A PROPOSAL ON

AN ANALYSIS OF NON-PERFORMING ASSETS ON THE PERFORMANCE

OF NABIL BANK LIMITED

By

Sujan Neupane

T.U. Registration No:7-2-586-102-2019

Birendra Namuna Campus

Exam Roll No.........

.

Submitted to

The Faculty of management

Tribhuwan University

Kathmandu

In the partial fulfillment for the Degree of

BACHELOR OF BUSINESS STUDIES

Bhadrapur, Jhapa

Nepal

Poush, 2080
 TABLE OF CONTENT

CHAPTER1: INTRODUCTION

Background of study……………………………………….…………………………………………..…1

1.1.1 Origin of Bank..…………………………………………………………………………..1

1.1.2 Meaning of bank...………………………………………………….……………………1

1.1.3 History of Bank in Nepal.………………………………………….………………….…2

1.1.4 Introduction of NABIL BANK LIMITED……………….………………………..……..2

1.2 Introduction to NPA………………………………………………………………….……………….3

1.3 Introduction to Problems.……………………………………………………………………………3

1.4 Objective of the study.……………………………………………………………………………….4

1.5 Importance of the study……………………………………………………………………………..4

1.6 Review.………………………………………………………………………………………………..4

1.6.1 Review of previous work..………………………………………………..…………………5

1.7 Methods.………………………………………………………………………………………………5

1.7.1 Research Design.…………………………………………………………………………….5

1.7.2 Population and Sample...……………………………………………………………………6

1.7.3 Procedure of collection of data..……………………………………………………………6

1.7.4 Data procedure and analysis..…….………………………………………………..………6

1.8 Limitation...……………………………………………….…………………………………………...6

BIBLIOGRAPHY.….…………………………………………………………………..…………………7
 CHAPTER I: INTRODUCTION

1.1 Background of the study

1.1.1 Origin of Bank

It is hard to collect the correct information of the bank. The word "Bank" has derived from
the Italian word "Banco" which means accumulation of money of stock. It is belived that its origin
is from the French word "Banque" which means "beach" for keeping, lending or exanchanging of
money or coin in the market place by money lenders or money changers. It is belived that the
ancestors ofmodern banking system were merchants, goldsmiths and moneylenders.
Moneybanking sowed is seed in the medieval Italy Deposit strong Christian prohibitions against
charging interest.

The term bank was used only after the establishment of bank of vanish in Italy in 1157 A.D. was
the first bank in the history of banking. Following its establishment various bank such as Bank of
Barcelona, which was established in 1401 A.D. was second bank of the world. Similarly, Bank of
Geneva which was established in 1407 A.D. The first central bank was the "Bank of England
which was established in 1884 A.D.

1.1.2 Meaning of Bank

Bank, an institution that deals in money and its substitutes and provides other
money-related services. In its role as a financial intermediary, a bank accepts deposits and
makes loans. It derives a profit from the difference between the costs (including interest
payments) of attracting and servicing deposits and the income it receives through interest
charged to borrowers or earned through securities Many banks provide related services such as
financial management and products such as mutual funds and credit cards. Some bank
liabilities also serve as money that is, as generally accepted means of payment and exchange

Bank definition goes to a financial institution authorized to accept deposits and provide credits
These institutions may also give economic assistance such as capital management. foreign
exchange. Safe deposit boxes are commonly known as locker services. The essential of
banking are:

● ‌ here should be acceptance of deposit.

T
● ‌Deposit should be from the public.
● ‌Deposits should be repayable on demand or expiry of a term or after a specified period.
● ‌The purpose of deposits should be lending or investment.
1.1.3 History of Bank in Nepal

The history of banking in Nepal dates back to the year 1937 AD with the establishment of
Nepal Bank Limited as the first commercial bank in Nepal. It was established as a
semi-government bank with METALLIC COINS worth NRs 10 million as the authorized capital.
Banknotes in Nepal weren't introduced up until the mid-1940s. It was in the year 1945 that the
earliest banknotes were issued by the treasury "Sadar Muluki Khana". These notes were signed
by a "Khajanchi", the head of the treasury who also was a high Hindu Priest. Later in the year
1955, the Nepal Rastra Bank Act was formulated for a better banking system and Nepal Rastra
Bank was established in 1956 as the Central Bank of Nepal accordingly. After this date, the
banknotes were issued by the Central Bank with the signatures of the governors of the
institution. Till the 1980s, the banking sector was wholly owned by the government, with
Agriculture Development Bank, Rastriya Banijya Bank, NBL, and NRB being the pillars of a
financial institution in Nepal.
1984 saw the start of the private banking industry with the establishment of Nabil Bank and
the introduction of foreign banks such as the Nepal Arab Bank, Nepal Indosuez Bank, and
Nepal Grindlays. The banking sector in Nepal has faced many hurdles and hindrances. It has
undergone various political conflicts and instability. But today, it stands more liberalized and
modernized. There are various types of banks working in the modern banking system in Nepal.
As per the list issued by NRB as of Mid-June 2018, the modern banking sector includes 28
Commercial Banks, 33 Development Banks, 25 Finance Companies, and 63 Micro Credit
Development Banks.

1.1.4 Introduction to NABIL BANK LIMITED

NABIL bank was previously known as (Nepal Arab Bank Limited) is a first private
commercial bank in Nepal. Founded in 1984, the bank has branches across the nation and its
head office in Durbar Marga Kathmandu.

It began as the first bank in Nepal incepted by multinational (primarily foreign) investors
(as Nepal Arab Bank Ltd) on 12 July 1984. The bank was incorporated with the objective of
providing modern, international-standard financial services to businesses.

Its Dubai government-owned majority share was purchased in 1995 by Nepal's only
billionaire businessman, Binod Chaudhary. It maintains its head office at its Nabil Center, Durbar
m/Marg flanking the chief avenue of the capital leading to its grand palace. Nabil Bank operates
through its wide network of 248 branch offices, 271 ATMs, numerous POS terminals, remittance
agents spread across the nation.
1.2 Introduction to NPA

In Nepal banking sector is flourishing in past few decades. Banking sector plays an
important role in the growth of the economy. Commercial banks are those financial
intermediaries that transfer the fund from surplus unit to deficit unit. Commercial banks are
major supplier of fund. Bank act as a interface between borrower and supplier. It accepts
deposit from public and supply loan to public. It gathers the scattered fund from the economy
and mobilizes in productive sector. In the course of transaction heavy amount is invested in loan
by commercial bank. Interest income is the major source of revenue for commercial. Sixty to
seventy percent of operating income occupies interest income. In this regard default loan is
major threat to commercial bank. Banking sector is exposed to number of risk such as interest
risk, market risk, liquidity risk, credit risk, operation risk and so on. Among them credit risk is the
major one. The risk of non- payment of loan leads to credit risk.

Non-performing loan is the sum of borrowed money upon which the debtor has not made
schedule payment for at least three month. The delay in payment could be either interest or
principle and can be both. Non-performing loan is categorized in three types. They are
substandard loan, doubtful loan, and bad loan. The classification is done on the basis delayed
time period. Non- performing is the real economic cost for commercial bank because they
cannot use the fund in productive sector and repayment of deposit is disturbed. It also results in
additional cost for realization of non-performing loan.

The figure of non-performing loan brings threat for commercial bank. Heavy chunk of
money is utilized in giving loan. As the return from loan is higher commercial banks are more
concentrated in loan management. Commercial bank has flourished the investment in Nepalese
economy. Heavy amount of investment is done by commercial bank. They formulate sound
investment policies which support for the growth of the economy. It is vital role of bank to
manage the loan so that they can invest properly. The major risk from non-performing loan is
credit risk, liquidity risk, operating risk,earning risk, reputation risk, solvency risk, and legal risk.

1.3 Introduction to problem

Nonperforming assets is one of the major problems in Nepalese financial institution facing today.
This research will conduct to find out the solution of following problem:-

1. How is the level of Non-Performing Assets on the financial health of the Nabil Bank Limited?

2. What are the internal and external factors that influence the proper management of NPA in
Nabil Bank Limited?

3. How is the impact of loss provision on the profitability of Nabil Bank Limited?
1.4 Objective of the study

The main objectives of the study will be figure out the impact of nonperforming assets on
commercial banks. The specific objectives will be;

• To assess the level of NPA in Nabil Bank Limited.

• To analyze the internal and external factor that influences the proper management of NPA

• To analyze the overall impact of loss provision on the profitability of Nabil Bank Limited.

1.5 Importance of the study

Commercial bank have huge amount of money invested in loan. Loan compromises heavy
chunk in the assets side of bank's balance sheet. The source of revenue is generated from
loan's interest. In this regard non-performing loan bring prominent threat to bank.
Non-productive loan increases the non- performing loan. There can be high probability of loan
loss provision. The possible threat from non- performing Is credit risk, liquidity risk, operation
risk, and overall effect on financial performance. With this regard, this research is conducted to
examine the present issue of non- performing loan in selected bank.

This study will be beneficial to the shareholder, depositor, borrower, and other creditor to
identify the productivity of their bank in Nabil bank limited. The report will be beneficial to identify
the effectiveness of credit department and the selected course of action that bank has
undergone to overcome the non-performing loan issues. This report will be helpful for the other
organization interested in making these banks as a trading partner. Financial analyst, who is
interested in the performance of these banks, would be grateful.

This study will also be helpful to the management of bank to analyze the non-performing
assets management and policies of the bank. This study can be helpful in foundation of
improved policies. With the help of this report bank can analyze the effectiveness of their credit
department. This report could be equally helpful for the central bank for the amendment in
policies.

1.6 Review

The review of literature is a very important aspect of the research. It is reviewing of

research studies of other relevant proposition in related area of the study so that all the past
studies, their conclusion and deficiencies may be known and further research can be
conducted.
1.6.1 Review of Previous Work

Shrestha (2004), in her thesis on "A study on Non-Performing Loan and Loan Loss
Provisioning of commercial Banks: wit reference to Nepal Bank Limited, Everest Bank Limited
and Standard Chartered Bank Limited "in this study her main objectives is to find out the
proportions of non-performing loan, relationship between loan loss provision and loan and loss
provision and profitability factors that affects to accumulate the nonperforming loans in selected
banks. In her thesis she has pointed out the problem on commercial banks as " Commercial
banks/ financial institution in Nepal have been facing several problems like back of smooth
functioning of economy, different policies and guidelines of NRB, political instability, security
problem,poor information system, over liquidity caused by lack of good lending opportunities,
increasing non-performing assets etc, In the Present context where have Nepalese Banks are
facing the problem is increasing NPAs, more amount have to be allocated for loan loss
provision."

Bhattarai (2004), made a study in "Implementation of Directives issued by Nepal Rastra

Bank., A comparative study of Nepal SBI bank limited and Nepal Bangladesh bank limited "has
made an attempt to analyze various aspect of NRB Directives with respect to capital adequacy
and loan classification and provisioning. As per her view the process of continual review and
classification of loan and advances enables banks to monitor the quality of their loan portfolios
and to rake remedial action to counter deterioration in the credit quality if their portfolios.

She concluded that with the new provisions the banks will have its provision amount
increasing in coming years and subsequently profitability of the banks will also come down.
However, the true picture of the quality of the assets will be painted in the coming years to
come. She recommends, "The banks should be very careful while analyzing the paying capacity
of its credit clients. With longer period of past due, the bank will end up increasing its provisions
which will keep the bottom line low if the bank is not careful."

1.7 Methods

Research refers to a critical, careful and exhaustive investigation, inquiry and

experimentation with the aim of the revision of accepted conclusions in the light of newly
discovered facts.

1.7.1 Research Design

Research design is a planned structure and strategy of investigation conceived to obtain

answer to research objectives through analysis of data. The first step of the study is to collect
necessary information and data concerning to study. Therefore research design means, the
definite procedure and technique, which guides the study and propound ways of doing research.
In this way a descriptive and analytical survey will be done. The justification for the choice of
these methods is preferred because it concludes reliable data and information covering a long
time and avoids numerous complex variables.
1.7.2 Population and Sample

Population or universe refers to the industries of the same nature and its services and product in
general. Sample, on the other hand is the representative part of population selected from it with
the objective of investigating its properties. If some elements are selected with the intention of
find out something about the population from which they are taken then that group of element is
called a sample. At present, the total number of object in the general topic deals with the
commercial banks operating in Nepal out of these total commercial banks Nabil Bank Limited
has been selected as the sample.

1.7.3 Procedure of Data Collection

Making study more reliable and justifiable, secondary data has been used in this study. The
annual reports of the subjected banks are the major sources of the data for the study. However,
beside the annual reports of the respective bank, the following sources of data are also
considered.
• Annual reports of the Nabil bank limited.
• Various publications dealing in the subject matter of study.
• Various Articles published in the newspaper.
• Different websites.

1.7.4 Data Procedures and Analysis

After collection of research data, an analysis of data and interpretation result are necessary.
Applying different financial and statistical tool made data analysis. Further to represent the data
in simple form bar diagram and graphs have also has been used.

Ratio Analysis

● Loan and Advances to Total Assets Ratio

● Loan and Advances to Total Deposit Ratio (CD Ratio)
● Non- performing Assets to Total Loans and Advances Ratio
● Provision Held to Non- performing Assets Ratio
● Non-performing Assets to Total Assets
● Return on Loan and Advances

1.8 Limitations.

Every work has its own limitations due to lack of time, resources and knowledge. The work has
been completed within the periphery of the limitations. Despite ample efforts on the part of the
researcher, this study has been limited to:
● This study has been based on secondary sources of data ie. annual reports of the
NABIL Bank Limited. Thus, the result of the analysis depends on the information
provided by the concern offices.
● The scope of research is only Nabil Bank Limited.

● Finding has been based only on the five fiscal year's data (2074/75 to 2078/79) of
NABIL Bank Limited.

● Only selected tools and technique have been used.

● This study is only for partial fulfillment of Bachelor of Business Studied.

BIBLIOGRAPHY

For the preparation of this proposal report following book is guidelines for the
betterment of this report.

● Information collected from the library.

● Annual report of Nabil Bank limited.

● Wikipedia

● www.google.com

● www.nabilbank.com

● www.nrb.org.np