NABIL Bank

Nabil Bank, established in 1984 AD, has been a pioneer in Nepal's financial services industry. It
focuses on service excellence, technology, and product innovation, offering a wide range of
commercial banking products. The bank operates through a large network of branches, ATMs,
and international correspondent banking relationships. It is committed to societal development
through financial literacy initiatives and providing access to finance for deprived sectors. Nabil
Bank has also established branch offices in rural areas to reach the financially underprivileged
population and promote financial literacy.

Head office: Beena Marg, Kathmandu 44600

Total Branch Offices:- 255
Total ATMs:- 283
Total Listed Shares:- 270,569,984
Promoter Shares:- 162,341,996 (60.00%)
Public Shares:- 108,227,988 (40.00%)
Total Paid up Value:- Rs. 27,056,996,352
Market Capitalization:- Rs. 163,965,410,304

Sanima Bank

Sanima Bank is a prominent commercial bank in Nepal, established in 2004 as a National Level
Development Bank and later converted to an "A" Class Commercial Bank in 2012. It is promoted
by a group of dynamic Non-Resident Nepalese (NRNs) business persons. The bank is known for
its commitment to providing a broad range of financial solutions to its customers while
maintaining high ethical standards, professional integrity, and good corporate governance. The
bank aims to achieve healthy profitability and continuous improvement in customer service.

Head Office:- Naxal, Kathmandu-1, Kathmandu

Total Branch Offices:- 132 (inc. 28 extension counters)
Total ATMs:- 120
Total Listed Shares:- 124,601,152
Promoter Shares:- 63,546,588 (51.00%)
Public Shares:- 61,054,564 (49.00%)
Total Paid up Value:- Rs. 12,460,114,944
Market Capitalization:- Rs. 32,383,839,404.80

Himalayan Bank

Himalayan Bank Limited, established in 1993 as a joint venture with Habib Bank Limited of
Pakistan, has become a leading bank in Nepal. Known for its innovation and customer
satisfaction, the bank introduced various banking services for the first time in the country, such
as Premium Savings Account, HBL Proprietary Card, and Millionaire Deposit Scheme. It has also
excelled in remittance services, being the largest inward remittance handling bank in Nepal.
Through its proprietary online money transfer software, HimalRemitTM, the bank has
established ties with financial institutions worldwide.
Head Office:- Kamaladi, Kathmandu
Total Branch Offices:- 209(inc. 20 extension counters)
Total ATMs:- 263+
Total Listed Shares:- 216,566,158
Promoter Shares:- 184,081,234 (85.00%)
Public Shares:- 32,484,924 (15.00%)
Total Paid up Value:- Rs. 21,656,615,800
Market Capitalization:- Rs. 46,561,723,970

NMB Bank

NMB Bank Limited is a leading commercial bank in Nepal, operating in the financial market. The
bank has a joint venture agreement with Nederlandse Financierings-Maatschappij voor
Ontwikkelingslanden (FMO), with FMO being the largest shareholder, which positions NMB Bank
as a market leader in managing environmental and social risks, as well as renewable energy and
agribusiness. The bank has received multiple prestigious awards, including 'Bank of the Year' in
2017, 2018, 2020, and 2021, and was also recognized as 'Bank of the Year 2021 Asia' by The
Banker, Financial Times, London, marking a significant achievement in the history of Nepal.

Head Office:- Akhtiyaar Marga, Kathmandu

Total Branch Offices:- 213 (inc. 12 extension counters)
Total ATMs:- 138
Total Listed Shares:- 183,667,060
Promoter Shares:- 93,670,201 (51.00%)
Public Shares:- 89,996,859 (49.00%)
Total Paid up Value:- Rs. 18,366,706,000
Market Capitalization:- Rs. 42,059,756,740

SBI Bank

Nepal SBI Bank Ltd. (NSBL) is a leading bank in Nepal and a subsidiary of the State Bank of India
(SBI). NSBL has 55% ownership by SBI, 15% by the Employee Provident Fund, and 30% by the
general public. Under the Technical Services Agreement, SBI provides management support
through expatriate officers, including the Managing Director who is also the CEO. The Central
Management Committee oversees the bank's operations. It offers various services such as ATMs,
internet banking, mobile wallet, SMS banking, and IRCTC Ticket Online Booking. SBI is the largest
commercial bank in India and has an extensive domestic and international network. NSBL also
has a wholly owned merchant banking subsidiary called Nepal SBI Merchant Banking Ltd.

Head Office:- Kamaladi, Kathmandu

Total Branch Offices:- 115 (inc. 22 extension counters)
Total ATMs:- 128
Total Listed Shares:- 101,206,288
Promoter Shares:- 71,208,745 (70.36%)
Public Shares:- 29,997,543 (29.64%)
Total Paid up Value:- Rs. 10,120,629,248
Market Capitalization:- Rs. 36,434,263,680

Return on Assets

Return on Assets (ROA) is a financial ratio that measures a company's profitability in relation to
its total assets. A higher ROA indicates that a company is generating more profit per unit of
assets, which is generally seen as favorable. It suggests that the company is effectively utilizing
its resources to generate earnings.

ROA is calculated:-
ROA = (Net Income / Average Total Assets) x 100

The net income used in the calculation can be the annual net income or the net income over a
specific period, such as a quarter or a fiscal year. The average total assets are typically calculated
by averaging the beginning and ending total assets for the period under consideration.

Return on Equity

Return on Equity (ROE) is a financial ratio that measures the profitability of a company in relation
to its shareholders' equity. ROE is a crucial metric for evaluating a company's performance as it
measures the return generated for shareholders' investments. A higher ROE indicates better
profitability and efficiency in utilizing shareholder capital.

ROE is calculated by:-

ROE = (Net Income / Average Shareholders' Equity) x 100

Net income is the company's profit after taxes and other expenses, while average shareholders'
equity is the average value of shareholders' equity over a specific period, often calculated by
averaging the beginning and ending shareholders' equity.
Earnings per Share

Earnings per share (EPS) is a financial metric that indicates the portion of a company's net profit
allocated to each outstanding share of common stock. EPS provides a per-share perspective of a
company's profitability, allowing investors to compare earnings across different companies and
assess their relative value. A higher EPS indicates greater profitability per share, while a lower
EPS suggests lower profitability.

EPS is calculated by:-

EPS = Net Income / Weighted Average Number of Shares

EPS can be reported on a basic or diluted basis. Basic EPS considers only the outstanding
common shares, while diluted EPS takes into account the potential dilution from convertible
securities, stock options, or other contingently issuable shares.

Liquidity

Liquidity refers to the ability of a company or individual to meet short-term obligations and
convert assets into cash without incurring significant losses. It is an essential aspect of financial
management and indicates the ease with which assets can be converted into cash to cover
immediate financial needs. The key indicator to evaluate liquidity is CRR.

The Cash Reserve Ratio (CRR) is a regulatory requirement set by central banks to control the
amount of funds commercial banks must hold as cash reserves. It ensures that banks have
enough liquidity to meet depositors' demands and maintain stability in the financial system.
Increasing the CRR reduces the money available for lending, controlling inflation and credit
growth. Decreasing the CRR releases funds for lending, stimulating economic activity.

The Cash Reserve Ratio (CRR) is calculated by:-

CRR = (Required Cash Reserves / Total Deposits) x 100

The resulting percentage represents the proportion of a bank's total deposits that it must hold as
cash reserves with the central bank to comply with the regulatory requirement.

Capital Adequacy Ratio

The Capital Adequacy Ratio (CAR) is a measure of a bank's financial strength and ability to
withstand potential losses arising from its operations and risks. It is a regulatory requirement
imposed by banking authorities to ensure that banks maintain a sufficient level of capital to
support their lending activities and absorb potential losses. A higher CAR indicates a stronger
capital position, indicating that a bank has more cushion to absorb losses and maintain its
financial stability. Banks with a higher CAR are generally considered to be more resilient and
better able to withstand economic downturns.

CAR is expressed as a percentage and is calculated by:-

CAR = (Capital / Risk-Weighted Assets) x 100

Bank's capital includes both Tier 1 and Tier 2 capital. The risk-weighted assets are determined by
assigning specific weights to different categories of assets based on their riskiness. Higher-risk
assets have higher weights, and lower-risk assets have lower weights.

Assets Quality

Asset quality refers to the overall health and performance of a bank's loan portfolio and other
assets. It is an important aspect of assessing a bank's financial stability and credit risk. Assessing
asset quality involves analyzing various indicators and ratios to evaluate the health and
performance of a bank's loan portfolio and other assets. The key indicator to evaluate AQ is NPL
Ratio.

The Non-Performing Loans (NPL) ratio is a financial metric that measures the proportion of non-
performing loans in a bank's loan portfolio. A higher NPL ratio indicates a higher proportion of
loans in the bank's portfolio that are classified as non-performing, suggesting lower asset quality.

NPL Ratio is calculated by:-

NPL Ratio = (Non-Performing Loans / Total Loans) x 100

NPLs are loans where borrowers have failed to make scheduled interest or principal payments
for a specified period. A higher ratio of NPLs to total loans indicates a lower asset quality and
potential credit risk.

GDP growth rate

GDP growth rate, also known as economic growth rate, refers to the percentage change in Gross
Domestic Product (GDP) over a specific period, typically a year. It is a key indicator used to
measure the overall economic performance and expansion of a country's economy. A higher
GDP growth rate suggests a faster-growing economy, which generally translates to increased
employment opportunities, higher incomes, and improved standards of living.

The GDP growth rate is calculated by:-

GDP Growth Rate = ((GDP in Current Year - GDP in Previous Year) / GDP in Previous Year) x 100

A positive GDP growth rate indicates that the country's economy has expanded over the
specified period, while a negative growth rate indicates a contraction or economic decline.
Inflation

Inflation refers to the sustained increase in the general price level of goods and services in an
economy over a period of time. It means that the purchasing power of money decreases, and it
takes more units of currency to buy the same goods and services. Inflation is typically measured
using various indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI),
which track the changes in the prices of a basket of goods and services over time.

Inflation is calculated by:-

Inflation Rate = ((Price Index in Current Period - Price Index in Previous Period) / Price Index in
Previous Period) x 100

Calculate the price index for each period by dividing the current prices of the basket of goods
and services by the prices in the base year and multiplying by 100. Producer Price Index (PPI),
can also be used to measure inflation in the prices of goods and services at the producer or
wholesale level.

Banking Development in Nepal

We can trace the evidence of ancient banking practice in Nepal from 879-80 A.D.
when Gunakamadeva borrowed money to reconstruct ‘Kantipur’ , now Kathmandu.
But the modern banking system in Nepal started after the establishment of Nepal
Bank Limited on November 15, 1937 (Kartik 30, 1994 B.S.)

Before the establishment of Nepal Bank Limited, there was Tejarath Adda in 1877
A.D., during Rana Rule, for distribution of loan to people against security deposit of
gold and other valuables. There was no provision of deposits during this stage.

Nepal Bank Limited was established with the authorized capital of Rs 10 billion with
an objective to expand the banking operation across the country. The major function
of Nepal Bank Limited back then was to manage the government transactions. There
was low credit creation and less public had access to the service. Nepal Bank had the
monopoly in the market and services were exclusive.

On April 26, 1956 (Baishak 14, 2013), Nepal Rastra Bank which is the central bank of
Nepal was established under Nepal Rastra Bank Act, 1955 (2012 B.S.) Nepal Rastra
Bank played a crucial role in the development of Banking and Financial Institution in
Nepal. Different banks such as Rastriya Banijya Bank and Agriculture Development
Bank were established to escalate the banking system in Nepal.

Next wave of banking development was seen after 2040 B.S. This was the time of
liberalisation in the banking sector. During this phase, various banks were
established, excessive licenses were given for the establishment of banking and
financial institutions. Many joint ventures banks also started their operation. Due to
this, there was a cut-throat competition in the market and credit creation was high.

In 2068 B.S. (2011 A.D.), Nepal Rastra Bank, the Central Bank of Nepal, came up with
merger bylaws and many banks were encouraged for mergers and acquisitions. This
phase helped to bring down the number of financial institutions in Nepal to foster
higher capital banks and competition in the market. During this time, minimum
capital requirements for banking and other financial institutions were increased to
force such institutions to go for merger or acquisition. Since 2068, the focus is one
financial consolidation and overall development of financial institutions.

Nepalese Banking System

Bank and Financial Institution Act (BAFIA), 2073 Section 3 has defined the Bank
as a corporate body incorporated to carry on financial transactions as referred to in
sub-section 1 of section 4. This section includes the functions of ‘A’ class licensed
institutions.

BAFIA, 2073 has categorised Nepalese Financial Institutions into four groups

1. ‘Ka’ or Class ‘A’ Commercial Banks

2. ‘Kha’ or Class ‘B’ Development Banks
3. ‘Ga’ or Class ‘C’ Finance Companies
4. ‘Gha’ or Class ‘D’ Micro Finance
The basis of categorization and classification is the minimum paid up capital
required as prescribed by Nepal Rastra Bank.

Concept of commercial bank

Financial intermediaries play significant role to the development of national

economy. They influence savings and surpluses considerably, which results
investments. Financial intermediaries collect financial resources and supply
them to the productive sectors that boosts the trade and industry and at last
development of the country's economy.

Singh (2010) defines a commercial bank as a financial institution which

performs the functions of accepting deposits from the general public and
giving loans for investment with the aim of earning profit. In fact, commercial
banks, as their name suggests, axe profit-seeking institutions, i.e., they do
banking business to earn profit.

A commercial bank is a type of financial intermediary and a type of bank.

Commercial banking is also known as business banking. Commercial banks, as
the name itself signifies, designed to accept deposit and advance credit to
commercial sector. Their operations are mainly commercial in nature and they
handle short-term finance. But new developments have come up as they are
also handling medium term and long term financing. Commercial banks, these
days, undertake various financial activities and provide various kinds of
financial services.

Function of Commercial Banks

Regarding the function of commercial banks, a commercial bank act state that
a commercial bank is one that exchanges money, accept deposits, grants
loans, and performs commercial banking functions. The functions and services
of modern commercial banks are classified under the following headings.

(I) Accepting Deposits

A commercial bank accepts deposits from customers in the forms of current,

saving and fixed deposits. These deposits are repayable on demand. The
depositors other than current A/c are paid interest.

(ii) Granting Loans and Deposits

The second main function of the commercial bank is to grant loans and
advances to businessman, the industrialist, the individuals, the different
organizations etc. in the forms of term loans, cash credit, overdraft, trust
receipts, hire purchase loans etc. Banks charges interest on such loan and
advances, which is the largest source of total income.

(iii) Agency Service

A modern commercial banks act as an agent of individual's customers,

business institutions and different organization. The agency services of banks
may involve collection of interest and dividends on debt and share capital. A
bank buys and sells securities on behalf of the customers. Bank also collects
cheques, draft promissory notes etc and receives their payments. Sometimes,
it makes payments of insurance premium, bills of electricity, telephone etc. It
takes commission for the services rendered.

(iv) Guarantee on Behalf of Customers

The need of bank guarantee arises in business. Generally, business customers

enjoy this service. Sometimes, personal customers may also need a bank
guarantee.

(v) Issuance of Traveler's Cheque

The people traveling outside the country want to reduce the fear of getting
money stolen during the travel. Bank sells the traveler's cheque. The unique
feature of the traveler's cheque is that unless the purchaser of traveler's
cheque signs for encashment it cannot be encashed.

(vi) Opening Letter of Credit

Today letter of credit has become very popular in foreign business. The letter
of credit is established/opened by the bank on the request of the customers.

(vii) Remittance Function

Sending and receiving fund to / from various places is the necessity of today.
The remittance service of bank has benefited both business and personal
customers. Funds transfers are made through various modes like demand
drafts, telegraphic payment order, swift, fax and mail payment orders.

(viii) Other Services

Modern commercial banks are equally important in undertaking safe custody

of important valuable and documents. Banks also offer some of the bank
services at the door of highly valued customers. Few large banks conduct
research and survey in the economic conditions and they supply trade
statistics and Information In addition to these, banks also inform their
customers about the credit standing of other particles.

Net Interest Margin

Net Interest Margin (NIM) is a financial metric that measures the profitability of a financial
institution's lending activities. It represents the difference between the interest income
generated by a bank or other financial institution and the interest expenses it incurs on its
liabilities, divided by its interest-earning assets. A higher NIM indicates that a bank is earning
more interest income relative to its interest expenses, which is generally favorable for
profitability.

The formula to calculate Net Interest Margin (NIM) is as follows:

NIM = (Interest Income - Interest Expenses) / Average Interest-Earning Assets

NIM is typically expressed as a percentage and is an important indicator of a bank's ability to

generate profit from its core lending operations. NIM is an important financial metric for
evaluating a bank's profitability and efficiency in generating interest income from its lending
activities.

Bank Size
Bank size refers to the measurement of a bank's total assets, which reflects its scale and
magnitude of operations. The size of a bank is typically determined by the value of its assets on
the balance sheet. Banks with larger asset sizes are often considered to be larger in size, while
those with smaller asset sizes are considered smaller in size. Smaller banks, on the other hand,
may have a more localized focus, serving specific communities or niche markets. They may
provide more personalized and specialized services and maintain closer relationships with their
customers. Smaller banks may also be more agile and adaptable, allowing them to quickly
respond to market changes and customer needs.

To determine the size of a bank, you would look at the total assets reported on its balance sheet.
This includes various components such as loans, investments, cash, deposits, and other assets
held by the bank. The higher the total assets value, the larger the bank is considered in terms of
size.

It's important to note that the size of a bank does not necessarily determine its financial stability
or success. Factors such as risk management, regulatory compliance, governance, and the
quality of assets are also crucial in assessing a bank's overall performance and viability.
This executive summary provides an overview of the factors influencing the financial
performance of commercial banks in Nepal, with a focus on Return on Assets (ROA), Return on
Equity (ROE), and Net Interest Margin (NIM) as dependent variables, and Capital Adequacy Ratio
(CAR), Bank Size, GDP, and Inflation as independent variables.

The financial performance of commercial banks is crucial for assessing their profitability,
efficiency, and sustainability. Several factors impact their financial performance in the context of
Nepal.

The Capital Adequacy Ratio (CAR) is a critical determinant of a bank's financial performance.
Higher CAR indicates a bank's ability to absorb potential losses and meet regulatory
requirements. Adequate capitalization enhances financial stability, strengthens confidence, and
supports growth.

Bank Size is another factor influencing financial performance. Larger banks often have a broader
range of products and services, larger customer bases, and more extensive geographical
presence. Economies of scale may enable larger banks to operate more efficiently and
competitively.

Macroeconomic factors such as GDP and inflation rates also significantly influence the financial
performance of commercial banks. Higher GDP growth typically translates into increased lending
opportunities and higher interest income. However, inflation can erode purchasing power and
affect interest rates, impacting banks' profitability and loan portfolios.

Return on Assets (ROA) and Return on Equity (ROE) reflect a bank's profitability and efficiency.
ROA measures a bank's ability to generate profits from its assets, while ROE assesses the return
to shareholders' equity. Higher ROA and ROE indicate better financial performance and value
creation for shareholders.

Net Interest Margin (NIM) is a key indicator of a bank's profitability from its lending activities.
NIM represents the difference between interest income and interest expenses as a percentage
of interest-earning assets. A higher NIM indicates better profitability from interest income.

Understanding and managing these factors are crucial for the financial performance of
commercial banks in Nepal. Policymakers and regulators should focus on maintaining an
enabling environment through supportive policies, robust regulations, and effective supervision.
This includes ensuring adequate capitalization to enhance financial stability, promoting healthy
competition, and monitoring macroeconomic indicators.

Banks should adopt prudent risk management practices to maintain a high-quality loan portfolio
and minimize non-performing loans. Effective credit assessment frameworks, proactive
monitoring, and timely provisioning for potential losses are essential.

Furthermore, banks should strive for operational efficiency to optimize costs and enhance
profitability. Leveraging technology, streamlining processes, and investing in digitalization can
contribute to cost savings, improved customer experiences, and enhanced operational
effectiveness.

Market competition should also be considered. Banks need to differentiate themselves through
innovative products and services, superior customer experiences, and targeted marketing
strategies.

Monitoring and analyzing these factors on an ongoing basis can help banks assess their financial
performance, identify areas for improvement, and make informed decisions to enhance
profitability, stability, and sustainable growth.

In conclusion, factors such as CAR, Bank Size, GDP, and Inflation significantly influence the
financial performance of commercial banks in Nepal. Monitoring and addressing these factors
through effective regulations, risk management practices, operational efficiency, and innovation
are crucial for banks to achieve profitability, enhance shareholder value, and contribute to the
overall economic development of Nepal.