RATIO ANALYSIS OF NABIL BANK LIMITED

A Project Work Proposal

Submitted By:
Sunita Chaudhary
TU Regd. No -7-2-920-310-2018
Group: Account
Danfe Collage
Sinamangal, Kathmandu

Submitted To:
The Faculty of Management
Tribhuvan University
Kathmandu

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
January, 2023

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 CHAPTRI I
NTRODUCTION

1.1 Background of the Study

Profitability means ability to make profit from all the business activities of an
organization, company, firm, or an enterprise. It shows how efficiently the
Management can make profit by using all the resources available in the market.
According to Harward & Upton, “profitability is the ‘the ability of a given investment
to earn a return from its use.” However, the term ‘Profitability’ is not synonymous to
the term ‘Efficiency’. Profitability is an index of efficiency; and is regarded as a
measure of efficiency and management guide to greater efficiency. However,
profitability is an important yardstick for measuring the efficiency, the extent of
profitability cannot be taken as a final proof of efficiency. Sometimes satisfactory
profits can mark inefficiency and conversely, a proper degree of efficiency can be
accompanied by an absence of profit. The net profit figure simply reveals a satisfactory
balance between the values receive and value given. The change in operational
efficiency is merely one of the factors on which profitability of an enterprise largely
depends. Moreover, there are many other factors besides efficiency, which affect the
profitability. (wikipedia.org)

Sometimes, the terms ‘Profit’ and ‘Profitability’ are used interchangeably. But in real
sense, there is a difference between the two. Profit is an absolute term, whereas, the
profitability is a relative concept. However, they are closely related and mutually
interdependent, having distinct roles in business. Profit refers to the total income
earned by the enterprise during the specified period of time, while profitability refers to
the operating efficiency of the enterprise. It is the ability of the enterprise to make
profit on sales. It is the ability of enterprise to get sufficient return on the capital and
employees used in the business operation. As Weston and Brigham rightly notes “to the
financial management profit is the test of efficiency and a measure of control, to the
owners a measure of the worth of their investment, to the creditors the margin of safety,
to the government a measure of taxable capacity and a basis of legislative action and to

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the country profit is an index of economic progress, national income generated and the
rise in the standard of living” while profitability is an outcome of profit. In other
words, no profit drives towards profitability. (wikipedia.org) Firms having same
amount of profit may vary in terms of profitability. That is why R. S. Kul Shrestha has
rightly stated, “Profit in two separate business concern may be identical, yet, many a
times, and it usually happens that their profitability varies when measured in terms of
size of investment”. (wikipedia.org)
A bank is financial institution that accepts deposit from the public and creates credit.
Leading activities can be performed either directly or indirectly through capital
markets. Due to their impotence in the financial stability of a country, banks are highly
regulated in most countries. Most nation have institutionalized a system known as
fractional reserve banking under which bank hold liquid assets equal to only a portion
of their current liabilities. In additional to their regulation intended to ensure liquidity
banks are generally subject to minimum capital requirement based on an international
of set capital standard known as the Basel accords. (wikipedia.org)
The term 'bank' is derived from the Latin word 'bancus', Italian word 'banca' and French word
'banque' all of which mean 'a bench'. At ancient times there used to be some moneylenders who
sat in the bench for keeping, lending and exchanging of money in the market place. Bank is a
financial intermediary accepting deposit and granting loans. In fact, a modern bank performs
variety of function that is difficult to precise and general definition of a bank According to
Prof. Kinly, "A bank is an establishment which makes to individuals such advance of money as
may be required and safely made, and to which individuals entrust money when not required
by them for use. "According to C.R. Crowther, "A bank collects money from those who have it
to spare or who are saving it out of their incomes, and it lends this money to those who require
it". (wikipedia.org)

History of Banking Sector

Banking began with the first prototype banks of merchants of the ancient world, which made
grain loans to farmers and traders who carried goods between cities. This began around 2000
BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders
based in temples made loans and added two important innovations: they accepted deposits and
changed money. Archaeology from this period in ancient China and India also shows evidence
of money lending activity. The origins of modern banking can be traced to medieval and early

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 Renaissance Italy, to the rich cities in the center and north like Florence, Lucca, Siena, Venice
and Genoa. The Bardi and Peruzzi families dominated banking in 14th-century Florence,
establishing branches in many other parts of Europe. One of the most famous Italian banks was
the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397. The earliest known state
deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of banknotes,
emerged in the 17th and 18th centuries. Merchants started to store their gold with the
goldsmiths of London, who possessed private vaults, and charged a fee for that service. In
exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the
quantity and purity of the metal they held as a bailee; these receipts could not be assigned; only
the original depositor could collect the stored goods.

According to the history, it is found that people of our country have been involved in business
and trade since long time ago. Though the production of copper utensils had been started during
the 7th century, business relationship could not be established with India since India was
involved in the production of copper utensil. However, the craft concerned with copper, wood
and metal in our country did attract the Chinese and the Tibetan a lot, thus resulting in the
establishment of business relationship with China and Tibet. In 12th century there was silver coin
called 'Dam'. Later on in 14th century 'TANKADHARI' one is that dealt with the lending money
to the public. Its remain objective was to earn profit, so they used to change high interest rate.
To control interest rate 'TEJARATH ADDA' was established in 19th century. It provides loans to
the people working in government offices on the basis of the security and to public on the
basis of collateral they deposit. It charges only 5% interest rate per annum. It only provides
loans but does not accept deposit.

Nepal bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of modern
banking of the country. Nepal bank marks the beginning of a new era in the history of the
modern banking in Nepal. This was established in 1937 A.D. Nepal Bank Ltd. remained the
only financial institution of the country until the foundation of Nepal Rastra Bank is 1956 A.D.
In 1957 A.D. Industrial Development Bank was established to promote the industrialization in
Nepal, which was later converted into Nepal Industrial Development Corporation (NIDC) in
1959 A.D. Rastriya Banijya Bank, was established in 1965 A.D. as the second commercial
bank of Nepal. As the agriculture is the basic occupation of major Nepalese, the development
of this sector plays in the prime role in the economy. So, separate Agricultural Development
Bank was established in 1968 A.D. This is the first institution in agricultural financing.

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(wikipedia.org)
There are various types of bank working in modern banking system in Nepal. It includes
central, development; commercial, financial, co-operative and Micro Credit (Grameen) banks.
The NRB will classify the institutions into “A”, “B”, “C”, “D” groups on the basis of the
minimum paid-up capital and provide the suitable license to the bank or financial institution.
Group ‘A’ is for commercial bank, ‘B’ for the development bank, ‘C’ for the financial
institution and ‘D’ for the Micro Finance Development Banks. There are 28 commercial banks,
57 development banks, 36 financial companies, 48 micro credit (Grameen) development banks
and 15 saving and credit co-operation (licensed by Nepal Rastra Bank) are established so far in
Nepal. (http://nrb.org.np/)

A Brief Introduction to NABIL Bank Ltd.

NABIL Bank Ltd. is the Nepal’s first ever joint venture bank that initiated its operation
on 12th July 1984. Nepal bank (international) limited Ireland was its joint venture
partner at that time. It also received management support from national bank of
Bangladesh, Dhaka at the time of inauguration. Its authorized capital used to have only
rs.100 million at the starting time. Now it has ascended its capital to Rs.500 million.
With advancement it has 14 branches on a national scale which is the utmost number of
any joint venture bank in Nepal. NABIL bank is distinguished for providing latest
technology with vastly personalized service. Most of its banking activities and services
are done through computers. NABIL provides different services like ATM, credit
cards, tele-banking services, e-banking services, safe deposit locker services. Besides
these services
NABIL is the only bank to maneuver inside the international airport of arrival and
departure of cargoes. NABIL has drawing arrangement with 75 banks in 40 countries
of the world and with the exchange companies and bank as well. The policies of His
Majesty’s Government and Nepal Rastra Bank rule and regulation preside over
NABIL. (http://www.nabilbank.com.np) Among different commercial bank, Nabil
bank is the commercial bank which collects money from general public and invests that
amount to different productive sector. It not accepts deposit and provides loan but also
transfer money from one place to another place or person has an agent. Nabil bank is
the main agent of Western Union Money Transfer. Nabil bank is the expanding its

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 branch according to need, want and market of people or public.
(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 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.

1.2 Statement of the Problem

To operate the business activities generally every company has its own policy in
determining capital structure. Capital structure concept is not taken seriously by the
Nepalese banks. Therefore, optimal capital structure does not exist at all. Among the
listed companies in the stock exchange very few are using the debt capital and contrary to
this some of the companies are ruined by the excess burden of the cost of debt capital.
Some of the business use only equity capital, some use only debt capital and some
combine both equity and debt capital. Therefore, determination of capital structure
largely depends upon the company policy and cost of capital. Most of the companies
make low cost of capital structure. In the initial period of any company, they want to use
only equity capital and do not want to include debt in their capital due to their high
interest charge. To solve such problem the management of the company should beware of
importance of capital structure management. The purpose of this small study is to
analyze, examine and make aware of the importance of the capital structures management
of the commercial banks.
NIBL and NABIL are using short-term debt, long-term debt along with the equity capital.
Some of the main research questions are:

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 1. What are the major factors affecting the management of capital structure in
selected banks?
2. How does the proportion of debt or equity capital affect in selected banks?
3. How does leverage affects the capital structure in selected manufacture
Companies?
4. What are the relationships among financial ratios leverage as well as liquidity
analysis of selected banks?

1.3 Objectives of the Study

The main objective of the study is to analyze financial performance of and solvency
position of this bank through use of different ratios. Other objective of this study are as
following: -
 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 Significance of the study
Generally, the study gives emphasis on the welfare of students while preparing
fieldwork report; they gain knowledge through their own experience enabling them to
deal with problems relating to their studies. The study also intends to let students know
about required information by them. The following 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
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 guideline while preparing a small project
report.
 By analyzing the problem, it provides chances to improve
 It makes the student more creative.

1.5 Research Methodology

Evaluating the profitability ratio of NABIL BANK in a micro level and to highlight the
efforts of the profitability ratio of these banks in the economy at the macro level forms

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 the basic objective of this research.
Research Design
Keeping in mind the objective of the study, descriptive cum 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 the report informative to the reader.

Population and Sample

Among 28 commercial banks, NABIL Bank Limited have been selected for the present
study. Financial statements of latest 5 years (2012/13 to 2016/17) have been taken as
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 define as the data collected
earlier for a purpose other than one currently being pursued. As a researcher I have
scanned lot of sources to get an 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 from according to their homogeneous nature. They are table, graph, mean,
standard deviation ratio and percentage.

1.6 Literature Review

Determinants of bank profitability can be split between those that are internal and
external. Internal determinants of bank profitability can be defined as those factors that
are influenced by the bank’s management decisions and policy objectives.

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Management effects are the results of differences in bank management objectives,
policies, decisions, and actions reflected in differences in bank including profitability.
Management decisions, especially regarding loan portfolio concentration, were an
important contributing factor in bank performance. Researchers frequently attribute
good bank performance to quality management. Management quality is assessed in
terms of senior officers’ awareness and control of the bank’s polices and performance.
Most of the ratios were significantly related to profitability, particularly capital ratios,
interest paid and received, salaries and wages. A number of studies have included that
expense control is the primary determinant of bank profitability. Expense management
offers a major and consistent opportunity for profitability improvement. With the large
size and the 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 staffs and total profits. External determinants of bank profitability are
concerned with those factors which are not influenced by specific bank’s decisions and
policies, but by events outside the influence of the bank. The steps of analysis are as
follows
i) Selection of the information relevant to the decision.
ii) Arrangement or the selected information to highlight the significant
relationship of the financial yardsticks.
iii) Interpretation and drawing of inferences and conclusions.

1.7 Limitation of the Study

This study is conducted in partial fulfillment of the requirement for the BBS 4th year.
So, it possesses some limitation of its own. One of the limitations of the study is; with
regard to tempera coverage of the study to arrive any meaningful conclusions regarding
the trend in the pattern and structure of financing a time service of fairly a long period
are needed. But this study has covered only last five financial year. Other limitations
are as follows:
 Though there are 28 commercial banks, this study covers only one NABIL Bank

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 Ltd.
 Being a student time and resources consentient
 Limited variable has been selected.
 Simple techniques has been used in analysis
 The qualitative factors such as growth and expansions policy of the bank
quality and general economic conditions have not been studied.