A STUDY

ON

PROFIT AND LOSS ANALYSIS OF

EVEREST BANK LIMITED

A FIELD WORK REPORT PROPOSAL

Submitted By:

Binod Panthee
T.U. Regd. No.: 7-2-920-84-2019
Group: Finance
of
Danfe College, Putalisadak, Kathmandu

Submitted To:
Faculty of Management
Tribhuvan University
Kathmandu
In partial fulfillment of the requirements for the degree
Bachelors of Business Studies (BBS)
Kathmandu, Nepal
Date
Contents
INTRODUCTION...................................................................................................2
1.1 Background of Study:.................................................................................2
1.2 Problem Statement.........................................................................................4
1.3 Objectives of the Study..................................................................................5
1.4 Rationale of the Study....................................................................................5
1.5 Report Structure.............................................................................................6
1.6 Limitation of Study........................................................................................6
1.7 Related Literature Review.............................................................................7
1.7.1 Conceptual Review (Introduction).........................................................8
1.7.2 Research Gap............................................................................................9
1.8 Research methodology.................................................................................10
1.8.1 Type of Research (Research Design)....................................................11
1.8.2 Population and Sample..........................................................................11
1.8.3 Types of Data:.........................................................................................11
1.8.4 Data Collection Procedure:...................................................................11
1.8.5 Tools Used:..............................................................................................12
BIBLIOGRAPHY..................................................................................................13
 INTRODUCTION

1.1Background of Study:

Banks are major institutions in financing. Bank involves in a process of collecting scattered
money and to help its mobilization in different sectors according to the need of customers
(Shekher & Shekher, 1999:3). Bank helps to develop saving habit of people, which in turns help
to make other people to invest for their business. Banking loan helps to invest in industrial
sector, commercial sector, production sector, trade & commerce, Bank also helps to develop
international business by initiating as a mediator on export & import. This way banks help to
strengthen the national development (Economic Survey, 2004/05: 3).
Banks are those financial institutions that offer the widest range of financial services especially
credit, saving, payment services and perform the widest range of financial functions of any
business firm if the economy. The most important functions are lending and investing money
(the credit function), making payments of behalf of customers for their purchase of goods and
services (the payments function) managing financial assets and real property for customers (the
cash management, risk and roust functions) and assisting customers if investing funds (through
the brokerage, investment banking and saving functions) (Vaidhya, 1999: 5).

As “business week” noted “banking is essential to modern economy but banks are not” (quoted
in Financial Times,1996). This statement is supported by a recent report from Booz Allen &
Hamilton (Warner, 1996) that claims the Internet poses a very serious threat both to the customer
base of the traditional banking of oligopoly and its profits. Indeed, the online banking has
prompted many banks to rethink their strategies in order to stay competitive. Customers today
are demanding much more than banking services.
Everest Bank Limited (EBL), founded in 1994, the Bank has been one of the leading banks of
the country and has been catering its services to various segments of the society. With clients
from all walks of life, the Bank has helped the nation to develop corporately, agriculturally &
industrially.
Punjab National Bank (PNB), the joint venture partner of EBL (holding 20% equity) is one of
the largest nationalized banks in India having presence virtually in all important centers. Owing
to its performance during the year 2012-13, the Bank earned many laurels & accolades in
recognition to its service & overall performance. PNB was awarded with “IDRBT Banking
Technology Excellence Award” under Customer Management & Intelligence Initiatives. The
Bank also bagged “Golden Peacock Business Excellence Award 2013” by Institute of Directors.
Similarly, the Bank was recognized as ‘Best Public Sector Bank’ by CNBC TV 18. The bank has
now more than 7,000 branches and 8,500 ATMs spread all across India. As a joint-venture
partner, PNB has been providing top management support to EBL under Technical Service
Agreement.
The bank has been conferred with “Bank of the Year 2006, Nepal” by the banker, a publication
of financial times, London. The bank was bestowed with the “NICCI Excellence award” by
Nepal India chamber of commerce for its spectacular performance under finance sector.
It has one of the Largest Network among private sector banks spread across Nepal and all
connected with ABBS. It has representative office in India to facilitate remittance from India. It
facilitates direct drawing arrangement with PNB and HDFC bank India whereby instant payment
is done on presentation of the instrument. It has more than 126 remittance payout location in
Nepal.
Everest Bank Limited (EBL) provides customer-friendly services through its wide Network
connected through ABBS system, which enables customers for operational transactions from any
branches. The bank has 105 Branches, 137 ATM Counters, 31 Revenue Collection Counters and
3 Extension Counters across the country making it a very efficient and accessible bank for its
customers, anytime, anywhere.
Similarly, Indian tourists and businessmen having PNB cards will be able to use EBL ATM,
while in Nepal. EBL is playing a pivotal role in facilitating remittance to and from across globe.
Being the first Nepalese bank to open a representative office in Delhi, India, the Nepalese in
India can open account in Nepal from the designated branches of Punjab National Bank and
remit their saving economically through banking channel of Nepal.

1.2 Problem Statement

Commercial banks on Nepal have been facing various challenges and problems. Some of them
arising due to the economic condition of the country, some of them arising due to confused
policy of government and many of them arising due to default borrowers. After liberalization of
economy, banking sector has various opportunities.

However, the financial institutions are increasing regularly. Liquidity is maximum with the
financial institutions. Hence, the banks and financial institutions are competing among
themselves to advance credit to limited opportunity sectors. Banks and financial institutions are
investing in house loan, hire purchase loan for safety purpose. Lack of good lending
opportunities, banks is facing problems of over liquidity. Nowadays, banks have increasing
number of deposits in fixed and saving accounts but have decreasing trend in lending behaviors.
So, this has caused major problems in commercial banks. Nowadays, due to competition among
banks, the interest rate charge for loan is in decreasing trend. Due to unhealthy competition
among the banks, the recovery of the bank’s credit is going towards negative trends. Non-
Performing credits of the banks are increasing year by year. To control such type of state, the
regulatory body of the banks and financial institutions, NRB has renewed its directives of the
credit loss provision. Therefore, it is necessary to do the ratio analysis to know the current
position of the bank and to make the effective decision accordingly.

The research problems may be stated in the form of following questions: -

a. How is the condition of liquidity of the bank?

b. What is the deposit collection and utilization trend of sample bank?

c. What is the relationship of deposits, loan & advances and net profits of sample bank?
1.3 Objectives of the Study

As mentioned above, since profit is the heart of any organization, more so in the banking sector.
Hence, the purpose of this fieldwork is to analysis the financial position of EBL through the
analysis of profit and loss. Hence, the main objective with which this fieldwork has been carried
out can be listed as follows:

I. To analyze the income and expenses trend of EBL.

II. To analyze the profit and/or loss trend of EBL.

1.4 Rationale of the Study

At present the joint venture banks are gaining a wide popularity through their efficient
management and professional services and playing an eminent role in the economy. Lending is
one of the main functions of commercial banks where the whole banking business if rested upon.
Study on joint venture commercial bank and especially their lending practices; carry a great
significance to shareholders of the bank, to the professionals, to the students who wants to know
about lending practices of commercial banks. This study adds new ideas and findings about the
concerned joint venture banks.

This study no doubt will have importance to various groups but in particular if directed to a
certain group of people/organizations, which are.

i. Important to shareholders.

ii. Important to management bodies of the bank for evaluation of bank’s performance.

iii. Important to outsiders who are mainly customers, finance agencies, stock exchanges etc.

iv. Important to the government bodies or the policy makers such as central bank.
1.5 Report Structure

The study has been organized into five chapters. The titles of each of these chapters are as
follow:

In Introduction chapter, it comprises background of the study, statement of problem, objectives

of the study, rational and report structure.

In Review of literature chapter, it comprises conceptual review, review of previous works and
research gap.

In Research methodology, its deals with the types of research, population and sample, types of
data, data collection procedure, instrument, technique of analysis and limitation.

In Data presentation and analysis, analyses of data deal with different statistical and the financial
tools that are used in the analysis of the data.

In discussion and conclusion, includes the discussion conclusion and implication.

1.6 Limitation of Study

To complete this research, we follow the different books, journals, articles and dissertation.
Thus, reliability of the study is based of those things. This study will not examine the ratio
analysis of all listed commercial banks due to lack of time. The study will see only the ratio
analysis of one commercial bank- Nepal Everest Bank Limited, which is listed in NEPSE. This
study will cover only the past five years period since 2072/73 to 2076/77. To prepare these
reports secondary data are collected from annual general meeting (AGM)’s reports of the listed
banks and trading reports of NEPSE. Primary information is collected from respective office and
related persons. It may not cover the whole qualitative and quantitative analysis of the
commercial banks of time and resource constraints.

The research study has some limitations. The main limitations of the study are as follows:
 1. Though, there has been in operation of many commercial banks in Nepal, only Everest
Bank Limited is taken for the proposed study.

2. The secondary data will be used for presentation and interpretation.

3. This study is only a case study; hence the conclusion drawn from the study does not
ensure wide applicability in all types of enterprise running in different situations.

4. Major portion of analysis and interpretation have been done on the basis of available
secondary data and information. This reliability of the study is based on trueness of
collected data and information.

1.7 Related Literature Review

Literatures are the main sources of information related with the study. The chapter deals with
review of literature react to the working capital of the commercial banks. This chapter has been
divided into two main sections. The first section of the chapter implies with the conceptual
framework of the study which second implies the review of previous studies. Literature reviews
are secondary sources, and do not report new or original experimental work. Most often
associated with academic-oriented literature, such reviews are found in academic journals, and
are not to be confused with book reviews that may also appear in the same publication. Literature
reviews are a basis for research in nearly every academic field. A narrow-scope literature review
may be included as part of a peer-reviewed journal article presenting new research, serving to
situate the current study within the body of the relevant literature and to provide context for the
reader. In such a case, the review usually precedes the methodology and results sections of the
work.

A literature review discusses published information in a particular subject area, and sometimes
information in a particular subject area within a certain time period.

A literature review can be just a simple summary of the sources, but it usually has an
organizational pattern and combines both summary and synthesis. A summary is a recap of the
important information of the source, but a synthesis is a re-organization, or a reshuffling, of that
information. It might give a new interpretation of old material or combine new with old
interpretations. Or it might trace the intellectual progression of the field, including major debates.
And depending on the situation, the literature review may evaluate the sources and advise the
reader on the most pertinent or relevant.

Literature reviews provide you with a handy guide to a particular topic. If you have limited time
to conduct research, literature reviews can give you an overview or act as a stepping stone. For
professionals, they are useful reports that keep them up to date with what is current in the field.
For scholars, the depth and breadth of the literature review emphasizes the credibility of the
writer in his or her field. Literature reviews also provide a solid background for a research
paper’s investigation. Comprehensive knowledge of the literature of the field is essential to most
research papers.

a. Roughly how many sources should you include?

b. What types of sources (books, journal articles, and websites)?

c. Should you summarize, synthesize, or critique your sources by discussing a

common theme or issue?

d. Should you evaluate your sources?

e. Should you provide subheadings and other background information, such as

definitions and/or a history?

1.7.1 Conceptual Review (Introduction)

There is an important role of banks in the economic growth and development of a country. To
achieve an ideal economic growth and development, the banks should have strong and well-
managed organization of banking system. When banking is appropriately organized, it aids and
facilitates the growth of trade and industry and hence of national economy. In the modern
economy, banks are considered not as dealer in money but as the leaders of development. Banks
are not just the storehouse of the country’s wealth but are the reservoirs of necessary for
economic development.

Banking plays a significant role in the economic development of a country. Bank is a resource
for the economic development, which maintains the self-confidence of various sectors of society
and extends credit to the people. So, commercial banks are those financial institutions mainly
dealing with activities of the trade, commerce, industry and agriculture that seed regular financial
and other helps from them for growing and flourishing. The objective of commercial banks is to
mobilize idle resources into the most profitable sectors after collecting them from scattered
sources. Commercial bank contributes significantly in the formation and mobilization of internal
capital and development effort.

Bakar and Tahir (2009) in their paper used multiple linear regression techniques and simulated
neural techniques for prediction bank performance. ROA was used as dependent variables. They
concluded that network method outperforms the multiple linear regression method however it
need clarification on the factor used and they noted that multiple linear regression not
withstanding its limitations can be used as a simple tools to study the linear relationship between
the dependent variable and independent variables.

Varzu (2010) Banks are channels between saving surplus and saving deficit people and thus,
they are the bridge of utilized scatter fund to productive sectors. Hence, they represent a vital
role in the transmission of government economic policies (especially monitory policies) to the
economy. When bank credit is expensive, the investment slows down and unemployment rises.
Bank deposit represents the most significant component of the money supply used by the public.
Commercial banks play an important role for economic development of the country as they
provide capital for the development of industry, trade and business by investing the saving
collected as deposits from public. They render various services to their customers facilitating
their economic and social life.

Neceur (2003) using a sample of ten Tunisian banks from 1980 to 2000 and a panel linear
regression model, reported a strong positive impact of capitalization to ROA. There are number
of studies, which examine the bank performance using CAMEL framework, which is the last
model of financial analysis.

Elyor (2009) and Uzhegova (2010) have used CAMEL model to examine factors affecting bank
profitability with success. The CAMEL framework is the most widely used model (Baral, 2005).
The central bank of Nepal (NRB) has also implemented CAMEL framework for performance
evaluation of the bank and other financial institution. CAMEL stands for capital adequacy, assets
quality, management efficiency, Earnings performance and liquidity. The capital adequacy ratio
is a key a key measure to determine the health of banks and financial institutions.

Among the various reviews of various journals pertaining to the study, the major and most
contributing to the study has been outlined below.

1.7.2 Research Gap

Many research studies have been conducted by the different students, experts and researchers
about accounting procedure and its mobilization. There have been found numerous research
studies on financial companies and public enterprises regarding reports. Some studies are related
to a case study of a single company and some others are comparative in nature. But the study of
accounting procedure and its mobilization of EBL can be hardly found. From the review of
related studies no one studies have been found (accounting procedure and its mobilization) in the
context of EBL. The financial and statistical tools used by most of the researchers were ratio
analysis, test of hypothesis and regression analysis. This research includes different tools like
ratio analysis, correlation analysis and trend analysis as specific tools. This is an implied gap
stated differently. Likewise, having a complete set of literature the researcher can simply form a
gap. Having contradiction in literature the researcher will also form a research problem where
How Entrepreneurial Orientation (EO) affects firm performance? Whether EO affects positively
or negatively? The researcher intends to investigate this because results between EO and firm
performance are inconclusive in nature. When he concludes his study, he may also state there is a
positive, negative or no relationship between EO and firm Research, Research Gap and the
Research Problem performance. Whatever the result he gets, it adds new knowledge to the
existing literature. Likewise, within foreseeable future scholars may also confirm that there is a
positive, negative or no relationship between EO and firm performance. In that state, the research
gap fills. Having a positive, negative or no relationship a new theory can be built. Let’s say, there
is a positive relationship between Entrepreneurial Orientation and Firm Performance.

1.8 Research methodology

Research methodology refers to the various sequential steps that to be adopted by a researcher
during the course of studying a problem with certain objectives. It tends to solve the search
problem in a systematic way. Hence, overall research method methodologies in a greater extent
and also use the descriptive part based on both technical aspect and logical aspect. A
methodology does not set out to provide solutions - it is, therefore, not the same as a method.
Instead, a methodology offers the theoretical underpinning for understanding which method, set
of methods, or best practices can be applied to specific case, for example, to calculate a specific
result.
It has been defined also as follows:

i. "the analysis of the principles of methods, rules, and postulates employed by a

discipline"
ii. "the systematic study of methods that are, can be, or have been applied within a
discipline"
iii. "the study or description of methods"

This research tries to perform a well deigning quantitative quantities research in a very clear and
direct way using both financial and statistical tools.

1.8.1 Type of Research (Research Design)

A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure. The
research design is the conceptual structure within research is conducted. In this study descriptive
research design is used which involves observing and describing the behavior of a subject
without influencing it in any way. A descriptive research studies are those studies which are
concerned with describing the characteristics of a particular individual or of a group. The results
from descriptive research can in no way be used as a definitive answer or to disprove a
hypothesis but, if the limitations are understood, they can still be a useful tool in many areas of
scientific research.

1.8.2 Population and Sample

The term “population” of universe for research means the universe of research study in which the
research is based” (Pant, 2000:75). At present there are 27 commercial banks operating in Nepal
and most of their stocks are traded actively in the stock market. Among the 27 banks; 3 banks
have Government ownership and remaining 24 banks have private ownership. Among them
Everest Bank Limited is chosen as sample for the present study on the basis of good financial
performance.

1.8.3 Types of Data:

The data used in this study are secondary in nature. Published annual reports of the concerned
banks are taken as basic source of data. The data relating to financial performance are directly
obtained from the concerned banks. Similarly, related books, magazines, journals, articles,
reports, bulletins, data from Nepal Stock Exchange and Nepal Rastra Bank, Central Bureau of
statistics, related website from internet etc. as well as other supplementary data and various
economic surveys are also used. Previous related studies to the subject are also counted as source
of information.

1.8.4 Data Collection Procedure:

Since the data have been obtained from secondary sources, after collection of financial
statement, master sheet of financial data has been extracted and tabulated as per the need of this
study. In order to process the data, financial statement and other available information were
reviewed. These data were grouped in different tables and charts according to their nature. Most
of the data have been compiled in one form and processed and interpreted as required.

1.8.5 Tools Used:

Financial as well as the statistical tools are used to make the analysis more convenient, reliable
and authentic. For data analysis, different items from the balance sheet and other statements are
tabulated. Their ratios, percentages, mean, standard deviations, and coefficients of variations are
then calculated and presented in the tables. To study the relationship between two or more
variables, correlation coefficients are also calculated. In order to know about the sources and
applications of the fund, funds flow statement is prepared. Likewise, trend analysis is also used
to know the trend of various ratios. Following are the brief introductions of the financial and
statistical tools used in this study.

The data collected from various sources are analyzed and presented in tables and format in
the research study. To analyze the collected data statistical tools are used. Such tools are:

1. Tabulation

2. Classification

3. Bar Diagram

4. Pie-Chart

1. Tabulation: In the tabulation method all the data are presented in tabulated method. In the
study here is also data are analyzed in tabulated method.
2. Classification: Classification is the process of separating the data of given table. All the report
data are classified and finalized in the following study.
3. Bar Diagram: Bar diagram is the easiest way to presenting the data which has in tabulated and
uniformity in nature. All ta study related data are presenting in bar diagram.
4. Pie-Chart: Pie chart is the way of data presenting where data are in percentage basis. All the
data are presented in the present in percentage basis which is related to the study.

1.8.5.1 Statistical Tools:

Various financial tools mentioned above were used to analyze the profit and loss of Everest Bank
Limited. Likewise, the relationship between different variables related to the study topics were
also drawn out using statistical tools.
1.8.6.2 Financial Tools:
Financial ratios are calculated to ascertain the financial condition of the firm. It is the
relationship between financial variables contained in the financial statements (i.e., balance sheet,
profit and loss account and income statements). It helps the related parties to spot out the
financial strength and weakness of the firm. There are several financial tools, which can be
applied in order to analyze the performance of commercial banks. The financial tools used in this
study are as follows: Liquidity Ratio, Activity Ratio, and Profitability Ratio. Similarly, net
working capital and composition of working capital in terms of cash and bank balance
percentage, loan and advances percentage, government securities percentage and miscellaneous
current assets percentage are also included.

BIBLIOGRAPHY

Baidya, S (2056); "Financial Markets and Institutions", Taleju Prakashan, Kathmandu, Nepal,
First Edition.

Bhattacharya, H (1998); “Banking Strategy, Credit Appraisal and Lending Decisions-A Risk-
Return Framework”, First Edition, Oxford University Press, Delhi.

Nepal Rastra Bank (2058); “Nepal Rastra Bank Regulations”, Nepal Rastra Bank, Baluwatar,
Nepal.
Rose, P. S. (1995); Commercial Bank Management, International Edition

Sharpe, Willium F., Alexander, Gordon J., and Bailey, Jeffrey V. (2000); Investments; Fifth
Edition Prentice Hall of India Pvt Ltd.

Shrestha, S & Amatya, S. (2002); “Statistics and Quantitative Techniques for Business Studies”,
First Edition, Ratna Pustak Bhandar, Kathmandu, Nepal.

Websites:

http://www.everestbankltd.com