PROFITABILITY RATIO ANALYSIS OF NABIL BANK LTD.

A Project Work Report

By
Sushil Pokharel
T.U. Regd. No.: 7-2-39-603-2018
Campus Roll No.: 687/075
Symbol Number:700390205
Proposal No.: 65
Group: Finance
Shankar Dev Camps

Submitted to
Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

April, 2023
 DECLARATION

I hereby declare that the project work entitled PROFITABILITY RATIO

ANALYSIS OF NABIL BANK LTD. submitted to the Faculty of Management,
Tribhuvan University, Kathmandu is an original piece of work under the
supervision of Mr. Bijendra Man Shakya Prof., Shankar Dev Campus,
Putalisadak, Kathmandu, and is submitted in partial fulfillment of the
requirements for the degree of Bachelor of Business Studies (BBS). This project
work report has not been submitted to any other university or institution for the
award of any degree or diploma.

Signature:
Name of Student: Sushil Pokharel
Date:

i
 Supervisor’s Recommendation

The project work report entitled PROFITABILITY RATIO ANALYSIS OF

NABIL BANK LTD. submitted by Sushil Pokharel of Shankar Dev Campus,
Putalisadak, Kathmandu, is prepared under my supervision as per the procedure
and format requirements laid by the Faculty of Management, Tribhuvan University,
as partial fulfillment of the requirements for the degree of Bachelor of Business
Studies (BBS). I, therefore, recommend the project work report for evaluation.

Signature:
Name of Supervisor:
Date:

ii
 Endorsement

We hereby endorse the project work report entitled PROFITABILITY RATIO

ANALYSIS OF NABIL BANK LTD. submitted by Sushil Pokharel of Shankar
Dev Campus,Putalisadak, Kathmandu, in partial fulfillment of the requirements
for the degree of the Bachelor of Business Studies (BBS) for external evaluation.

Signature: Signature:
Name of Chair: Name of Chief/Principal:
Chairman, Research Committee Campus Chief/ Principal
Date: Date

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 TABLE OF CONTENTS

DECLARATION i

RECOMMENDATION ii

DEPARTMENTAL ACCEPTANCE iii

TABLE OF CONTENTS iv

LIST OF TABLES vi

LIST OF FIGURES vii

LIST OF ABBREVIATIONS viii

1 INTRODUCTION 1
1.1 Background of Study ...................................................................................... 1
1.2 A Brief Introduction to NABIL Bank Ltd. .................................................. 3
1.3 Objectives of the Study ................................................................................. 5
1.4 Rationale/Significance of the study .............................................................. 5
1.5 Literature Review........................................................................................... 6
1.6 Conceptual Framework .................................................................................. 8
1.7 Financial Analysis .......................................................................................... 8
1.8 Ratio Analysis ................................................................................................ 8
1.9 Profitability Ratio .......................................................................................... 9
1.9.1 Return on Assets .................................................................................. 9
1.9.2 Return on Equity.................................................................................. 9
1.9.3 Net Profit Margin.............................................................................. 10
1.9.4 Interest Coverage Ratio ...................................................................... 10
1.9.5 Dividend Payout Ratio ....................................................................... 10
1.9.6 Return on Investment ......................................................................... 10
1.9.7 Staff Expense to Total Income Ratio .................................................. 11

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 1.9.8 Price-to-Earnings Ratio....................................................................... 11
1.9.9 Earnings Per Share ............................................................................. 11
1.10 Review of Books and Journals..................................................................... 12
1.11 Review of Some Acts Relating to Banking in Nepal ................................ 12
1.12 Methods of Study ......................................................................................... 13
1.13 Limitation of the Study ............................................................................... 14

2 RESULTS AND ANALYSIS 16

2.1 Data Presentation .......................................................................................... 16
2.2 Financial Analysis ........................................................................................ 16
2.3 Ratio Analysis .............................................................................................. 16
2.3.1 Return On Assets (ROA)................................................................... 17
2.3.2 Return on Equity................................................................................ 18
2.3.3 Net Profit Margin.............................................................................. 19
2.3.4 Interest Coverage Ratio ...................................................................... 20
2.3.5 Dividend Payout Ratio ....................................................................... 21
2.3.6 Return On Investment ....................................................................... 22
2.3.7 Staff Expense to Total Income Ratio .................................................. 23
2.3.8 Price-to-Earnings Ratio....................................................................... 24
2.3.9 Earnings Per Share ............................................................................. 25
2.4 Findings ........................................................................................................ 26

3 SUMMARY AND CONCLUSION 29

3.1 Summary ....................................................................................................... 29
3.2 Conclusion ..................................................................................................... 30

BIBLOGRAPHY 32

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 LIST OF TABLES

2.1 Return on Assets ratio of Nabil Bank........................................................ 17

2.2 Return on Equity ratio of Nabil Bank ....................................................... 18
2.3 Net Profit Margin on Nabil Bank............................................................... 19
2.4 Interest coverage ratio of Nabil Bank ......................................................... 20
2.5 Dividend Payout Ratio of Nabil Bank ....................................................... 21
2.6 Return on Investment (ROI) of Nabil Bank ............................................. 22
2.7 Staff Expense to total Income Ratio .......................................................... 23
2.8 Price-to Earnings Ratio of Nabil Bank ...................................................... 24
2.9 Earnings Per share of Nabil Bank .............................................................. 25

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 LIST OF FIGURES

2.1 Return on Assets of Nabil Bank ................................................................. 17

2.2 Return on Equity of Nabil Bank................................................................. 18

2.3 Net Profit Margin of Nabil Bank ................................................................ 19

2.4 Interest Coverage Ratio of Nabil Bank ...................................................... 20

2.5 Dividend Payout Ratio of Nabil Bank ....................................................... 21

2.6 Return on Investment of Nabil Bank ......................................................... 22

2.7 Staff expense to total Income ratio ............................................................. 23

2.8 Price to Earnings ratio of Nabil Bank........................................................ 24

2.9 Earnings Per Share of Nabil Bank .............................................................. 25

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 LIST OF ABBREVIATIONS

ABBS Any Branch Banking System

ASBA Application Supported by Blocked Amount
ATM Automated Teller Machine
BFI Bank and Financial Institution
EPS Earning Per Share
Etc. Etcetera
FD Fixed Deposit
FY Financial Year
FOM Faculty of Management
i.e. That is
Ltd. Limited
NPAT Net Profit After Tax
NRB Nepal Rastra Bank
NRs. Nepalese Rupees
ROA Return on Assets
ROE Return on Equity
SWIFT Society for Worldwide Interbank Financial Telecommunication

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 CHAPTER I
INTRODUCTION

1.1 Background of Study

Profitability is an indispensable consideration for every employer, corporation,

organization, or commercial operation. It refers to the ability of all company
operations to create profit and reflects how effectively management can generate
profits utilizing existing resources. Profitability is an essential component of every
organization, organization, corporation, or business activity. It refers to the ability
to profit from all company operations and demonstrates how effectively control
can produce profit via the use of available resources. According to Harvard and
Upton, profitability is "the ability of a given investment to earn a return on its use."
Profitability, however, should no longer be mistaken with performance, despite the
fact that it is a gauge of performance and a degree of management’s guidance to
improve efficiency.

While profitability is a crucial criterion for gauging efficiency, it should not be

used as the sole indicator of performance. Even if first-class income might suggest
inefficiency, a suitable diploma of performance does not necessarily result in money.
Internet earnings are only well-known for demonstrating a quality stability between
the values gained and delivered, and a corporation’s operational efficiency is one of
the most important variables determining its profitability. Aside from efficiency,
various other factors, such as monetary and market conditions, have an influence
on profitability.

Despite the fact that the terms income and profitability are sometimes used
interchangeably, there is a significant distinction between the two. profits are an
absolute phrase that refers to the total profits made by an agency at some point in
time, whereas profitability is a relative concept that relates to the corporation’s
operating efficiency. It is the enterprise’s capacity to earn a profit on its earnings

1
and obtain a suitable return on capital and personnel used in business operations.
Turning to the banking sector, it is a critical component of the global economy.
Banks play a vital role in providing financial services to individuals, businesses,
and governments. Banks generate profits by collecting deposits from customers and
lending the funds to borrowers at a higher interest rate. The difference between
the interest paid on deposits and the interest earned on loans is known as the net
interest margin (NIM).

Turning to the banking sector, it is a critical component of the global economy.

Banks play a vital role in providing financial services to individuals, businesses,
and governments. Banks generate profits by collecting deposits from customers and
lending the funds to borrowers at a higher interest rate. The difference between
the interest paid on deposits and the interest earned on loans is known as the net
interest margin (NIM).

A financial institution is a monetary organization that takes public deposits and

generates credit scores. Banks engage in a variety of sports, both directly and
indirectly through capital markets. Banks are extremely regulated in most countries
due to their importance in economic balance, with institutionalized methods such
as fractional reserve banking and limited capital requirements depending entirely
on international norms such as the Basel accords.

The term "bank" comes from the Latin phrase "bancus," the Italian phrase "banca,"
and the French word "banque," all of which imply "a bench." Moneylenders used to
sit on benches in ancient times to keep, lend, and exchange money in marketplaces.
A modern financial institution is an economic middleman that accepts deposits
and makes loans while performing a variety of functions that are difficult to define
precisely.

To delve deeper into the financial analysis of banks, profitability ratios are commonly
employed. These ratios are categorized into two groups: income statement ratios
and balance sheet ratios. The income statement ratios include return on assets
(ROA), return on equity (ROE), net interest margin (NIM), and operating margin.
The balance sheet ratios include the loan-to-deposit ratio (LDR), capital adequacy
ratio (CAR), and the asset quality ratio (AQR). These ratios enable analysts to

2
evaluate the bank’s profitability and financial health from different perspectives.

The return on assets (ROA) ratio measures the bank’s net income relative to its
total assets. The return on equity (ROE) ratio, on the other hand, calculates the
bank’s net income relative to its equity. The net interest margin (NIM) measures
the bank’s net interest income relative to its total interest-earning assets. The
operating margin is used to measure the bank’s operating profit relative.

1.2 A Brief Introduction to NABIL Bank Ltd.

Nabil Bank Ltd. is Nepal’s first-ever joint venture bank, established in 1984 by
international investors under the name Nepal Arab Bank Limited. The bank was
founded with the objective of providing businesses with access to contemporary,
high-quality financial services. The bank is located in Durbar Marg, Kathmandu,
and has since then significantly expanded, increasing its capital to Rs. 22.83 Arba.

Today, Nabil Bank Ltd. has 230 branch locations, 254 ATMs, several POS terminals,
and remittance agents spread throughout the country. Additionally, the bank
has developed more than 170 connections with foreign correspondent banks. The
investment banking division of Nabil Bank is run by its subsidiary, Nabil Investment
Banking Ltd., and in July 2022, the bank purchased Nepal Bangladesh Bank,
expanding its reach and offering new services. (http://www.Nabilbank.com.np)

Nabil Bank Ltd. is dedicated to offering top-tier financial services to its customers
and has continued to innovate and adapt to the circumstances. In December
2022, the bank established nBank, a neo-banking service that operates as a virtual
branch of the bank. The bank’s commitment to providing advanced and accessible
financial services is a testament to its standing as a pioneer in the Nepalese banking
sector.

Furthermore, the bank’s expansion is reflective of Nepal’s growth as a developing

country with a thriving economy. With the bank’s presence in major urban centers
as well as in rural areas, Nabil Bank Ltd. plays a crucial role in driving economic
growth, creating employment opportunities, and providing financial stability to its
customers. The bank’s various services, including deposits, loans, credit cards, and

3
investment opportunities, make it a one-stop financial destination for individuals,
businesses, and organizations in Nepal. (http://www.Nabilbank.com.np)

Nabil has been obtaining its objectives and targets through various kinds of banking
services with a large number of facilities. The services rendered by Nabil Bank are
as follows:

• Nabil Bank provides loan, advance and overdraft to the needy person and
customers against pledge and securities.

• Nabil Bank performs the agency services like, payment of subscription, rent
collection, dividend collection, interest collection etc. on the behalf of the
customers

• Nabil is a member of clearing house; it accepts cheque of any bank of its

customers only

• It also exchanges the foreign currency i.e., sale and purchase of currency.

The following statement describes the additional services offered by Nabil Bank,
which include instrumental and modern technological services:

• Deposits

• Guarantees

• Credit Cards

• Tele Banking

• Western Union Money Transfer

• SWIFT (Society for Worldwide Inter-bank Financial Tele-Communication)

• Safe Deposit Locker

• Automated Teller Machines (ATM)

• Other facilities

[ Source: http://www.Nabilbank.com.np ]

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1.3 Objectives of the Study

The banking sector is a crucial component of the global economy and plays a critical
role in providing financial services to individuals, businesses, and governments.
The profitability and solvency of banks are crucial for the stability of the financial
system. The financial performance of a bank is an important aspect of its overall
health, and it is influenced by several factors, including the economic environment,
competition, and regulatory requirements. In this context, the primary aim of
this study is to conduct an in-depth analysis of the financial performance and
solvency position of Nabil Bank. The study will use various financial ratios to
evaluate the bank’s profitability, liquidity, solvency, and efficiency. These ratios
are essential tools for financial analysis, and they provide insights into the bank’s
financial health and performance.

Additionally, the study has several other objectives, some of them are:

• To find out the profitability of the Nabil Bank Limited.

• To analyze the profitability

• To determine factors of profitability

• To evaluate profitability ratio of Nabil Bank Ltd.

1.4 Rationale/Significance of the study

The study places significant emphasis on the welfare of students during the prepa-
ration of the fieldwork report. By engaging in practical experiences, students
can acquire valuable knowledge that can help them effectively address challenges
related to their studies. Additionally, the study aims to provide students with
essential information relevant to their fieldwork. Notably, the importance of the
fieldwork report is underscored by several factors, including its ability to enhance
students’ practical skills, foster deeper understanding and appreciation of their
subject matter, and facilitate the integration of theoretical concepts into real-world
applications.

5
Moreover, this study will contribute to the existing literature on bank profitability
ratios in Nepal. The findings will be valuable for investors, regulators, policymakers,
and researchers in the financial sector. It will provide a benchmark for measuring
the bank’s performance against its competitors and help develop effective strategies
to enhance its profitability.

Overall, this project aims to provide valuable insights into the financial performance
of Nabil Bank Limited, a leading bank in Nepal, and contribute to the existing
knowledge of bank profitability ratios in the country. The analysis will be a useful
tool for investors, stakeholders, and policymakers in making informed decisions and
developing strategies for the bank’s future growth and success. The following are
the few are the few points that highlights of the significance of field work report:

• The fieldwork report may be useful for the library purpose so that any
students who want to prepare a report can have some idea about it.

• It helps to increase the practical knowledge.

• The fieldwork report can be used as a guideline while preparing a small

project report.

• By analyzing the problem, it provides chances to improve

• It makes the student more creative.

1.5 Literature Review

The factors that determine a bank’s profitability can be broadly categorised as

internal or external. Internal determinants refer to those factors that are under
the control of the bank’s management and are influenced by their decisions and
policy objectives. These factors play a crucial role in shaping a bank’s profitability
and include aspects such as operational efficiency, risk management practices, and
investment strategies, among others. Conversely, external determinants are factors
that are outside the bank’s control, such as economic conditions, government
policies, and competitive forces within the industry. Management effects are the
results of differences in bank management objectives, policies, decisions, and actions

6
reflected in differences in banks including profitability. The decisions made by
the bank’s management, particularly with regards to concentration of its loan
portfolio, have a significant impact on the bank’s overall performance. Scholars
often attribute successful bank performance to effective management practices.
The quality of management is typically evaluated based on senior officers’ level of
awareness and their ability to monitor the bank’s policies and performance. This
underscores the importance of competent and informed management in ensuring a
bank’s long-term success.

A number of studies have included that expense control is the primary determi-
nant of bank profitability. Expense management offers a major and consistent
opportunity for profitability improvement. With the large size and large differences
in salaries and wages, the efficient use of labor is a key determinant of relative
profitability. Staff expenses, as conventional wisdom proposes, is expected to be
inversely related to profitability because these costs reduce the ‘bottom line’ or the
total operations of the bank. The level of staff expenses appears to have a negative
impact on banks’ ROA in the study. There is a positive relationship between staff
and total profits. External determinants of bank profitability are concerned with
those factors which are not influenced by specific banks’ decisions and policies, but
by events outside the influence of the bank. The steps of analysis are as follows:

1. Selection of the information relevant to the decision.

2. Arrangement or the selected information highlight the significant relationship

of the financial yardsticks.

3. Interpretation and drawing of inferences and conclusions.

To evaluate the profitability ratio of a firm, the analyst needs a certain parameter
of the company by which the quantitative relationship and its position come
out. Ratio analysis is the most widely used and effective tool for evaluating a
company’s profitability. The profitability ratio is the measurement of relationship
between two accounting figures, expressed in a mathematical way or the numerical
relationship between two variables expressed as (i) percentage or, (ii) fraction or
(iii) in proportion of numbers.

7
1.6 Conceptual Framework

The contemporary financial evaluation has had a significant impact on the prof-
itability ratio of banks. The field of finance is constantly evolving, with new ideas
and techniques emerging regularly. To achieve the established goals, only proficient
management can effectively steer a company. Inadequate equity capital renders a
bank more precarious, necessitating the use of debt with high fixed costs. Hence,
it is essential for a firm to maintain sufficient equity capital in its capital structure.
The primary objectives of a bank are to collect as many deposits as possible from
customers and channel them into the most profitable sectors. Failure to utilize
these resources effectively would hinder revenue generation. Resource mobilization
management of a bank involves resource collection, investment portfolio manage-
ment, loans and advances, working capital management, fixed asset management,
among others. It measures the level of success attained by the bank utilizing
resources. To gauge the profitability of a bank from multiple perspectives, its
financial indicators must be analyzed using financial statements. Profitability ratio
analysis is the process of identifying the financial strengths and weaknesses of the
concerned bank. It entails the identification of the strengths and weaknesses of the
bank under consideration.

1.7 Financial Analysis

Financial statement analysis generally begins with the calculator of a set of

financial ratios designed to reveal the relative strength and weakness of a company
as compared to other companies in the same industry and to show whether the
firm’s position has been improving or deteriorating over time.

1.8 Ratio Analysis

Ratio analysis involves a methodical examination of a company’s profitability

ratios to identify its strengths and weakness based on its past performance and
current situation. Once various ratios are calculated, it is necessary to compare

8
them with established benchmarks to draw meaningful conclusions. Weston and
Brigham have categorized this comparison into six types: (i) liquidity ratios, (ii)
leverage ratios, (iii) activity ratios, (iv)profitability ratios, (v) growth ratios, and
(vi) valuation ratios. By using this approach, a comprehensive evaluation of a
company’s financial health can be achieved.

1.9 Profitability Ratio

Profitability ratios are a set of financial metrics that are directly linked to a
company’s profits. These ratios aim to emphasize the final outcome of a company’s
business operations. The capacity of a company to generate satisfactory returns to
its shareholders and to maintain its operational effectiveness is essentially dependent
on the profits it earns. Therefore, profitability ratios are considered as key measures
of efficiency and are indicative of the level of success achieved by a company’s
management. They provide a motivating force for companies to strive for greater
efficiency. The profitability ratios used in this report include:

1.9.1 Return on Assets

Return on Assets (ROA) is a financial ratio that measures a company’s profitability

by calculating the amount of net income earned as a percentage of the total assets.
ROA is an important metric for investors and analysts as it provides insights
into a company’s efficiency in utilizing its assets to generate profits. A higher
ROA indicates that a company is utilizing its assets effectively to generate profits,
whereas a lower ROA suggests that the company is not generating enough profits
relative to the size of its asset base.

1.9.2 Return on Equity

Return on Equity (ROE) is a financial ratio that measures a company’s profitability

by calculating the amount of net income earned as a percentage of the total
shareholder equity. A higher ROE indicates that a company is utilizing shareholder
investments effectively to generate profits, whereas a lower ROE suggests that

9
the company is not generating enough profits relative to the amount invested by
shareholders.

1.9.3 Net Profit Margin

The profit margin ratio, also called the return on sales ratio or gross profit ratio,
is a profitability ratio that measures the amount of net income earned with each
rupee of sales generated by comparing the net income and net sales of a company.
This ratio measures how effectively a company can convert sales into net income.

1.9.4 Interest Coverage Ratio

Interest Coverage Ratio (ICR) is a financial ratio that measures a company’s ability
to pay its interest expenses using its earnings before interest and taxes (EBIT).
ICR is an important metric for investors and analysts as it provides insights into
a company’s ability to meet its interest payments obligations and indicates the
level of risk associated with the company’s debt. A higher ICR indicates that a
company has enough earnings to cover its interest expenses, whereas a lower ICR
suggests that the company may struggle to meet its interest payments obligations.

1.9.5 Dividend Payout Ratio

The dividend payout ratio measures the percentage of net income that is distributed
to shareholders in the form of dividends during the year. In other words, this ratio
shows the portion of profits the company decides to keep to fund operations and
the portion of profits that is given to its shareholders.

1.9.6 Return on Investment

Return on Investment (ROI) is a financial metric that measures the amount of

return on an investment relative to the cost of the investment. ROI is commonly
used by investors and businesses to evaluate the efficiency of their investments
and to make informed decisions on future investments. A positive ROI indicates
that an investment has generated a profit, while a negative ROI suggests that the

10
investment has incurred a loss. ROI should be used in conjunction with other
financial metrics to evaluate the overall performance of an investment.

1.9.7 Staff Expense to Total Income Ratio

The Staff Expense to Total Income Ratio is a financial metric that measures the
percentage of a company’s total income that is spent on employee salaries, wages,
benefits, and other related expenses. A lower Staff Expense to Total Income Ratio
indicates that a company is effectively managing its staff-related expenses, while a
higher ratio suggests that the company may be spending too much on staff-related
expenses relative to its total income.

1.9.8 Price-to-Earnings Ratio

The Price to Earnings (P/E) Ratio is a financial metric that measures the relation-
ship between a company’s stock price and its earnings per share (EPS). The P/E
Ratio is a widely used metric by investors and analysts to evaluate the relative value
of a company’s stock and to make informed decisions on investment opportunities.
A higher P/E Ratio suggests that investors have higher expectations for future
growth in earnings, while a lower P/E Ratio suggests that investors have lower
expectations for future growth in earnings.

1.9.9 Earnings Per Share

Earnings Per Share (EPS) is a financial metric that measures the amount of a
company’s net income that is allocated to each outstanding share of its common
stock. A higher EPS indicates that a company is generating more profits for
each outstanding share of its common stock, while a lower EPS suggests that the
company is generating fewer profits per share.

11
1.10 Review of Books and Journals

According to R.S. Sayers in his book “Modern Banking Writers”, the ordinary
banking business involves exchanging cash for bank deposits and transferring these
deposits between individuals and corporations by exchanging them for bills of
exchange, government bonds, secured and unsecured promises from businessmen
to repay. Profitability ratios, described by Erich A. H., are analytical tools that
help answer specific questions and aid decision-making. Financial analysis is an
important tool for enabling sound decision-making. Liquidity, as described by I. M.
Pandey, is another critical financial indicator for businesses. Firms should strive to
maintain an appropriate level of liquidity to avoid the negative consequences of
excessive or insufficient liquidity. A bank’s ability to convert its assets into cash
and meet current obligations quickly determines its liquidity, which is crucial to
its survival and growth. Overall, financial analysis, including profitability ratios
and liquidity assessments, is essential for decision-makers in the banking industry
to evaluate a bank’s financial health, profitability, and liquidity position. Such
analysis helps banks make informed decisions about investments, loans, and other
financial strategies to maximize profits while minimizing risk. Thus, a thorough
understanding of financial analysis tools is necessary for bankers and decision-
makers to make sound decisions and ensure the continued growth and success of
their banks.

1.11 Review of Some Acts Relating to Banking in Nepal

Banking in Nepal is regulated and supervised by Nepal Rastra Bank (NRB), the
central bank of Nepal. The banking sector in Nepal has undergone significant
changes and reforms in recent years, with the aim of promoting financial stability,
increasing financial inclusion, and enhancing the efficiency and effectiveness of
banking services. In this report, we will review some of the important acts relating
to banking in Nepal, and analyze their impact on the banking sector and the
economy as a whole.

The Banking Act, 2006 is the main legislation governing the banking sector in

12
Nepal. It provides a comprehensive framework for the establishment, operation,
and regulation of banks and financial institutions in the country. The act defines the
powers and functions of the Nepal Rastra Bank, and sets out the requirements for
obtaining a banking license. The act also includes provisions related to prudential
regulations, capital adequacy, risk management, and corporate governance, aimed
at promoting financial stability and protecting depositors’ interests.

The Financial Institutions Act, 2006 provides a legal framework for the establish-
ment, operation, and regulation of financial institutions other than banks in Nepal.
The act defines the scope of financial institutions, including insurance companies,
development banks, and microfinance institutions, and sets out the requirements
for obtaining a license. The act also includes provisions related to the supervision,
regulation, and enforcement of prudential standards, aimed at ensuring the safety
and soundness of the financial system.

The Payment and Settlement Systems Act, 2019 provides a legal framework for
the regulation of payment and settlement systems in Nepal. The act defines the
scope of payment and settlement systems, including electronic funds transfer, card
payments, and mobile payments, and sets out the requirements for obtaining a
license. The act also includes provisions related to the supervision, regulation, and
enforcement of operational and security standards, aimed at promoting efficiency,
safety, and reliability of payment and settlement systems. (http://nrb.org.np/)

1.12 Methods of Study

Evaluating the profitability ratio of Nabil Bank at a micro level and to highlight
the efforts of the profitability ratio of these banks in the economy at the macro
level forms the basic objective of this research.

• Research Design
Keeping in mind the objective of the study, descriptive analytical research
design has been followed. The study is based on the wide range of variables
and factors influencing profitability ratio of the bank. Comparative data
banks are presented in such a way to make report informative to the reader.

13
 • Population and Sample
Among 21 commercial banks, Nabil Bank Limited have been selected for the
present study. Financial statements of the last 5 years (2074/75 to 2078/79)
have been taken as a sample for the comparative analysis of Profitability
ratio. The recommendation and suggestions, which are derived from the
study, by taking the above commercial banks as samples, will be equally
useful for the other commercial banks in Nepal.

• Sources of Data
This study is based on secondary data. Secondary data can be defined as the
data collected earlier for a purpose other than one currently being pursued.
As a researcher I have scanned a lot of sources to get access to secondary
data which have formed a reference base to compare the research findings.
Secondary data in this study has provided an insight and forms an outline
for the core objectives established. The various sources of secondary data
used for this study are newspapers, magazines, text books, marketing reports
of the company, internet, etc.

• Techniques of Analysis
In the course of analysis, data gathered from the various sources will be
inserted in the tabular form according to their homogeneous nature. They
are table, graph, mean, standard deviation ratio and percentage.

1.13 Limitation of the Study

This study was conducted as a partial fulfilment of the requirements for the BBS
4th year and, therefore, has inherent limitations. The coverage of the study is
limited in terms of time, which makes it difficult to draw meaningful conclusions
about trends in the financing pattern and structure over a longer period. The
study only covers the last five financial years. In addition to this, there are other
limitations to the study that need to be considered. Despite these limitations, the
research follows a descriptive analytical research design, with a focus on identifying
the various variables and factors that impact a bank’s profitability ratio. Some
other limitations are as follows:

14
• Though there are 21 commercial banks, this study covers only one NABIL
Bank Ltd.

• As a student time and resources available are consentient

• Limited variable has been selected.

• The qualitative factors such as growth and expansions policy of the bank
quality and general economic conditions have not been studied.

• Simple techniques have been used in analysis.

15
 CHAPTER II
RESULTS AND ANALYSIS

2.1 Data Presentation

The main body of the study comprises the presentation and analysis of data.
The previous chapter includes the introduction, review of literature, and research
methodology, which provide the necessary inputs to analyze and interpret the data.
This chapter focuses on the presentation and analysis of the data itself. The data
has been carefully examined and analyzed to provide insights into the variables
and factors that impact a bank’s profitability ratio. The findings presented in this
chapter form the basis for the conclusions and recommendations outlined in the
subsequent sections of the study.

2.2 Financial Analysis

Financial statement analysis generally begins with the calculation of a set of

financial ratios designed to reveal the relative strength and weaknesses of a company
as compared to other companies in the same industry and to show whether the
firm’s position has been improving or deteriorating over time. It helps the concerned
parties to spot out the financial strength and weakness of the firm.

2.3 Ratio Analysis

Ratio analysis is a methodical way to assess a company’s financial performance. It

entails the use of profitability measures to pinpoint the company’s advantages and
disadvantages based on past performance and present state. This method offers
insightful information about the recurring patterns of the organization’s financial
performance. Ratios are thought to be incredibly helpful and crucial instruments
for deciphering a company’s financial performance. One can acquire a thorough

16
picture of the financial health of the organization by examining these ratios and
then base judgments on this knowledge. In this report, following ratios are used:

2.3.1 Return On Assets (ROA)

It is the ratio of net profit to net sales. It is measured by this formula:

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑡𝑠

Table 2.1: Return on Assets ratio of Nabil Bank

Figure 2.1: Return on Assets of Nabil Bank

The return on assets ratio shows the different year ratios viz. 2.474 in 2075/76,
2.1074 in 2076/77, 1.457 in 2077/78, 1.55 in 2078/79, and 1.013 in 2079/80

17
2.3.2 Return on Equity

ROE stands for Return on Equity, and it is a financial ratio that measures a
company’s profitability relative to the amount of shareholder equity invested in
the company. The formula for calculating the ROE is:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Return on Equity = 𝑇𝑜𝑡𝑎𝑙 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

Table 2.2: Return on Equity ratio of Nabil Bank

Figure 2.2: Return on Equity of Nabil Bank

The table shows the return on equity (ROE) for a company over a period of five
years. The ROE is a measure of how much profit a company generates with each
dollar of shareholder equity. From the table, it can be observed that the company’s
ROE has been decreasing over time, with the highest ROE of 19.34% in 2074/75
and the lowest ROE of 8.03% in 2078/79. This indicates a decline in the company’s
profitability and efficiency in generating profits from shareholder investments.

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2.3.3 Net Profit Margin

Net profit margin is a financial ratio that measures a company’s profitability by

expressing its net profit as a percentage of its total revenue. A higher net profit
margin indicates that a company is more efficient at converting its revenue into
profit. The formula to find Net profit margin ratio is:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Net Profit Margin = 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 × 100

Table 2.3: Net Profit Margin on Nabil Bank

Figure 2.3: Net Profit Margin of Nabil Bank

The table displays the net profit margin ratio of a company for five consecutive
financial years, which measures the profitability of a company by expressing its net
profit as a percentage of total revenue. The data shows a declining trend in the
net profit margin of the company, with the highest net profit of 48.31% in 2074/75
and the lowest of 41.10% in the year of 2078/79.

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2.3.4 Interest Coverage Ratio

Interest coverage ratio is calculated by dividing a company’s earnings before interest

and taxes (EBIT) by its interest expenses. The resulting ratio indicates how many
times a company’s EBIT can cover its interest payments, Formula to calculate the
interest coverage ratio is given as:
𝐸𝐵𝐼𝑇
Interest coverage ratio = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 × 100

Table 2.4: Interest coverage ratio of Nabil Bank

Figure 2.4: Interest Coverage Ratio of Nabil Bank

The Interest Coverage Ratio is a financial metric that measures a company’s ability
to pay its interest expenses on outstanding debt. In this case, the ratio for F/Y
2075/76 to 2079/80 shows that the company’s ability to cover its interest expenses
with its earnings has declined over time, indicating a potential risk in its financial
health.

20
2.3.5 Dividend Payout Ratio

The dividend payout ratio (DPR) is a financial metric that measures the percentage
of a company’s earnings that are distributed to shareholders in the form of
dividends. A higher payout ratio indicates that the company is paying out a larger
portion of its profits as dividends, Formula for the calculation of Dividend Payout
Ratio is:
𝑌𝑒𝑎𝑟𝑙𝑦 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
Dividend Payout Ratio = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

Table 2.5: Dividend Payout Ratio of Nabil Bank

Figure 2.5: Dividend Payout Ratio of Nabil Bank

This data shows the dividend payout ratio for a company over a five-year period,
increasing from 0.65586 in 2074/75 to 1.3123 in 2078/79, indicating that the com-
pany paid out more dividends compare to its net income in the last two years.

21
2.3.6 Return On Investment

Return on investment (ROI) is a financial metric that measures the profitability of

an investment, typically expressed as a percentage of the initial investment amount.
It is a popular tool used by investors and businesses to evaluate the success of their
investments. The formula to find the return on Investment is:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Return on Investment = 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 × 100

Table 2.6: Return on Investment (ROI) of Nabil Bank

Figure 2.6: Return on Investment of Nabil Bank

The given data represents the return on investment (ROI) for a company over a
period of 5 years. The ROI has been increasing over the years, indicating a growth
in the company’s profitability. The largest increase was observed between the years
2077/78 and 2078/79, where the ROI jumped by almost 4%.

22
2.3.7 Staff Expense to Total Income Ratio

The staff expense to total income ratio(R/E) is a financial metric that measures
the proportion of a company’s total income that is spent on staff expenses. It is
used to evaluate a company’s efficiency in managing its staff costs. Formula to
calculate the Staff Expense to Total Income Ratio:
𝑆𝑡𝑎𝑓𝑓 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
Staff Expense to Total Income Ratio = × 100
𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒

Table 2.7: Staff Expense to total Income Ratio

Figure 2.7: Staff expense to total Income ratio

The table shows the value of staff expense to total income ratio for five consecutive
fiscal years (2074/75 to 2078/79). The data suggests that there was a significant
increase in R/E from 2076/77 to 2077/78, followed by a decrease in the subsequent
year.

23
2.3.8 Price-to-Earnings Ratio

The Price-to-Earnings (P/E) ratio is a financial metric used to assess the relative
value of a company’s stock. It is calculated by dividing the current market price
per share by the earnings per share (EPS) of the company over a specific period.
Formula of it is presented as:
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
Price-to-Earnings Ratio = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

Table 2.8: Price-to Earnings Ratio of Nabil Bank

Figure 2.8: Price to Earnings ratio of Nabil Bank

The table shows the P/E ratio (price-to-earnings ratio) for five consecutive fiscal
years (2074/75 to 2078/79) for a company’s stock. The P/E ratio is a financial
metric used to assess the relative value of a company’s stock, and it indicates how
much investors are willing to pay per rupee of earnings. The data suggests that
the P/E ratio for the company’s stock has varied significantly over the years, with
the highest ratio observed in 2078/79.

24
2.3.9 Earnings Per Share

Earnings per share (EPS) is a financial metric that calculates the amount of a
company’s profit that can be attributed to each outstanding share of its common
stock. EPS is a widely used measure to assess a company’s profitability and growth
potential. Formula to calculate the earnings per share:
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Earnings Per Share = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠 × 100

Table 2.9: Earning Per share of Nabil Bank

Figure 2.9: Earning Per Share of Nabil Bank

The given data represents the earnings per share (EPS) for a company over a
period of 5 years. The EPS has been decreasing over the years, indicating a decline
in the company’s profitability. The largest decline was observed between the years
2075/76 and 2076/77, where the EPS dropped by almost 30%.

25
2.4 Findings

Over the five-year period from F/Y 2074/75 to F/Y 2078/79, Nabil Bank’s abil-
ity to generate profits from assets and shareholder’s equity declined gradually.
Nevertheless, the bank maintained a high net profit margin due to its efficient
operations. However, there are concerns regarding the company’s ability to meet
its interest expenses with its operating income, as the Interest Coverage Ratio
decreased over time. Additionally, the Debt-to-Asset Ratio increased gradually,
indicating a higher level of debt relative to its assets. In compliance with analysis,
the following finding as made:

• The return on assets (ROA) ratio of Nabil Bank has fluctuated over the years,
ranging from 2.47 in 2075/76 to 1.01 in 2079/80. This indicates that the
bank’s ability to generate profits from its assets has varied. A decreasing
trend in the ROA ratio over the years suggests that the bank may need to
re-evaluate its asset management strategies to improve profitability.

• During the period spanning F/Y 2074/75 to F/Y 2078/79, the company
experienced a gradual decline in its Return on Equity (ROE), which decreased
from 19.34% to 8.03%. This indicates a decreasing ability to generate profits
from shareholder’s equity. It can be inferred that Nabil Bank has been not
up to mark in deriving full benefit from the assets it has utilized.

• Over the five-year period from F/Y 2074/75 to F/Y 2078/79, Nabil Bank
exhibited a consistently high net profit margin, which ranged from 41.10%
to 48.31%. This indicates that the company was able to convert a significant
portion of its revenues into profits. The high net profit margin over the years
reflects the efficiency of the bank’s operations in managing its expenses and
generating profits.

• The Interest Coverage Ratio (ICR) of Nabil Bank decreased gradually over
the five-year period from F/Y 2075/76 to F/Y 2079/80, ranging from 2.23 to
1.62. This indicates that the company’s ability to meet its interest expenses
with its operating income decreased over time. A decreasing ICR is a potential
concern for the company, as it may lead to difficulties in managing its debt

26
 obligations and negatively impact its financial health.

• The Debt-to-Asset Ratio (DPR) of Nabil Bank increased gradually over the
five-year period from F/Y 2074/75 to F/Y 2078/79, ranging from 0.65586
to 1.31234. This indicates that the company’s level of debt relative to its
assets increased over time. A high DPR can make the company vulnerable to
financial risks such as default and bankruptcy. However, it is also important
to note that a DPR of 1.31234 indicates that the company’s total debt was
slightly higher than its total assets in F/Y 2078/79, which may be a cause
for concern.

• Nabil Bank’s Return on Investment (ROI) showed a gradual increase over the
five-year period from F/Y 2074/75 to F/Y 2078/79, ranging from 5.55% to
16.58%. This indicates that the company’s ability to generate profit from its
investments improved over time. A high ROI indicates that the company’s
investments are profitable and generating a higher return than the cost of
investment. This trend of increasing ROI is a positive sign for Nabil Bank
and indicates its efficient utilization of its investments.

• Nabil Bank’s Staff Expense to Total Income Ratio fluctuated over the five-year
period, with the highest ratio in F/Y 2077/78. Overall, the trend suggests
moderate success in managing operating costs, but further analysis with
other financial performance indicators is recommended for a comprehensive
understanding of profitability and efficiency.

• The Price-to-Earnings (P/E) Ratio of Nabil Bank fluctuated over the five-year
period from F/Y 2074/75 to F/Y 2078/79, with the highest ratio recorded in
F/Y 2078/79. This indicates that the market value of the company’s stock
was relatively high compared to its earnings during that year. However, it
is important to note that the P/E ratio should be analyzed in conjunction
with other financial performance indicators to get a more comprehensive
understanding of the company’s valuation and growth prospects.

• Based on the Earnings Per Share (EPS) data for Nabil Bank over the five-year
period from F/Y 2074/75 to F/Y 2078/79, the EPS of the bank decreased
gradually. This suggests that the bank’s ability to generate earnings per

27
outstanding share of stock declined over time. It is noteworthy, however,
that the EPS remained above 20 in all five years, indicating that the bank
was still able to generate positive earnings per share for its shareholders.

28
 CHAPTER III
SUMMARY AND CONCLUSION

3.1 Summary

Nepal is classified as one of the most underdeveloped nations globally, and it heavily
relies on foreign countries for its development process due to its weak economic
state. As a result, the overall economic conditions of the population are also weak.
Moreover, around 75% of the population depends on the agricultural sector, which
cannot provide adequate employment opportunities. The Nepalese government
must promote overall industrialization in the country to engage the population in
the development process, and a crucial component of achieving this goal is the
establishment of a robust banking system. The commercial banks are of foremost
importance to a country because of their roles as a strong pillar for the economic
development of a nation. With the wave of the globalization and advancement in
technologies, without the strong base of commercial banking platform, the economic
development of a nation is bound to be paralyzed. Thus, it would be very legitimate
to say that the commercial banks are of a more importance to a developing country
like Nepal and Nabil Bank Ltd. being the pioneer financial institutions of Nepal, has
undouble filled such gap to a great extent. In Nepalese banking sector, commercial
banks including ventures banks are operating at present. In the absences of modern
banking any country cannot develop the economic activity. Therefore, it is essential
to find out whether or not the banks are serving an important contribution to
develop sectors of economy. Profitability ratio is said to be general business of
fund, which shows the bank ability to meet cash requirement. In this record, this
study has been based upon the objective to evaluate the profitability ratio of Nabil
Bank Ltd. Basically, banks are proliferating, cutthroat competition is prevailing
plus there is an unhealthy competition. So, in this competitive banking scenario,
NABIL Bank Ltd. is retaining and maintaining its strengths and proving itself
as a benchmark in the Nepalese banking industry. The financial performance of

29
NABIL Bank Ltd. reveals that it is in sound financial position. NABIL Bank Ltd.
earns the profit every year in increasing trend. The bank is very much in line with
its desire objective and goals. The bank has been able to successfully overcome all
the economic and competitive barriers to establish it as financially feasible unit.
The investors of NABIL Bank Ltd, are receiving sufficient rate of return on their
investment and the creditors are also satisfied. NABIL Bank Ltd. has been playing
an important role in financial economic sector of the country. It has fulfilled its
objectives for which it has made at the time of the establishment

3.2 Conclusion

With some commercial banks and development banks operating in Nepal, the
market seems over crowed and the banks are now finding a tough competition
among themselves. Since the entry barriers are not so high due to the government’s
liberal policy, this competition is expected to be more intense in the near future,
as there is always the possibility of a new player entering this sector. Nabil Bank
has not maintained a balanced ratio among its deposit liabilities. Consequently,
the bank does not seem to be able to utilize its high-cost resources in high yielding
investment portfolio. The investment portfolio of the bank has not been managed
so efficiently as to maximize the returns there from. The operational efficiency of
the bank is found unsatisfactory because of the series of operational loss over the
period. Lower market value is a reflection of a weaker profitability ratio of the
bank. On the basis of this study, the following conclusion can be made:

• While Nabil Bank Ltd.’s overall results meet industry standards, there may
be room for improvement in its current financial condition. As a result,
recommendations are being suggested to enhance the bank’s performance
and contribute to the development of the country.

• The proportion of the saving deposit account is high in total deposit liability.
So, it is recommended that the bank should utilize the amount collected
from the saving deposit account carefully. It should be invested in the higher
yielding areas.

30
• The cash and bank balance in the Nabil Bank Ltd is satisfactory. It is
higher a bit though Bank should analyze the opportunities for short term
investment.

• The bank should avoid investing excessively in fixed assets as it provides

minimal to no return on investment. This will help the bank to allocate its
resources more efficiently.

• According to the profitability ratio analysis, Nabil’s profitability position

has been declining. This trend must be closely monitored to ensure a
future growth trajectory consistent with previous performance. It is crucial
to address this issue in a timely manner to maintain the bank’s financial
stability and sustainability.

• The ratios indicate that Nabil has demonstrated a high level of proficiency
in efficiently mobilizing owner resources, and its operational efficiency has
also been deemed satisfactory. However, in recent years, this trend has expe-
rienced a slight decline, necessitating a thorough evaluation and subsequent
remediation by the organization.

• Nabil Bank has successfully established a favorable reputation among its

customer base, as evidenced by the steady growth rate of expenses over time,
despite some minor fluctuations. To enhance its value chain, the bank should
prioritize the needs of its customers and personnel, over its organizational
objectives, in order to sustain customer loyalty and satisfaction.[1]

• It is imperative for Nabil to expand its reach beyond limited areas in order to
effectively enhance its deposit mobilization and credit disbursement efforts.
To achieve this objective, it is recommended that Nabil conduct feasibility
studies and open new branches in strategic locations on an annual basis. In
addition, Nabil has introduced innovative ideas, such as the Nabil Prepaid
card and extended banking hours, to attract a larger pool of funds from the
general public. These measures are expected to facilitate Nabil’s pursuit of
its goals.

• Besides these, all the other functions of the company are satisfactory, no
comments upon it.

31
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[3] B. Baral Keshar J. Joshi Padam R. Gautam Rishi R. Rana Surya B Paudel,
Rajan. Principal practice of banking insurance. Asmitan Publications., 2016.

[4] Nabil Bank Ltd. Annual report of nabil bank ltd. URL:
http://www.nabilbank.com.np, July 2022.

[5] Nepal Rastra Bank. Banking and financial statistics. URL:

https://www.nrb.org.np/contents/uploads/2021/06/Monthly-Statistics, 2074 to
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[6] A P Moghanloo N Hooshyari. Evaluating the impact of inflation on profitability

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[8] Aithal P. S. Mishra, A. K. Foreign aid contribution for the development of

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