies of the bank.
 To suggest and recommend measures on the basis of the
study of financial statement.
 To find out the resource mobilization capacity of bank.
 To find out financial risk of the bank in terms of financial
leverage.

1.5 Limitations of the study:

 This study was conducted in partial fulfillment of the
requirement for Bachelor of Business Studies. It possesses
following limitations:
 This study has covered only fiscal year from 2066/67 to
2069/2070
 This study is based on primary data. Most of the data has
been used form annual report of SDB.
 There are around 87 development banks in Nepal but this
study covers only SDB.
 Simple analysis tools have been used.
 This study covers only profitability and solvency position of
the bank.
Others aspects like assets utilization, liquidity position aspects
are not included. The qualitative factors such as growth,
expansion policy, and general economics have not been
studied.

1.6 Review of Literature:

Now days many bank have been established. So to know
about the original of a bank, we should have to study many
historical data and information. So bank is financial institution
where daily transaction is held by depositing the money and
withdrawing of money. Today world is commercial world,
smoothly development of a economic growth of country the
money that have been collected from different sector is
invested in different areas which help in developing society and
country, to reduce economic imbalance. Besides these banks
provide many facilities to their customers.
It is assumed that the word bank was originated from the
Latin word ‘bancus’, Italian word ‘banco’ and French word
‘banque’ which all means bench. In the streets of major city of
Europe money lenders used benched for acceptance, payment
and exchange of valuables and coins.
The development of banking system in our country is not
very old. The banking system was introduced in Nepal only just
before the Second World War. The year 1994 BS marks the
beginning of a new era in the history of modern banking in
Nepal.
Rastriya Banijya Bank is the second commercial bank which was
established in 1965 AD under the full control of government. In
order to establish and develop other joint venture commercial
bank and other financial institution, Nepal adopted liberal
freely economic policy.
1.7 Research Methodology:
The research methodology is the process of arriving to the
solution of the problem through planned and systematic
dealing with the collection analysis and interpretation of facts
and figures. As this research entirely considers about the
operational performances of SDB. Those research methodology
has been used which proves helpful to it.
For the purpose of achieving the objective, research design,
data gathering, different research procedure, data presentation
and analysis have been done.
The research design followed is basically for the evaluation
of profitability and solvency performance of SDB Ltd. Analytical
and descriptive approaches have been used to analyze
profitability and solvency position of SDB Ltd. and points are
discussed basically on the basis of secondary data and financial
statements of the bank.

1.7.1 Methods of data collection

A. Primary Data:
 Primary data are the first data obtained by the researchers
during the field visit. It can be collected through interviews,
interactions and questionnaires etc. Although primary data
plays important role by making the research person familiar
with the field, work, people and the environment, in this
analysis, however, primary data could not be obtained for
different reasons.

B. Secondary data:
It is one of the main sources of data which is already published.
There are various sources of secondary data which are used for
report writing purpose. The sources of secondary data are:-
• Annual Report of Siddharth Development Bank Ltd.
• Different Websites.
• Published Newspapers, business journals and books.
• Economic surveys of Nepal Rastra Bank.

1.72 Tools and Techniques Used:

There are different types of financial and statistical tools
that can be applied for analysis of performance of SDB. The
tools and techniques used are:
• Financial Tools:
Tools that are used to assess financial performance,
effectiveness of financial plan and financial management are
called financial tools. Financial tools used in this study are:
a) Profitability Ratio:
 Return on Assets
 Return on Equity
 Earning per Share
 Profit Margin
 Net Interest Margin
b) Leverage Ratio:
 Debt to Assets Ratio
 Debt to Equity Ratio
 Assets to Equity Ratio/ Equity Multipliers.

1.8 Limitation of the Study:

The study has been conducted within

certain limitation. The present study is not an exceptional. It
has also some limitations, among others the time factor is
main. The following are other major limitations.
 Among various commercial banks the study focuses on
Siddharth Development BANK.
 The study is concerned with only Siddharth Development
BANK.
 and it cannot be accurate unless compared with other
such Development Bank.
 The study is based on the Primary and secondary data.
Secondary data are limiting factors.
 The study covers the only four year period data.

2.2 Solvency Measurement:

The solvency ratio measures how effectively the firm is

managing its assets.

 Summary, Conclusion and Recommendation

3. Summary:
Money finance and financial institutions have come to play
practically indispensable sole in the process of development.
They not only influence the structure and direction taken by the
economy through their effects upon saving and investment
decisions but are influenced by the process and level of
development itself.
The Nepalese financial system is dominated by the
banking system where commercial banks are the largest and
important constituent. A sound banking system is must for the
development of the nation. The bank provides money to the
government by purchasing treasury bills, provides loans to
public for agriculture, small as well as big industries by keeping
collateral securities. In this study, Siddarth Development bank
has been chosen as sample.
Balance Sheet, Income Statement, Cash Flow Statement,
Statement Charge in Equity and Accounting Policies and
Explanatory notes is the most widely used aspect of financial
statement.
An analysis of bank financial statements is different from
that of other companies due to special nature of assets and
liabilities nature of banking industries.
The objectives of the study are to investigate whether SDB is
financially sound or not. To fulfill these objectives financial data
collected for the period of 4 years from FY 2074/75 to 2077/78.
3.1 Conclusion:

The following conclusions can be drawn from the study of

financial performance of Siddharth Development Bank Ltd:
• Profitability position of the SDB is highly satisfactory.
Return on assets, return on owners’ equity, earning per share,
interest margin ratio, profit margin, assets seems to be at
satisfactory level. The objectives of achieving high level of
income is attained by banks overall efforts.
Increasing profitability ratio shows that the bank has qualified
staff and making their efforts to achieve the banks objectives.
That indicates the bank members are making their effort
through the bank objectives.
• The bank appears to be able to minimize its overall cost or
expenses.
• The bank has also higher level of solvency risk due to the
higher level debt to total assets and debt to total equity ratio.
The objectives of achieving high level of profit by using more
debt seems to be right but there is higher level of solvency risk.
BIBLIOGRAPHY…………………………………………………….